ACTION: Interim final temporary rule; request for comments.

  
1 
SECURITIES AND EXCHANGE COMMISSION 
 
17 CFR Part 240 
 
Release No. 34-64874; File No. S7-30-11 
 
RIN 3235-AL19 
 
Retail Foreign Exchange Transactions 
 
AGENCY:  Securities and Exchange Commission. 
 
ACTION:  Interim final temporary rule; request for comments. 
 
SUMMARY:  Under section 742(c) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (“Dodd-Frank Act”), certain for eign exchange transactions with persons who are 
not “eligible contract participants”
 (commonly referred to as “retail forex transactions,”  and  as 
further defined below) with a registered broker or dealer (“broker-dealer”) will be prohibited as 
of July 16, 2011, in the absence of the Commission adopting a rule to allow such transactions 
under terms and conditions prescribed by the Commission.  The Commission is adopting interim 
final temporary Rule 15b12-1T to allow a  registered broker-dealer to engage in a retail forex 
business until July 16, 2012, provided that the broker-dealer complies  with the Securities 
Exchange Act of 1934 (“Exchange Act”), the rules and regulations thereunder, and the rules of 
the self-regulatory organization(s) of which the broker-dealer is a member (“SRO rules”), insofar 
as they are applicable to retail forex transactions. 
DATES:  Effective Date:   Rule 15b12-1T  is effective on July 15, 2011 and will remain in effect 
until   July 16, 2012.    
Comment Date:  Comments on the interim final temporary rule should be received on or 
before September 13, 2011. 
ADDRESSES:  Comments may be submitted by any of the following methods: 

  
2 
Electronic comments: 
• Use the Commission’s Internet comment form (http://www.sec.gov/rules/interim-final  -
temp.shtml); or 
• Send an e-mail to rule  [email protected].  Ple   ase include File Number S7-30-11 on the 
subject line; or 
• Use the Federal eRulemaking Portal (
http://www.regulations.gov).  Follow the 
ins tructions for submitting comments. 
Paper Comments: 
• Send paper comments in triplicate to Elizabeth Murphy, Secretary, Securities and 
Exchange Commission, 100 F Street, NE, Washington, DC 20549. 
All submissions should refer to File Number S7-30-11.  This file number should be included on 
the subject line if e-mail is used.  To help the Commission to process and review your comments 
more efficiently, please use only one method.  The Commission will post all comments on its 
website: (
http://www.sec.gov/rules/interim-final  -temp.shtml).  Comments are also available for 
website viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE, 
Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m.  
All comments received will be posted without change; the Commission does not edit personal 
identifying information from submissions.  You should submit only information that you wish to 
make available publicly. 
FOR FURTHER INFORMATION CONTACT:  Jo Anne Swindler, Assistant Director; 
Richard Vorosmarti, Special Counsel; or Angie Le, Special Counsel, at (202) 551-5777, Division 
of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington, 
DC   20549.  

  
3 
SUPPLEMENTARY INFORMATION:  The Commission is adopting new Rule 15b12-1T 
under the Exchange Act as an  interim final temporary rule.  The rule will expire and no longer be 
effective on July 16, 2012.  The Commission is  soliciting comments on all aspects of this interim 
final   temporary rule.  The Commission will carefully consider any comments received and 
intends to take further action if it determines that further action is necessary or appropriate, either 
prior to or following the expiration of the rule.  In making this determination, the Commission 
may   consider a number of alternative approaches with respect to retail forex transactions, 
including proposing new rules for public comment; issuing a final rule amending the    interim 
final temporary rule; issuing a final rule adopting the interim final temporary rule as final; or 
allowing the interim final temporary rule to expire without further action, which would allow the 
statutory prohibition to take effect.    
I. Background   
On July 21, 2010, President Obama signed into law the Dodd-Frank Act.
1
  As amended 
by the Dodd-Frank Act,
2
 the Commodity Exchange Act (“CEA”) provides that a person for 
which there is a Federal regulatory agency,
3
 including a broker-dealer registered under section 
15(b) (except pursuant to paragraph (11) thereof) or 15C of the Exchange Act ,
4
                                                 
1
      Public Law 111–203, 124 Stat. 1376. 
 shall not enter 
into, or offer to enter into, a transaction described in section 2(c)(2)(B)(i)(I) of the CEA with a 
2
      Public Law 111–203, § 742(c)(2) (to be codified at 7 U.S.C. 2(c)(2)(E)). 
3
      7 U.S.C. 2(c)(2)(E)(i), as amended by § 742(c) of the Dodd-Frank Act, defines a “Federal 
regulatory agency” to mean the Commodity Futures Trading Commission (“CFTC”), the 
Securities and Exchange Commission, an appropriate Federal banking agency, the 
National Credit Union Association, and the Farm Credit Administration.   
4
  7 U.S.C. 2(c)(2)(B)(i)(II).   

  
4 
person who is not an “eligible contract participant”
5
 except pursuant to a rule or regulation of a 
Federal regulatory agency allowing the transaction under such terms and conditions as the 
Federal regulatory agency shall prescribe
6
 (“ retail forex rule”).
7
  Transactions described in CEA 
section 2(c)(2)(B)(i)(I) include “an agreement, contract, or transaction in foreign currency that . . 
. is a contract of sale of a commodity for future delivery (or an option on such a contract) or an 
option (other than an option executed or traded on a national securities exchange registered 
pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)).”
8
  A Federal 
regulatory agency’s retail forex rule must treat all agreements, contracts, and transactions in 
foreign currency described in CEA section 2(c)(2)(B)(i)(I) and all agreements, contracts, and 
transactions in foreign currency that are functionally or economically similar to agreements, 
contracts, or transactions described in CEA section 2(c)(2)(B)(i)(I), similarly.
9
                                                 
5
      “Eligible contract participant” (“ECP”) is  defined in CEA section 1a(18), as re-
designated and amended by section 721 of the Dodd-Frank Act.  See Public Law 111-
203, § 721 (amending CEA section 1a).   The CEA’s definition of ECP generally is 
comprised of regulated persons;
 
entities that meet a specified total asset test (e.g., a 
corporation, partnership, proprietorship, organization, trust, or other entity with total 
assets exceeding $10 million)
 
or an alternative monetary test coupled with a non-
monetary component (e.g., an entity with a net worth in excess of $1 million and 
engaging in business-related hedging;
 
or certain employee benefit plans, the investment 
decisions of which are made by one of four enumerated types of regulated entities); and 
certain governmental entities and individuals that meet defined thresholds.  The 
Commission and the CFTC recently have proposed rules under the CEA that further 
define “eligible contract participant” with respect to transactions with major swap 
participants, swap dealers, major security-based swap participants, security-based swap 
dealers, and commodity pools.  See
 Exchange Act Release No. 63452 (Dec. 7, 2010), 75 
FR 80174 (Dec. 21, 2010).  Because transactions that are the subject of this release are 
commonly referred to as “retail forex transactions,” this release uses the term “retail 
customer” to describe persons who are not ECPs.  
  Any retail forex 
6
  7 U.S.C. 2(c)(2)(E)(ii)(I). 
7
  As used in this release, “retail forex rule” refers to any rule proposed or adopted by a 
Federal regulatory agency pursuant to section 742(c)(2) of the Dodd-Frank Act.  
8
  7 U.S.C. 2(c)(2)(B)(i)(I). 
9
  7 U.S.C. 2(c)(2)(E)(iii)(II). 

  
5 
rule also must    prescribe appropriate requirements with respect to disclosure, recordkeeping, 
capital and margin, reporting, business conduct, and documentation, and may include such other 
standards or requirements as the Federal regulatory agency determines to be necessary.
10
This amendment to the CEA takes effect on July 16, 2011, which is 360 days from the 
date of enactment of the Dodd-Frank Act.
  
