The Retail Forex Spot

Part 2 – RULES GOVERNING THE BUSINESS CONDUCT OF MEMBERS REGISTERED WITH THE COMMISSION

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RULE 2-43. FOREX ORDERS.

(a) Requotes

(1) At or before a customer first engages in a forex transaction, a Forex Dealer Member must disclose to the customer its policy for handling orders that are submitted at a price no longer reflected on the Forex Dealer Member’s platform at the time the order reaches it.

(2) The Forex Dealer Member’s policy must be in writing and reviewed and approved by a listed principal that is also an NFA Associate, must be applied to all such customer orders regardless of the direction in which the price changes, and may not result in a customer order being executed at a price worse than that reflected on the platform at the time the order is executed.

(b) Limit Orders.

An executable customer limit order must be executed at the better of the price stated in the order or the price being offered on the trading platform.

(c) Offsetting Transactions

Forex Dealer Members may not carry offsetting positions in a customer account but must offset them on a first-in, first-out basis. At the customer’s request, an FDM may offset same-size transactions even if there are older transactions of a different size but must offset the transaction against the oldest transaction of that size.

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RULE 2-44. FOREX CUSTOMER STATEMENTS

Forex Dealer Members must provide customers with confirmations, daily statements, and monthly statements as provided in this rule.

(a) Confirmations

Written confirmations must be provided to customers within one business day after any activity in the customer’s account, including offsetting transactions, rollovers, deliveries, option exercises, option expirations, trades that have been reversed or adjusted, and monetary adjustments. The confirmations must contain the following information regarding the transaction and the funds in the account:

(1) Transaction date;

(2) Transaction type (e.g., new position, offsetting position, rollover, adjustment);

(3) Currency pair

(4) Buy or sell (if a new or offsetting position);

(5) Size

(6) Price or premium (for new or offsetting positions or price adjustments);

(7) Price or premium change (for price adjustments);

(8) Monetary adjustments (debit or credit);

(9) Net profit or loss for offsetting positions; and

(10) Charges for each transaction (e.g., rollover interest and/or fees).

(b) Daily Statements

Daily statements must show the account equity as of the end of the previous day. The daily statements may be provided electronically as long as they are readily accessible to customers. The daily statements may be combined with the confirmations but, in that event, they may not be provided electronically without the customer’s consent.

(c) Monthly or Quarterly Statements

Monthly statements are required for all accounts that have open positions at the end of the month or changes in the account balance since the prior statement. Quarterly statements are required for all other open accounts. The monthly or quarterly statements must contain the following information regarding the transactions during the reporting period and the funds in the account:

(1) The account equity at the beginning of the reporting period;

(2) All initiating or offsetting transactions, deliveries, option exercises, or option expirations that occurred during the reporting period, with the following information for each: date, currency pair, buy or sell, size, and price or premium (with any price or premium adjustment noted);

(3) All open positions in the account, with the following information for each position: date initiated, currency pair, long or short, size, price or premium at which it was initiated (with any price or premium adjustment noted), and the unrealized profit or loss;

(4) All deposits and withdrawals during the reporting period;

(5) All other monetary adjustments (debits and credits) to the account);

(6) The amount of cash in the account (excluding non-cash collateral and unrealized profits and losses);

(7) A breakdown by type of all fees and charges during the period, including commissions and interest expense or rollover fees; and

(8) The account equity at the end of the reporting period.

(d) Options

For options transactions, Forex Dealer Members must provide the following additional information:

(1) On confirmations and monthly or quarterly statements, strike price and expiration date; and

(2) For open positions on monthly or quarterly statements, the value of the option marked to the market and the amount it is in or out-of-the-money.

(e) Account Equity

Each daily, monthly, or quarterly statement must prominently display the account equity. The account equity is the sum of all realized profits and losses, all unrealized profits and losses, and any other cash and collateral in the account.

(f) Electronic Delivery

Daily statements may be transmitted by electronic means as long as they are readily accessible to customers. Confirmations and monthly summaries may be transmitted by electronic means with the customer’s consent.

(g) Adjustments

For purposes of this Rule, the term “adjustment” means any change to the price or premium of an initiating or offsetting transaction and any debit or credit to the account that has the same effect (monetary adjustment).

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INTERPRETIVE NOTICES

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FOREX TRANSACTIONS

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1. Disclosure – Members must provide forex customers with understandable and timely disclosure on essential features of forex trading.

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Forex Dealer Members should provide both the bid and the offer when the customer enters an order.

Forex Dealer Members should disclose to customers the method used to calculate rollover or interest charges and payments and should disclose any sources that are used in the calculation.

Members should update any material information that has changed prior to entering into new transactions with current customers if failing to update the information would make it misleading.

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10. Discretion – A Forex Dealer Member may not exercise discretionary trading authority over a customer account for which the Forex Dealer Member is, or is offering to be, the counterparty to the transactions in the customer account.

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COMPLIANCE RULE 2-36(e):

SUPERVISION OF THE USE OF ELECTRONIC TRADING SYSTEMS

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Periodic Testing. The FDM should conduct periodic reviews designed to ensure that an electronic trading platform complies with the requirements in this section and otherwise protects the integrity of trades placed on it.

Periodic Reviews and Annual Certification

For electronic order-routing systems, the required reviews may be conducted by an independent internal audit department or a qualified outside party and must be done at least annually. For electronic trading platforms, a qualified outside auditor must conduct an independent annual review that covers the requirements in this Notice. Additional reviews should be performed when needed but may be conducted by an independent internal audit department or a qualified outside party.

The results of these reviews should be documented and reported to the firm’s senior management or to an internal audit committee or department. The Member should follow up to ensure that any deficiencies are addressed and corrected and should document the corrective action taken.