Dodd-Frank Spells End To Niche Form Of Gold Trading
June 22 2011 - 7:56AM
Dow Jones News
A little-known form of gold investing used by some retail
currency traders is disappearing, ahead of tighter regulations
scheduled to go into effect next month.
Forex.com, a large retail foreign-exchange operation, on Friday
told clients it will discontinue its gold and silver
over-the-counter products marketed to retail investors who are U.S.
residents. It asked investors to close their positions by July
15.
"It is our interpretation that we just can't offer it legally"
in response to regulatory provisions in the 2010 Dodd-Frank Act
that kick in after July 15, said Alicia Brown, a spokeswoman for
Gain Capital, the parent company of Forex.com.
The allure of gold as an alternative to paper currencies has
helped propel the precious metal to record highs, alongside a surge
in retail currency trading.
Trading gold and silver over the counter--bypassing a futures
exchange --offered investors a chance to enter a highly
speculative, leveraged market that also left many investors at risk
of fraud, according to one trade group.
"In order to trade, it needs to be done in an exchange, or it
can't be done at all," said Dan Driscoll, a vice president with the
National Futures Association.
The industry group asked Congress for the changes, due to
numerous cases of fraud in such contracts. Doing business with a
futures exchange offers retail investors more protections and
transparency, Driscoll said.
Firms that "continue to offer these run the risk of government
action," he said.
After July 15, commodities transactions between retail investors
that are leveraged and not delivered in 28 days must be conducted
in a "designated contract market," a board of trade or exchange
designated by the CFTC, according to the new rules.
Contracts fully paid for or delivered within 28 days, and
commodity futures contracts trading on an exchange such as the CME
Group Inc.(CME) and others, will not be affected.
Forex.com knew the requirements were scheduled to come into
effect this July, a year after the act passed, and prior to the
letter to clients Friday disclosed its intention to cease the
products in filings, Gain Capital's Brown said
FXCM, another large retail foreign-exchange firm, has not
offered the over-the-counter precious metals investments. There
were clients that "on occasion" would ask for such products, but
ultimately FXCM decided not to offer it, said spokeswoman Jaclyn
Sales.
"Our bread and butter is (foreign-exchange) products," she said.
"We looked into it ... and decided not to move forward"
particularly after the Dodd-Frank Act passed, she said.
-By Claudia Assis, 415-439-6400; AskNewswires@dowjones.com
CME (NASDAQ:CME)
Historical Stock Chart
From May 2024 to Jun 2024
CME (NASDAQ:CME)
Historical Stock Chart
From Jun 2023 to Jun 2024