11
  After that date, for purposes of CEA section 
2(c)(2)(B), broker-dealers for which the Commission is the   “Federal regulatory agency” may not 
engage in off-   exchange retail forex futures and options with a customer except pursuant to a 
retail forex rule issued by the Commission.
12
  Th is prohibition will not apply to (1) forex 
transactions with a customer who qualifies as an ECP, or  (2) transactions that are spot forex 
contracts or forward forex contracts irrespective of whether the customer is an ECP.
13
  However, 
consistent with other Federal regulatory agencies’  retail forex rules, Rule 15b12-1T applies to 
“rolling spot” transactions in foreign currency by broker-dealers.
14
                                                 
10
     7 U.S.C. 2(c)(2)(E)(iii)(I). 
  Th e discussion of the 
11
  See Public Law 111-203, § 754. 
12
  See 7 U.S.C. 2(c)(2)(B)(i)(II) and 7 U.S.C. 2(c)(2)(E)(ii)(I).  On September 10, 2010, the 
CFTC adopted a retail forex rule for persons subject to its jurisdiction.  See Regulation of 
Off-  Exchange Retail Foreign Exchange Transactions and Intermediaries, 75 FR 55410 
(Sept. 10, 2010) (“Final CFTC Retail Forex Rule”).  The CFTC had proposed its rules 
regarding retail forex transactions prior to the enactment of the Dodd-Frank Act.  See
 
Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries
, 
75 FR 3282 (Jan. 20, 2010) (“Proposed CFTC Retail Forex Rule”).  The Federal Deposit 
Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency 
(“OCC”) subsequently proposed similar rules.  See
 Retail Foreign Exchange 
Transactions, 76 FR 28358 (May 17, 2011); Retail Foreign Exchange Transactions, 76 
FR 22633 (Apr. 22, 2011) (“Proposed OCC Retail Forex Rule”).  On July 6, 2011, the 
FDIC adopted final retail forex rules.  See
 Retail Foreign Exchange Transactions, 76 FR 
40779 (July 12, 2011) (“Final FDIC Retail Forex Rule”).   
13
  See 7 U.S.C. 2(c)(2)(C)(i)(I) and 7 U.S.C. 2(c)(2)(C)(i)(II); see also Final    FDIC Retail 
Forex Rule, supra
 note 12; Proposed OCC Retail Forex Rule, supra note 12. 
14
  See Final FDIC Retail Forex Rule, supra note 12 (explaining that its retail forex rule 
applies to rolling spot forex transactions); Proposed OCC Retail Forex Rule, supra note 
12 (stating that rolling spot forex transactions should be regulated as retail forex 

  
6 
definition of “retail forex transaction” below addresses the distinctions between rolling spot 
forex transactions and spot and forward forex contracts.  
Prior to June 2011, the Commission had not been made aware of industry concerns with 
respect to the operation of section 742 of the Dodd-Frank Act in the absence of Commission 
rulemaking.  In  mid-June 2011, however, market participants for the first time brought to the 
attention of Commission staff the possibility that section 742 of the Dodd-Frank Act may have 
serious adverse consequences for certain securities markets in the absence of rulemaking by the 
Commission before the impending effective date of the provision (i.e.
, July 16, 2011).
15
                                                                                                                                                             
transactions); Final CFTC Retail Forex Rule, supra note 12 (stating that the CFTC has the 
authority to fully regulate “look-alike,” leveraged forex contacts, also called off-exchange 
Zelener
 contracts; as discussed below, Zelener contracts are also called rolling spot 
transactions); Proposed CFTC Retail Forex Rule, supra note 12 (“The [CFTC 
Reauthorization Act of 2008] amends the [CEA] to require that certain intermediaries for 
forex futures and options and for look-alike contracts (i.e.
, those at issue in Zelener) 
register in such capacity as the Commission shall determine . . . .”). 
  
Although this correspondence from market participants brought this issue to the attention of 
Commission staff, the Commission understands that this is in fact a wider concern shared by 
several other market participants.  One potential consequence concerns the ability of broker-
dealers to facilitate the settlement of foreign securities transactions for retail customers.  For 
example, a broker-dealer may purchase a foreign currency or exchange a foreign currency for 
U.S. dollars on behalf of a retail customer in connection with the customer’s purchase or sale of 
a security listed on a foreign exchange and denominated in the foreign currency.  In particular, a 
representative of certain market participants informed the staff that section 742 could operate to 
preclude broker-dealers from continuing to engage in certain foreign exchange transactions that 
15
  See Memorandum from P. Georgia Bullitt, Morgan Lewis, on Pershing LLC – Proposed 
Relief regarding transactions in Retail Foreign Exchange to James Brigagliano et al.  
(June 17, 2011) (available at
 http://www.sec.gov/comments/other/other-
initiatives/otherinitiatives-56.pdf) (“Morgan Lewis Memo”). 

  
7 
are inherent in certain of their customers’ securities transactions, and that serve to minimize their 
customers’ risk exposure to changes in foreign currency rates.
16
The Commission further understands that there may be other situations in which broker-
dealers engage in foreign exchange transactions in connection with facilitating the ordinary 
execution, clearance, or settlement of customers’ securities transactions and that   may    warrant 
rulemaking by the Commission in order to avoid market disruption due to the potential 
application of section 742 of the Dodd-Frank Act.  At the same time, the Commission notes that 
media coverage over the past few years has highlighted potentially abusive practices by some 
intermediaries in connection with retail forex transactions.
 
17
  The Commission also notes that 
other regulators have expressed concerns with regard to the retail forex practices of the entities 
that they regulate.
18
In order to provide the Commission with the opportunity to receive comments regarding 
practices in this area and to consider prescribing additional rules to address investor protection 
concerns (e.g., abusive sales practices, volatility and riskiness of the forex market)
  
19
                                                 
16
  See id. 
 as they 
17
  See Gregory Zuckerman, Carrick Mollenkamp & Lingling Wei, Suspicion of Forex 
Gouging Spreads, The Wall Street Journal (Feb. 10, 2011) at A1 (describing allegations 
of overcharging of customers by custody banks in currency trades).   
18
  See, e.g., Press Release, CFTC, CFTC Releases Final Rules Regarding Retail Forex 
Transactions (Aug. 30, 2010) (available at 
http://www.cftc.gov/PressRoom/PressReleases/pr5883-10.html?dbk) (noting that retail 
forex is the largest area of retail fraud that the CFTC oversees); s ee
 also the Financial 
Industry Regulatory Authority’s (“FINRA”) Regulatory Notice 08-66, (Retail Foreign 
Currency Exchange) (November 2008) (“FINRA Forex Notice”) (describing the retail 
forex market as opaque, volatile, and risky). 
19
     In one of its notices to members, FINRA identified several investor protection concerns, 
including, among other things, the following: “[t]he retail customer typically does not 
having pricing information and cannot determine whether the price quoted by the dealer 
is fair”; “the dealer acts as counterparty and establishes the price, which means that the 
dealer has a conflict of interest in the transaction”; “[p]rice comparisons are also 

  
8 
affect the regulatory treatment of retail forex transactions by broker-dealers – while also 
preserving potentially beneficial market practices identified to the Commission only weeks 
before the July 16, 2011 effective date for section 742 of the Dodd-Frank Act – the    Commission 
today is adopting interim final temporary Rule 15b12-1T under the Exchange Act to  enable 
broker-dealers to engage in a retail forex business under the existing regulatory regime for one 
year.  By receiving comments regarding practices in this area, the Commission will be better 
positioned to determine, for example, the scope of retail forex business conducted by broker-
dealers that   may be beneficial and poses limited risk to customers and any aspects of the business 
that may pose substantial undue risks to customers.  The Commission will carefully consider 
comments on what additional rulemaking may be necessary, if any.   
II. Discussion 
The   Commission is adopting interim final temporary Rule 15b12-1T to maintain the 
ability of broker-dealers to engage in a retail forex business during a one-year    period under the 
existing regulatory framework that now applies to broker-dealers providing these services.  The 
Commission solicits comment on each aspect of the rule and the nature and circumstances 
surrounding retail forex business   conducted by broker-dealers.  The Commission intends to 
carefully consider comments received to determine what further regulatory action, if any, would 
be appropriate.  In making this determination, the Commission may consider a number of 
alternatives with respect to retail forex transactions, including proposing new rules for public 
comment; issuing a final rule amending the interim final temporary rule; issuing a final rule 
                                                                                                                                                             
complicated by different compensation structures”; and “[t]he currency market is 
extremely volatile and retail forex customers are exposed to substantial currency risk.”  
See FINRA Forex Notice, supra note 18. 

  
9 
adopting the interim final temporary rule as final; or allowing the interim final temporary rule to 
expire without further action, which would allow the statutory prohibition to take effect.       
A. Rule 15b12-1T(a):  Definitions   
Rule 15b12-1T(a)  sets forth the definitions of terms specific to the interim final 
temporary rule.  Many of the terms (i.e., broker, dealer, person, registered broker or dealer, and 
self  -regulatory organization) have the same meanings as in the Exchange Act.  The term “Act ,” 
as used in the rule, refers to the Exchange Act.
20
The term “retail forex business” is defined as “engaging in one or more retail forex 
transactions with the intent to derive income from those transactions, either directly or 
indirectly.”
  The Commission chose these terms and 
definitions because their meanings are readily understood in the industry.    
21
  This definition mirrors the definition contained in the FDIC’s final retail forex 
rules    and the OCC’s proposed rules.
22
The term “retail forex transaction” is defined as “any account, agreement, contract or 
transaction in foreign currency that is offered or entered into by a broker or dealer with a person 
that is not an eligible contract participant as defined in section 1a(18) of the Commodity 
Exchange Act (7 U.S.C. 1a(18)) and that is: (i) a contract of sale of a commodity for future 
  This term is intended to include retail forex transactions 
that may not generate income to the broker-dealer or a retail forex business that is ultimately not 
profitable.  The Commission chose this definition because it focuses on the intent to engage in a 
series of forex transactions with a business purpose, whether or not the transactions result in 
income or profits.    
                                                 
20
     Exchange Act Rule 15b12-1T(a)(1). 
21
     Exchange Act Rule 15b12-1T(a)(2). 
22
  See Final FDIC Retail Forex Rule, supra note 12; Proposed OCC Retail Forex Rule, 
supra note 12 (each defining “retail forex business”). 

  
10 
delivery or an option on such a contract; (ii) an option, other than an option executed or traded 
on a national securities exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78(f)(a)); or (iii) offered, or entered into, on a leveraged or margined basis, or financed by a 
broker or dealer or any person acting in concert with the broker or dealer  on a similar basis, other 
than: (A) a security that is not a security futures product as defined in section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)); or (B) a contract of sale that: (1) results in actual 
delivery within two days; or (2) creates an enforceable, obligation to deliver between a seller and 
buyer that have the ability to deliver and accept delivery, respectively, in connection with their 
line of business.”
23
  This definition is based on the CEA, incorporates the terms described in 
CEA   sections 2(c)(2)(B) and 2(c)(2)(C),
24
 and is substantially the same as the   definition in the 
FDIC’s final    section 349.2
25
 and the OCC’s proposed section 48.2.
26
First, certain transactions in foreign currency are excluded from the definition of the term 
“retail forex transaction.”  For example, the CEA  expressly excludes “a contract of sale [in 
foreign currency] that . . . results in actual delivery within 2 days.”
  This definition has at least 
two    important features. 
27
  As defined by court 
decisions as well as the retail forex rules of other Federal regulatory agencies, this term refers to 
a “spot” forex transaction, in which one currency is purchased for another, the  transaction is 
settled within two days, and actual delivery occurs as soon as practicable.
28
                                                 
23
     Exchange Act Rule 15b12-1T(a)(3). 
  Similarly, based 
24
     7 U.S.C. 2(c)(2)(B) and 7 U.S.C. 2(c)(2)(C). 
25
  See Final FDIC Retail Forex Rule, supra note 12 (defining “retail forex transaction”). 
26
  See Proposed OCC Retail Forex Rule, supra note 12 (defining “retail forex transaction”). 
27
  See 7 U.S.C. 2(c)(2)(C)(i)(II). 
28
  See generally CFTC v. Int’l Fin. Servs. (New York), Inc., 323 F. Supp. 2d 482, 495 
(S.D.N.Y. 2004) (distinguishing between foreign exchange futures contracts and spot 

  
11 
upon the language in the CEA ,
29
 a  “retail forex transaction” does not include a contract of sale 
that creates an enforceable obligation to deliver between a buyer and seller that have the ability 
to deliver and accept delivery, respectively, in connection with their line of business.
30
  This 
statutory language refers to a retail forex forward contract with a commercial entity that creates 
an enforceable obligation to make or take delivery, provided the commercial counterparty has the 
ability to make delivery and accept delivery in connection with its line of business.
31
                                                                                                                                                             
contracts in foreign exchange, and noting that spot transactions – unlike futures contracts 
– ordinarily call for settlement within two days); see also Bank Brussels Lambert v. 
Intermetals Corp., 779 F. Supp. 741, 748 (S.D.N.Y. 1991) (noting that the spot market is 
essentially the current market rather than the market for future delivery); Final FDIC 
Retail Forex Rule, supra note 12 (explaining that its retail forex rule does not apply to 
spot forex contracts); Proposed OCC Retail Forex Rule, supra note 12 (explaining that its 
retail forex rule does not apply to spot forex contracts); Final CFTC Retail Forex Rule, 
supra
 note 12 (defining “retail forex transaction” as any account, agreement, contract or 
transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the CEA; as discussed above, 
by its terms, CEA section 2(c)(2)(C)(i)(II) excludes what are referred to as spot forex 
transactions). 
  In addition, 
consistent with the approach of other Federal regulatory agencies’ retail forex rules, the 
29
  See 7 U.S.C. 2(c)(2)(C)(i)(II). 
30
     Exchange Act Rule 15b12-1T(a)(3)(iii)(B)(2).    
31
  See generally CFTC v. Int’l Fin. Servs. (New York), Inc., 323 F. Supp. 2d at 495 
(distinguishing between forward contracts in foreign exchange and foreign exchange 
futures contracts); see also William L. Stein, The Exchange-Trading Requirement of the 
Commodity Exchange Act, 41 Vand. L. Rev. 473, 491 (1988).  In contrast to forward 
contracts, futures contracts generally include several or all of the following 
characteristics: (i) standardized nonnegotiable terms (other than price and quantity); (ii) 
parties are required to deposit initial margin to secure their obligations under the contract; 
(iii) parties are obligated and entitled to pay or receive variation margin in the amount of 
gain or loss on the position periodically over the period the contract is outstanding; (iv) 
purchasers and sellers are permitted to close out their positions by selling or purchasing 
offsetting contracts; and (v) settlement may be provided for by either (a) cash payment 
through a clearing entity that acts as the counterparty to both sides of the contract without 
delivery of the underlying commodity; or (b) physical delivery of the underlying 
commodity.  See
 Edward F. Greene et al., U.S.    Regulation of International Securities and 
Derivatives Markets § 14.08[2] (8th ed. 2006).  See also Final FDIC Retail Forex Rule, 
supra note 12; Proposed OCC Retail Forex Rule, supra note 12 (each explaining that their 
retail forex rule would not apply to forex forward contracts). 

  
12 
definition does not include forex transactions executed or traded on an exchange or designated 
contract market.
32
Second, a “rolling spot” forex transaction (also   known as a Zelener contract),
 
33
 including 
without limitation such a transaction traded on the Internet, through a mobile phone, or on an 
electronic platform, falls within the  definition of “retail forex transaction,”
34
                                                 
32
  See Final CFTC Retail Forex Rule, supra note 12; Final FDIC Retail Forex Rule, supra 
note 12; Proposed OCC Retail Forex Rule, supra note 12. 
 and thus is not 
excluded from the definition as a “spot” transaction.  This interpretation is consistent with the 
approach of other Federal regulatory agencies acting pursuant to section 742 of the Dodd-Frank 
Act to treat all agreements, contracts, and transactions in foreign currency described in CEA 
section 2(c)(2)(B)(i)(I) and all agreements, contracts, and transactions in foreign currency that 
are functionally or economically similar to agreements, contracts, or transactions described in 
33
  See CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004); see also CFTC v. Erskine, 512 F.3d 
309 (6th Cir. 2008) (discussing Zelener
 contracts). 
34
  CEA   section 2(c)(2)(E)(ii) refers to agreements, contracts, or transactions described in 
CEA   section 2(c)(2)(B)(i)(I) (which is incorporated into subparts (i) and (ii) of the 
Commission’s definition of “retail forex transaction”).  In addition, CEA section 
2(c)(2)(E)(iii)(II) requires the Commission to treat similarly all agreements, contracts, 
and transactions in foreign currency described in CEA section 2(c)(2)(B)(i)(I) and all 
agreements, contracts, and transactions that are functionally or economically similar to 
agreements, contracts, or transactions described in CEA section 2(c)(2)(B)(i)(I).  The 
Commission preliminarily believes that agreements, contracts, and transactions described 
in CEA section 2(c)(2)(C)(i) (including rolling spot forex transactions) are functionally or 
economically similar to agreements, contracts, or transactions described in CEA section 
2(c)(2)(B)(i)(I).  Therefore, the Commission is defining “retail forex transaction” to 
encompass the types of agreements, contracts, and transactions described in CEA section 
2(c)(2)(C)(i), such as rolling spot forex transactions, and is reflected in subpart (iii) of the 
Commission’s definition.  See
 also Final FDIC Retail Forex Rule, supra note 12; 
Proposed OCC Retail Forex Rule, supra
 note 12 (both concluding that rolling spot forex 
transactions are more like futures than spot contracts).  Some courts have held these 
contracts to be spot contracts in form.  See
, e.g., CFTC v. Erskine, 512 F.3d 309, 326 (6th 
Cir. 2008); CFTC v. Zelener, 373 F.3d 861, 869 (7th Cir. 2004). 

  
13 
CEA   section 2(c)(2)(B)(i)(I), similarly.
35
  Like   a spot forex transaction, a rolling spot forex 
transaction with a retail customer may initially require deliv  ery of currency within two days.  In 
practice, however, contracts with a retail customer for a rolling spot forex transaction may be 
indefinitely renewed every other day, and no currency is actually delivered until one party 
affirmatively closes out the position.
36
B. Rule 15b12-1T(b):  Broker-dealers Engaged in a Retail Forex Business   
  The  Commission preliminarily believes that a contract 
with a retail customer for a rolling spot forex transaction is economically more similar to a retail 
forex future, as described in CEA section 2(c)(2)(B)(i)(I), than    a spot forex contract.  
Rule 15b12-1T(b) allows any registered broker or dealer to engage in a retail forex 
business provided that such broker or dealer complies with the Exchange Act, the rules and 
regulations thereunder, and the SRO rules, including, but not limited to, the disclosure, 
recordkeeping (or documentation), capital and margin, reporting, and business conduct 
requirements, insofar as they are  applicable to retail forex transactions.  In order for broker-
dealers to engage in retail forex transactions after July 16, 2011, the Commission must adopt 
rules prescribing appropriate requirements with respect to disclosure, recordkeeping, capital and 
margin, reporting, business conduct, documentation,
37
 and such other standards or requirements 
that the Commission determines to be necessary.
38
                                                 
35
  7 U.S.C. 2(c)(2)(E)(iii)(II); see also Final    FDIC Retail Forex Rule, supra note    12; 
Proposed OCC Retail Forex Rule, supra
 note 12. 
  Because broker-dealers engaging  in a retail 
36
     For example, in Zelener, the retail forex dealer retained the right, at the date of delivery 
of the currency, to deliver the currency, roll the transaction over, or offset all or a portion 
of the transaction with another open position held by its customer.  See
 CFTC v. Zelener, 
373 F.3d 861, 868 (7th Cir. 2004). 
37
     The Commission considers the documentation requirements as a subset of recordkeeping 
requirements.  To avoid confusion, the Commission will refer to these requirements 
collectively as recordkeeping requirements.  
38
  See Public Law 111-203, § 742(c)(2) (amending CEA section 2(c)(2)). 

  
14 
forex business are already subject to numerous regulatory requirements with respect to this 
business under the Exchange Act, the rules and regulations thereunder, and SRO rules, the 
Commission does not intend to create any new obligations under this interim final temporary rule 
for broker-dealers that are engaged in a retail forex business.  The Commission provides below 
illustrative examples of obligations, including certain SRO requirements, applicable to broker-
dealers’ retail forex transactions.
39
Disclosure Requirements 
   
Broker-dealers that engage in  a retail forex business must comply with the disclosure 
requirements in NASD Rule 2210.
40
  NASD Rule 2210 requires all communications with the 
public by members of FINRA – including forex-related communications – to be based on 
principles of fair dealing and good faith, to be fair and balanced, and to provide a sound basis for 
evaluating the facts regarding the market generally and a customer’s specific transaction.
41
                                                 
39
     In this connection, the Commission notes that in the FINRA Forex Notice, FINRA 
described specific FINRA rules that apply to retail forex activities of broker-dealers, 
which are referenced below.  See
 FINRA Forex Notice, supra note 18. 
  
NASD Rule 2210 further prohibits broker-dealers from making “any false, exaggerated, 
unwarranted or misleading statement or claim in any communication with the public.”  As stated 
in the   FINRA Forex Notice, a broker-dealer’s communications with the public “must adequately 
disclose the risks associated with forex trading, including the risks of highly leveraged trading,” 
and a broker-dealer “must also make sure that [its] communications with the public are not 
misleading regarding, among other things: [t]he likelihood of profits or the risks of forex trading, 
including leveraged trading; [t]he firm’s role in or compensation from the trade; [t]he firm’s or 
the customer’s access to the interbank currency market; or [t]he performance or accuracy of 
40
  See id. 
41
  See id. 

  
15 
electronic trading platforms or software sold or licensed by or through the firm to customers in 
connection with forex trading, including falsely advertising claims regarding slippage rates.”
42
Further, FINRA stated in its regulatory notice to members that FINRA Rule 2010 
(formerly NASD Rule 2110), which requires broker-dealers, in the conduct of their business, to 
observe high standards of commercial honor and just and equitable principles of trade, applies to 
all of a broker-dealer’s business, including its retail forex business.
  
43
  FINRA stated, for 
example, that to comply with FINRA Rule 2010, a member firm must adequately disclose to its 
retail customers that   the firm is acting as a counterparty to a transaction, the risks associated with 
forex trading, and the risks and terms of leveraged trading.
44
Recordkeeping Requirements 
 
Exchange Act Rules 17a-3 and 17a-4 require a broker-dealer to make, keep current, and 
preserve records regarding its business.  For example, Exchange Act Rules 17a-3(a)(2) and 17a-
3(a)(11) require a broker-dealer to make and keep current a general ledger, which provides 
details relating to all assets, liabilities, and nominal accounts.  
A broker-dealer is also required to preserve, for a period of not less than three years, 
originals of all communications received and copies of all communications (and any approvals 
thereof) sent by the broker-dealer relating to its business as such, including all communications 
that are subject to SRO rules regarding communications with the public.
45
                                                 
42
  Id. 
  As discussed above, 
43
     Id.  
44
  Id. 
45
  Exchange Act Rule 17a-4(b)(4).  See Exchange Act Release No. 44992 (Oct. 26, 2001), 
66 FR 55818 (Nov. 23, 2001).   

  
16 
communications with the public regarding retail forex are subject to NASD Rule 2210.
46
Another example of recordkeeping requirements applicable to retail forex transactions 
derives from the Bank Secrecy Act (“BSA”), as amended by the USA PATRIOT Act and 
implemented under rules promulgated by the U.S. Treasury Department’s Financial Crimes 
Enforcement Network (“FinCEN”), which requires broker-dealers to make, keep, retain, and 
report certain records that have a high degree of usefulness for the purposes of criminal, tax, or 
regulatory matters.
  In 
addition, Exchange Act Rule 17a-4(b)(7) requires a broker-dealer to preserve, for a period of not 
less than three years, all written agreements (or copies thereof) entered into by  the broker-dealer 
relating to its business as such, including agreements with respect to any account.  Accordingly, 
broker-dealers must preserve, for a period of not less than three years, originals of all 
communications received and copies of all communications (and any approvals thereof) sent by 
the broker-dealer and any written agreements with respect to retail forex transactions.  
47
  Exchange Act Rule 17a-8 requires broker-dealers to comply with the 
reporting, recordkeeping, and record retention requirements of the BSA’s implementing 
regulations.
48
                                                 
46
  See supra note 40 and accompanying text regarding NASD Rule 2210 (communications 
with the public). 
   
47
  See 31 C.F.R. Chapter X (formerly 31 C.F.R. Part 103); see also 67 FR 44048 (July 1, 
2002) (amendments to BSA regulations requiring that a broker-dealer report suspicious 
transactions).   
48
  See Exchange Act Release No. 18321 (Dec. 10, 1981); 46 FR 61454 (Dec. 17, 1981); see 
also
 FINRA Rule 3310 (formerly NASD Rule 3011) (requiring FINRA member firms to 
establish and implement policies and procedures that can be reasonably expected to 
detect and cause the reporting of suspicious transactions).  As FINRA noted, “FINRA 
member firms engaging in retail forex activities should ensure their Anti-Money 
Laundering Program addresses the risks associated with the business and includes 
procedures for monitoring, detecting, and reporting suspicious transactions associated 
with their retail forex activities.”  FINRA Forex Notice, supra note 18. 

  
17 
Net Capital and Margin Requirements 
Each  broker-dealer must comply with Exchange Act Rule 15c3-1, which prescribes 
minimum regulatory net capital requirements for broker-dealers and is applicable to all business 
activities of the broker-dealer, including forex.  The Commission notes that, under Exchange Act 
Rule 15c3-1, any uncollateralized current exposure by a broker-dealer to retail forex transactions 
must be deducted when computing the firm’s net capital.  The provisions of the net capital rule 
dealing with contractual commitment charges under Rule 15c3-1(c)(2)(viii) also apply to 
commitments with respect to foreign currency.  Further, pursuant to Exchange Act section 7, 
broker-dealer margin requirements are generally set according to Regulation T
49
 and SRO 
margin rules.
50
Reporting Requirements 
   
A broker-dealer is  required to file with the Commission periodic financial and operational 
reports (i .e., FOCUS Reports), as prescribed in Exchange Act Rule 17a-5, that include relevant 
information regarding the broker-dealer, including information regarding its retail forex business, 
                                                 
49
     12 C.F.R. Part 220. 
50
     In 2009, FINRA solicited comment on proposed FINRA Rule 2380 to establish a 
leverage limitation for retail forex.  Specifically, proposed FINRA Rule 2380, as 
modified by Amendment No. 2, would prohibit any member firm from permitting a 
customer to: (1) initiate any forex position with a leverage ratio of greater than 4 to 1; and 
(2) withdraw money from an open forex position that would cause the leverage ratio for 
such position to be greater than 4 to 1.  In addition, it would exempt from the proposed 
lever  age limitation any security as defined in Exchange Act section 3(a)(10).  See
 FINRA 
Regulatory Notice 09-06 (Retail Forex) (January 2009).  FINRA filed Amendment No. 1 
to the proposed rule change on August 27, 2009.  See
 Letter from Gary L. Goldsholle, 
Vic  e President and Associate General Counsel, FINRA, to Elizabeth M. Murphy, 
Secretary, Commission (Aug. 27, 2009).  On November 12, 2009, FINRA filed 
Amendment No. 2 to the proposed rule.  Amendment No. 2 replaced and superseded 
Amendment No. 1 in its entirety.   The proposed rule change, as modified by Amendment 
No. 2, was published for comment in the Federal Register on December 8, 2009.  
Exchange Act Release No. 61090 (Dec. 1, 2009), 74 FR 64776 (Dec. 8, 2009). 

  
18 
if any.  In addition, FINRA has advised its member firms that a broker-dealer’s expansion of its 
business to include retail forex transactions cons titutes a material change in business operations 
pursuant to NASD Rule 1017(a), and broker-dealers must first apply for and receive approval 
from FINRA to conduct this activity.
51
  Additionally, as discussed above, Exchange Act Rule 
17a-8 requires broker-dealers to report to FinCEN certain enumerated types of transactions, 
including suspicious transactions in foreign currencies and foreign currency futures and 
options.
52
Business Conduct Requirements 
 
In the course of complying with certain Exchange Act requirements, rules and regulations 
thereunder, and SRO rules relating to business conduct, broker-dealers must address their retail 
forex business.  For example, as discussed above, FINRA Rule 2010 (formerly NASD Rule 
2110), which requires broker-dealers, in the conduct of their business, to observe high standards 
of commercial honor and just and equitable principles of trade, applies to all of a broker-dealer’s 
business, including its retail forex business.
53
                                                 
51
  See FINRA Forex Notice, supra note 18 (emphasizing that a broker-dealer’s expansion of 
business into retail forex constitutes a material change in business operations under 
NASD rules). 
  FINRA has noted that the following examples of 
conduct in relation to a retail forex business are prohibited under FINRA Rule 2010, including: 
misappropriating or mishandling customer funds; using, selling, or leasing electronic trading 
platforms that allow “slippage” of trade executions in a manner that disproportionately or 
unfairly affects the customer; manipulating or displaying false quotes; offering mock, or 
“demonstration,” accounts that do not accurately reflect the risks of forex trading; making post-
execution price adjustments that are inappropriate and unfavorable to the customer; soliciting 
52
  See supra note 48 and accompanying text. 
53
  See FINRA Forex Notice, supra note 18. 

  
19 
business for and introducing customers to a forex dealer without conducting adequate due 
diligence on the forex dealer, or in a way that misleads the customer about the forex dealer or 
forex trading, including how customer funds will be held; failing to conduct due diligence on any 
solicitors that introduce forex customers to the broker-dealer; and a ccepting forex-related trades 
from   an entity or individual that solicits retail forex business on behalf of the firm in a 
misleading or deceptive way.
54
Broker-dealers also need to address retail forex transactions in connection with the 
customer reserve bank account requirements under Exchange Act Rule 15c3-3.  In calculating 
what amount, if any, a broker-dealer must deposit on behalf of its customers in a reserve bank 
account pursuant to Exchange Act Rule 15c3-3(e), the broker-dealer must use the formula set 
forth in Exchange Act Rule 15c3-3a.  Specifically, the Commission staff has interpreted 
Exchange Act Rule 15c3-3 to require that the broker-dealer must include the net balance due to 
customers in non-regulated commodity accounts, reduced by any deposits of cash or securities 
with any clearing organization or clearing broker in connection with the open contracts in such 
accounts.
 
55
Furthermore, Exchange Act section 15(b)(4)(E) authorizes the Commission to impose 
sanctions against a broker-dealer for failing reasonably to supervise another person subject to the 
firm’s supervision who committed a violation of specified laws, including the CEA, unless the 
broker-dealer established procedures, and a system for applying such procedures, that would 
    
                                                 
54
  See id. 
55
  See Division of Market Regulation’s Interpretations of Rule 15c3-3 under the Securities 
Exchange Act of 1934, Exchange Act Release No. 9922 (Jan. 2, 1973); see
 also FINRA 
Forex Notice, supra note 18 (stating that the requirement in Exchange Act Rule 15c3-3 
applies to forex transactions). 

  
20 
reasonably be expected to prevent and detect, insofar as practicable, the violation of law.
56
                                     *                    *                    * 
  Thus, 
broker-dealers engaged in a retail forex business should include in their policies and procedures 
mechanisms to prevent and detect potential violations of applicable laws and regulations in 
connection with that business.    
The examples provided above are not inclusive of all regulatory requirements 
administered by the Commission that are implicated by retail forex business conducted by 
broker-dealers.  By providing these examples, the Commission does not intend to suggest that 
other provisions, rules and regulations, including antifraud provisions and SRO rules, may not 
apply to retail forex business.  At the same time, this interim final temporary rule is not intended 
to impose new regulatory obligations for broker-dealers, in connection with such business.    
C. Rule 15b12-1T(c):  Broker-dealers Deemed to be Acting Pursuant to a 
Commission Rule  
 
Rule 15b12-1T(c) provides that any registered broker or dealer that engages in a retail 
forex business in compliance with paragraph (b) of this rule on or after the effective date of this 
rule will be deemed, until July 16, 2012, to be acting pursuant to rule or regulation described in 
CEA   section 2(c)(2)(E)(ii)(I), as amended by section 742 of the Dodd-Frank Act.  This rule will 
allow broker-dealers that engage in a  retail forex business to do so until July 16, 2012, subject to 
compliance with existing applicable requirements. 
Rule 15b12-1T(c) applies to broker-dealers that    prior to the effective date of the rule had 
entered into retail forex transactions that continue after the effective date.  The rule also applies 
to broker-dealers that begin after the rule’s effective date to engage in retail forex transactions.  
As   the Commission explained above, FINRA has advised its member firms that a broker-dealer 
                                                 
56
  See 15 U.S.C. 78o(b)(4)(E). 

  
21 
that expands into a retail forex business must first apply for and receive approval to conduct this 
activity, as a change in business operations pursuant to NASD Rule 1017(a).
57
D. Rule 15b12-1T(d):  Expiration 
 
Rule 15b12-1T(d) provides that the rule will expire and no longer be effective on July 16, 
2012.  The Commission believes that the sunset date is appropriate because it will allow the 
existing regulatory framework for a retail forex business to continue for a defined period and 
thereby give    the Commission sufficient time to determine what further appropriate steps, if any, 
to take with respect to a retail forex business.   
III. Request for Comment  
The Commission is requesting comments from all members of the public regarding all 
aspects of the interim final temporary rule and the current market practices involving retail forex 
transactions, as well as any investor protection or other concerns that should be addressed by 
Commission rulemaking.  The Commission particularly requests comments from the point of 
view of broker-dealers th at are presently engaged in a retail forex business, broker-dealers that 
plan to engage in such a business, customers that use retail forex transactions, and ECPs.  
Together with continued discussions with market participants and other regulators, the 
Commission considers this rulemaking to be an important avenue for gathering more information 
from affected parties about the current scope and nature of retail forex transactions.  Such 
information will inform the Commission’s thoughtful review of the appropriate regulatory 
framework for retail forex transactions before or beyond the expiration of the interim final rule.  
The  Commission also seeks comment on the particular questions below, which have been 
designed to elicit a robust discussion of the uses and reasons for such transactions as they occur 
                                                 
57
  See FINRA Forex Notice, supra note 18.         

  
22 
today, as well as the potential need for additional regulation.  The Commission will carefully 
consider all comments received, and will benefit especially from detailed comments and 
comments responding to other commentary in the public file for this rulemaking.   
Interim Final Temporary Rule 
1. Should the Commission clarify or modify any of the definitions included in Rule 
15b12-1T?  If so, which definitions and what specific modifications are appropriate 
or necessary?   
2. Are the requirements in Rule 15b12-1T  sufficiently clear?  Is additional guidance 
from the Commission necessary?  
3. Rule 15b12-1T is an interim final temporary rule that is set to expire on July 16, 
2012.  Should the Commission extend the expiration date of the rule and if so, for 
how long?    
Possible Permanent Rule Regulating a Retail Forex Business 
4. Should the Commission propose new rules relating to the retail forex business 
operated by broker-dealers for public comment, issue a final rule amending the 
interim final temporary rule, issue a final rule adopting the interim final temporary 
rule as final, or allow the interim final temporary rule to expire without further action, 
which would allow the statutory prohibition to take effect?   If further rulemaking is 
appropriate, what should those rules provide?   
5. Should the Commission prohibit a broker-dealer from engaging in retail forex 
transactions altogether?  Alternatively, should the Commission prohibit a broker-
dealer from engaging in retail forex transactions other than forex transactions 
engaged in solely (1) to effect the purchase or sale of a foreign security or in order to 

  
23 
clear or settle such purchase or sale, or (2) to facilitate distribution to customers of 
monies or securities received through corporate actions (e.g., coupons, dividends, 
class action settlements, and rights offerings) with respect to foreign securities?  
Should the Commission permit other retail forex transactions that otherwise facilitate 
customers’ securities transactions and minimize risk exposure to customers from 
changes in foreign currency rates?  Do investors have adequate recourse against 
broker-dealers for any misconduct related to retail forex transactions?  Would retail 
forex customers be harmed if broker-dealers were unable to provide them with certain 
forex   -related services?  Which services?  What benefits might retail forex customers 
receive in connection with forex-related services offered by broker-dealers, as 
compared to other intermediaries?  Would the benefits outweigh potential harm? 
6. Should the Commission adopt rules modeled on the Final CFTC Retail Forex Rule, 
the  Final    FDIC Retail Forex Rule, or the Proposed OCC Retail Forex Rule?  If so, 
which aspects of those rules should the Commission consider adopting?  What would 
be the associated costs and benefits? 
7. Should the Commission adopt final permanent rules governing retail forex 
transactions?  If so, what should those rules address?   
8. Are there any requirements or prohibitions not covered in the Final CFTC Retail 
Forex Rule, the Final FDIC Retail Forex Rule, or the Proposed OCC Retail Forex 
Rule that the Commission should address?  Do existing Exchange Act provisions, 
rules and regulations thereunder, and SRO rules governing broker-dealers 
appropriately protect retail forex customers of broker-dealers?  Should the 

  
24 
Commission consider rulemaking to address any concerns that are not adequately 
addressed under the current regulatory framework? 
9. What distinctive characteristics of retail forex transactions should the Commission 
take into consideration if it were to engage in further rulemaking relating to such 
transactions?  Are there certain types of retail forex transactions (e.g., rolling spot 
transactions) that warrant Commission rulemaking to address specific disclosure and 
other investor protection concerns?
58
Business Practices of Broker-dealers Engaged in Retail Forex Transactions 
 
10. What is the extent of the retail forex business currently conducted by broker-dealers?  
Does the retail forex business currently conducted by broker-dealers consist solely or 
primarily of forex transactions to facilitate customers’ securities transactions and 
minimize risk exposure to customers from changes in foreign currency rates?  In 
general, what proportion of the retail forex business currently conducted by broker-
dealers do such transactions account for?  Please provide as comprehensive of a 
description as possible of the retail forex activities of broker-dealers. 
11. For what other reasons do broker-dealers engage in retail forex transactions and what 
proportion of the retail forex business currently conducted by broker-dealers do such 
transactions account for?   What benefits do these transactions provide to customers?  
What risks do customers face by engaging in such transactions?    
12. Prov  ide estimates of the absolute size of the retail forex business (in both dollar 
amounts and numbers of transactions) conducted by the  broker-dealer.  What does 
                                                 
58
  See, e.g., Gregory Zuckerman, Carrick Mollenkamp & Lingling Wei, Suspicion of Forex 
Gouging Spreads, The Wall Street Journal (Feb. 10, 2011) at A1 (describing allegations 
of overcharging of customers by custody banks in currency trades).   

  
25 
this business represent as an estimated percent of the broker-dealer’s total business?  
As a n es timated percent of its total forex business? 
13. What is the estimated absolute size of the retail forex business (in both dollar amounts 
and numbers of transactions) conducted by broker-dealers overall?  What does this 
business represent as a percent of their total business?  As a percent of their total 
forex business? 
14. What types of customers engage in retail forex transactions, including rolling spot 
forex transactions?   
15. Is the    existing regulatory framework for retail forex business as currently conducted 
by broker-dealers consistent with the protection of investors, the maintenance of fair, 
orderly, and efficient markets, and the facilitation of capital formation?   
16. What disclosures do broker-dealers provide to their customers regarding forex 
transactions that are conducted to facilitate settlement of securities transactions?  
What disclosures do broker-dealers provide to customers regarding forex transactions 
that are conducted for other purposes (e.g., at the customer’s request to hedge against 
currency exchange risk exposure associated with securities transactions, or to engage 
in speculative activity)?    Do   broker-dealers adequately and fully disclose the risks 
associated with forex trading?  Do broker-dealers provide information to customers 
regarding pricing of forex transactions (e.g., pricing methodology, exchange rates for 
foreign currencies, how the price was calculated)?  If so, is this information provided 
in advance of or following the forex transactions?   
17. On what basis do broker-dealers price retail forex transactions?  For example, do 
broker-dealers use the end-of-  day currency exchange rate or some other benchmark?  

  
26 
Do broker-dealers maintain policies and procedures that govern how forex 
transactions are handled and priced for retail forex customers?  If broker-dealers do 
not provide pricing information to retail customers, what documentation does the 
broker-dealer maintain to demonstrate the price provided in retail forex transactions? 
18. Are transaction-time records for retail forex transactions currently created and 
provided to retail customers?  If not, what would be the cost to create transaction-time 
records for retail forex transactions?  What would be the cost to report to customers 
the transaction time and/or the source or basis for the currency exchange rate 
provided on retail forex transactions? 
19. For   broker-dealers that provide custody services to retail customers, please describe 
any retail forex business conducted with respect to these custody services.  What 
disclosures are provided to retail customers in connection with custody services?  
What pricing information is provided to retail customers in connection with forex 
transactions conducted in relation to custody services (e.g., pricing methodology, 
exchange rates for foreign currencies, how the price was calculated)?  If pricing 
information is provided, is this information provided in advance of or following the 
forex transactions?  On what basis do broker-dealers price retail forex transactions 
conducted in connection with custody services?  Do broker-dealers maintain policies 
and procedures that govern how forex transactions are handled and priced in 
connection with custody services for retail forex customers?  If broker-dealers do not 
provide pricing information to retail customers in connection with their custody 
business, what documentation do broker-dealers maintain to demonstrate to 
examiners the price provided in retail forex transactions? 

  
27 
20. Do broker-dealers provide retail customers alternatives for obtaining prevailing prices 
on retail forex transactions?  For example, do broker-dealers inform customers that 
the customer can choose whether the broker-dealers will handle retail forex 
transactions at rates set under a “standing instruction” (i.e., non-negotiated trades, 
where a customer provides the broker-dealer discretion with respect to handling the 
forex transaction) or as a negotiated trade?  Where a broker-dealer provides a 
“standing instruction” process for customers, what methods are used to determine the 
appropriate exchange rate?  Do retail customers receive the interbank rate or some 
other rate?   
21. What conflicts of interest exist in connection with broker-dealers handling and 
pricing of retail forex transactions?  How do broker-dealers manage these conflicts of 
interest?  Do broker-dealers disclose when they are acting as a counterparty to a forex 
transaction with a retail customer?   
22. What compensation structures do broker-dealers apply to retail forex transactions 
(e.g., per trade commissions, spreads, both)?  Do broker-dealers charge retail forex 
customers  rolling fees or additional transaction fees, such as maintenance charges, 
software licensing fees, commissions paid to introducing brokers or other third-party 
service providers?  Are there breakpoints offered to retail customers based on, for 
example, volume or number of trades?  If so, are the breakpoints available to all retail 
customers?    
23. What fees are charged by broker-dealers for each type of retail forex trade?  What is 
the prevailing market rate for retail forex transactions?  How does this differ from the 

  
28 
prevailing market rate for forex transactions with ECPs?  Does the prevailing market 
rate differ for standing instruction fees and negotiated trade fees? 
24. Do broker-dealers disclose all compensation charged to retail customers?  At what 
point during the customer relationship are compensation disclosures made (e.g., prior 
to any forex transactions, following a forex transaction)?  What is the scope and 
breadth of those disclosures?  Should the Commission consider rules that would 
expand broker-dealers’ disclosure obligations? 
25. In light of the authority provided under section 742 of the Dodd-Frank Act for the 
Commission to consider any other standards or requirements in connection with retail 
forex transactions that it determines to be necessary, w hen a broker-dealer solicits 
business for and introduces customers to a forex dealer, what due diligence does the 
broker-dealer conduct about the forex dealer?  What policies and procedures do 
broker-dealers have in place, if any, reg  arding supervision of unregistered solicitors 
that introduce forex customers to the broker-dealer and that are employees or agents 
of the broker-dealer? 
26. What policies and procedures do broker-dealers have in place regarding 
advertisements and marketing materials related to forex services offered to retail 
customers? 
27. Do broker-dealers provide information to customers regarding access to the interbank 
currency market? 
28. What disclosures do broker-dealers make to retail customers regarding the 
performance and accuracy (including slippage rates) of electronic trading platforms or 

  
29 
software sold or licensed by or through the firm to customers in connection with forex 
trading? 
29. What information do retail customers believe is important for them to receive from 
broker-dealers regarding their forex transactions? 
30. What business conduct concerns do retail customers have regarding the manner in 
which their broker-dealers handle and price forex transactions? 
31. Do broker-dealers provide structured products to retail customers that require forex 
transactions at maturity?  In connection with these types of products, how are the 
fore ign exchange conversion fees calculated and disclosed?  Is the cost of the 
conversion embedded in the transaction itself, or must investors pay additional fees 
for conversion? 
32. What alternatives for handling forex transactions outside of broker-dealers are 
available to retail investors?   Would a transition of retail forex business out of broker-
dealers be efficient or costly from the standpoint of customers?   
IV. Other Matters 
The Administrative Procedure Act generally requires an agency to publish notice of a 
proposed rulemaking in the Federal Register.
59
  This requirement does not apply, however, if the 
agency “for good cause finds . . . that notice and public procedure are impracticable, 
unnecessary, or contrary to the public interest.”
60
  Further, the Administrative Procedure Act also 
generally requires that an agency publish an adopted rule in the Federal Register 30 days before 
it becomes effective.
61
                                                 
59
  See 5 U.S.C. 553(b). 
  This requirement, however, does not apply if the agency finds good 
60
  Id. 
61
  See 5 U.S.C. 553(d). 

  
30 
cause for making the rule effective sooner.
62
  The Commission, for the reasons discussed above 
and below, finds that notice and solicitation of comment before the effective date of Rule 15b12-
1T is impracticable, unnecessary, and contrary to the public interest.
63
It was not until mid-June 2011 that market participants first informed the Commission of 
a possible disruption of a potentially important forex service provided by broker-dealers to retail 
investors if the Commission did not act swiftly to adopt a rule allowing retail forex transactions 
by July 16, 2011, the effective date of section 742 of the Dodd-Frank Act.
   
64
  As noted above, one 
representative of certain market participants stated that “it would expose both broker-dealers and 
their retail customers to needless operational, price, credit and other risks if the [Commission 
did] not allow broker-dealers to engage in foreign exchange activity that is ancillary to the 
broker-dealer’s ordinary securities execution, clearing, settlement and booking activity.”
65
                                                 
62
  Id. 
  The 
Commission believes that Congress, in enacting section 742 of the Dodd-Frank Act, may not 
have intended to prohibit certain types of foreign exchange activity, which might be beneficial to 
retail investors.  To   allow the existing regulatory framework for retail forex transactions to 
continue for a defined period, to avoid potentially unintended consequences from broker-dealers 
immediately discontinuing their retail forex business, and to provide the Commission sufficient 
time to determine the appropriate regulatory framework regarding retail forex transactions, the 
Commission is adopting on an interim final temporary basis Rule    15b12-1T.  The Commission 
63
     This finding also satisfies the requirements of  5 U.S.C. 808(2), allowing the rules to 
become effective notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency 
finds that notice and public comment are “impractical, unnecessary or contrary to the 
public interest,” a rule “shall take effect at such time as the federal agency promulgating 
the rule determines”).  
64
  See Morgan Lewis Memo, supra note 15. 
65
     Id. 

  
31 
does not intend to create new regulatory obligations for broker-dealers in adopting this interim 
final temporary rule.   The Commission further emphasizes that it is requesting comment on all 
aspects of the rule.  The Commission will carefully consider the comments it receives.   
V.  Paperwork Reduction Act 
The   Commission notes that interim final temporary Rule 15b12-1T does not create new 
regulatory obligations for broker-dealers, and therefore does not impose any new “collections of 
information” within the meaning of the Paperwork Reduction Act of 1995 (“PRA”),
66
VI. Economic Analysis   
 nor does it 
create any new filing, reporting, recordkeeping, or disclosure reporting requirements for broker-
dealers that are or plan to be engaged in a retail forex business.  Accordingly, the Commission 
did not submit the interim final temporary rule to the Office of Management and Budget for 
review in accordance with the PRA.  The Commission requests comment on its conclusion that 
there are no collections of information. 
 
A. Introduction 
Exchange Act section 23(a)(2) requires the Commission, when adopting rules under the 
Exchange Act, to consider the impact that any new rule would have on competition, and 
prohibits the Commission from adopting any rule that would impose a burden on competition 
that is not necessary or appropriate in furtherance of the purposes of the Exchange Act.  
Furthermore, section 2(b) of the Securities Act of 1933 and Exchange Act section 3(f) require the 
Commission, when engaging in rulemaking where it is    required to consider or determine whether 
an action is necessary or appropriate in the public interest, to also consider, in addition to the 
                                                 
66
     44 U.S.C. 3501 et seq.   

  
32 
protection of investors, whether the action will promote efficiency, competition, and capital 
formation. 
As noted above, section 742(c) of the Dodd-Frank Act amended the CEA to prohibit 
broker-deal ers  from engaging in retail forex transactions after July 16, 2011, absent rulemaking 
by the Commission to allow such transactions.  If there is no such rulemaking in place, then 
certain transactions that may be considered beneficial to retail investors, such as hedging 
transactions and securities conversion trades that take more than two days to settle, may no 
longer be conducted by broker-dealers.  Retail investors who transact in foreign securities 
through a broker-dealer may find it difficult to minimize their currency risk exposure if risk-
minimizing hedging transactions are moved outside the broker-dealer. 
The Commission is adopting interim final temporary Rule 15b12-1T to allow broker-
dealers to engage in a retail forex business for one year.  This rule keeps in place the regulatory 
framework that currently exists for broker-dealers, and preserves the ability of broker-dealers to 
provide, among other services, hedging and conversion trades, to retail investors while the 
Commission considers what further appropriate steps to take, if any. 
B. Benefits and Impact on Efficiency, Competition, and Capital Formation 
Rule 15b12-1T is intended to minimize market disruptions that may occur when section 
724(c) of the Dodd-Frank Act goes into effect.  Absent rulemaking by the Commission, broker-
dealers would be required to exit the retail forex business.  Consequently, retail customers who 
transact with a broker-dealer for their foreign investments may   need to find another service 
provider for their foreign exchange transactions, which could interrupt the customers’ abil   ity to 
trade in forex, depending on the availability of retail forex-related services outside of broker-
dealers. 

  
33 
The interim final temporary rule preserves retail customers’ access to the forex markets 
through broker-dealers.  To the extent that this provides hedging opportunities for foreign 
investments or otherwise promotes an efficient investment opportunity set by, for example, 
permitting the continued use of forex in connection with clearing trades in foreign securities, 
economic benefits accrue to retail investors, assuming that no close substitutes exist or that retail 
access to forex is not easily available elsewhere. 
Furthermore, by preserving a channel for retail customers to access forex transactions, the 
interim final temporary rule prevents any loss of competition in the retail forex space that could 
result if broker-dealers were required to exit the business.  Potential effects of reduced 
competition include, but are not limited to, higher customer fees for retail forex transactions 
charged by remaining service providers, as well as reduced availability of forex services to retail 
customers if customers no longer have access to these transactions through broker-dealers. 
C. Costs and Impact on Efficiency, Competition, and Capital Formation 
Because Rule 15b12-1T preserves the regulatory regime that is in place prior to the 
effective date of section 742(c) of the Dodd-Frank Act, the rule imposes no new regulatory 
burdens beyond those that already exist for broker-dealers engaged in a retail forex business.  
The Commission recognizes, however, that broker-dealers will face regulatory costs and 
requirements associated with operating in the retail forex market, which are costs and 
requirements that they already shoulder from doing business.  These include costs related to 
disclosure, recordkeeping and documentation, capital and margin, reporting, and business 
conduct.  For example, a broker-dealer that presently engages in forex transactions with retail 
customers incurs costs associated with establishing, maintaining, and implementing policies and 
procedures to comply with regulatory requirements; preparing disclosure documents; 

  
34 
establishing and maintaining forex-related business records; and preparing filings with the 
Commission, which may include legal and accounting fees. 
As discussed above, the Commission is aware of potentially abusive practices that may be 
occur   ring in the retail forex market.  To the extent that such practices continue, for example, lack 
of disclosure about fees and forex pricing, or insufficient capital or margin requirements, the 
retail forex market may bear costs associated with the inefficient provision of retail forex 
services.  The Commission believes, however, that the cost of market disruption that may occur 
if the Commission does not promulgate the interim final temporary rule is greater than the cost of 
maintaining the current regulatory regime while the Commission seeks comment and evaluates 
whether a more comprehensive regulatory regime is necessary. 
Because the regulatory requirements for broker-dealers operating in the retail forex 
market will remain unchanged, Rule 15b12-1T will impose no new burden on competition.  
Similarly, since the rule preserves an existing regulatory structure, the Commission does not 
expect any potential impairment of the capital formation process.  Finally, because the rule 
allows hedging transactions, securities conversions, and other transactions that allow investors to 
continue to have access to these vehicles, the Commission believes that the interim temporary 
final rule will promote efficiency. 
VII. Regulatory Flexibility Certification   
The Commission hereby certifies that pursuant to 5 U.S.C. 605(b) the interim final 
temporary rule contained in this release will not have a significant economic impact on a 
substantial number of small entities.  The interim final temporary rule applies to broker-dealers 
that may engage in retail forex transactions.  However, the Commission does not intend for the 
interim final temporary rule to impose new regulatory obligations, costs, or burdens on such 

  
35 
broker-dealers. While the rule applies to broker-dealers that may be small businesses, any costs 
or regulatory burdens incurred as a result of the rule are the same as those incurred by small 
broker-dealers prior to the effective date of section 742 of the Dodd-Frank Act.  Broker-dealers 
have already incurred those costs and regulatory burdens through establishing compliance with 
the rules adopted by the Commission under the Exchange Act applicable to broker-dealers.  
Further, the interim final temporary rule does not change the burdens on small broker-dealers 
relative to large broker-dealers.  Accordingly, the interim final temporary rule should not have a 
significant economic impact on a substantial number of small entities.  The Commission requests 
comment on its conclusion that Rule 15b12-1T should not have a significant economic impact on 
a substantial number of small entities. 
VIII.   Statutory Basis and Text of Amendments   
The Commission is adopting Exchange Act Rule 15b12-1T  pursuant to section 2(c)(2) of 
the  Commodity Exchange Act, as well as pursuant to the Exchange Act, as amended.   
List of Subjects in 17 CFR Part 240 
Brokers, Consumer protection, Currency, Reporting and recordkeeping requirements. 
In accordance with the foregoing, the Securities and Exchange Commission is amending 
Title 17, chapter II of the Code of Federal Regulations as follows: 
PART 240 – GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 
ACT OF 1934 
 
1. The general authority citation for Part 240 is revised to read as follows: 
Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 
77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 
78q, 78s, 78u-5, 78w, 78x, 78ll
, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 
and 7201 et. seq.; 18 U.S.C. 1350; 12 U.S.C. 5221(e)(3); and 7 U.S.C. 2(c)(2)(E), unless 

  
36 
otherwise noted. 
* * * * *  
2. Add § 240.15b12-1T to read as follows: 
§ 240.15b12-1T  Brokers or dealers engaged in a retail forex business.  
(a)  Definitions.  In addition to the definitions in this section, the following terms have the 
same meaning as in the Securities Exchange Act of 1934 (15 U.S.C. 78a et
 seq.): “broker,” 
“dealer,” “person,” “registered broker or dealer,” and “self-regulatory organization.”  
(1)  Act means the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). 
(2)  Retail forex business means engaging in one or more retail forex transactions with the 
intent to derive income from those transactions, either directly or indirectly. 
(3)  Retail forex transaction means any account, agreement, contract or transaction in 
foreign currency that is offered or entered into by a broker or dealer with a person that is not an 
eligible contract participant as defined in section 1a(18) of the Commodity Exchange Act (7 
U.S.C. 1a(18)) and that is: 
(i) A contract of sale of a commodity for future delivery or an option on such a contract; 
(ii) An option, other than an option executed or traded on a national securities exchange 
registered pursuant to section 6(a) of the Act (15 U.S.C. 78(f)(a)); or 
(iii) Offered, or entered into, on a leveraged or margined basis, or financed by a broker or 
dealer or any person acting in concert with the broker or dealer on a similar basis, other than: 
(A) A security that is not a security futures product as defined in section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)); or 
(B) A contract of sale that: 
(1) Results in actual delivery within two days; or 

  
37 
(2) Creates an enforceable obligation to deliver between a seller and buyer that have the 
ability to deliver and accept delivery, respectively, in connection with their line of business. 
(b) Any registered broker or dealer may enga ge in a retail forex business provided that 
such broker or dealer complies with the Act, the rules and regulations thereunder, and the rules of 
the self-regulatory organization(s) of which the broker or dealer is a member, including, but not 
limited to, the disclosure, recordkeeping, capital and margin, reporting, business conduct, and 
documentation requirements, insofar as they are applicable to retail forex transactions. 
(c) Any registered broker or dealer that is engaged in a retail forex business in 
compliance with paragraph (b) of this section on or after the effective date of this section shall be 
deemed, until the date specified in paragraph (d) of this section, to be acting pursuant to a rule or 
regulation described in section 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C. 
2(c)(2)(E)(ii)(I)). 
(d) This section will expire and no longer be effective on July 16, 2012. 
 
 
By the Commission. 
 
 
        Elizabeth M. Murphy 
        Secretary 
 
Dated:  July   13, 2011 

1 

SECURITIES AND EXCHANGE COMMISSION 
 
17 CFR Part 240 
 
Release No. 34-64874; File No. S7-30-11 
 
RIN 3235-AL19 
 
Retail Foreign Exchange Transactions 
 
AGENCY:  Securities and Exchange Commission. 
 
ACTION:  Interim final temporary rule; request for comments. 
 
SUMMARY:  Under section 742(c) of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (“Dodd-Frank Act”), certain foreign exchange transactions with persons who are 

not “eligible contract participants” (commonly referred to as “retail forex transactions,” and as 

further defined below) with a registered broker or dealer (“broker-dealer”) will be prohibited as 

of July 16, 2011, in the absence of the Commission adopting a rule to allow such transactions 

under terms and conditions prescribed by the Commission.  The Commission is adopting interim 

final temporary Rule 15b12-1T to allow a registered broker-dealer to engage in a retail forex 

business until July 16, 2012, provided that the broker-dealer complies with the Securities 

Exchange Act of 1934 (“Exchange Act”), the rules and regulations thereunder, and the rules of 

the self-regulatory organization(s) of which the broker-dealer is a member (“SRO rules”), insofar 

as they are applicable to retail forex transactions. 

DATES:  Effective Date:  Rule 15b12-1T is effective on July 15, 2011 and will remain in effect 

until July 16, 2012.    

Comment Date:  Comments on the interim final temporary rule should be received on or 

before September 13, 2011. 

ADDRESSES:  Comments may be submitted by any of the following methods: 



  

2 

Electronic comments: 

• Use the Commission’s Internet comment form (http://www.sec.gov/rules/interim-final-

temp.shtml); or 

• Send an e-mail to [email protected].  Please include File Number S7-30-11 on the 

subject line; or 

• Use the Federal eRulemaking Portal (http://www.regulations.gov).  Follow the 

instructions for submitting comments. 

Paper Comments: 

• Send paper comments in triplicate to Elizabeth Murphy, Secretary, Securities and 

Exchange Commission, 100 F Street, NE, Washington, DC 20549. 

All submissions should refer to File Number S7-30-11.  This file number should be included on 

the subject line if e-mail is used.  To help the Commission to process and review your comments 

more efficiently, please use only one method.  The Commission will post all comments on its 

website: (http://www.sec.gov/rules/interim-final-temp.shtml).  Comments are also available for 

website viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE, 

Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m.  

All comments received will be posted without change; the Commission does not edit personal 

identifying information from submissions.  You should submit only information that you wish to 

make available publicly. 

FOR FURTHER INFORMATION CONTACT:  Jo Anne Swindler, Assistant Director; 

Richard Vorosmarti, Special Counsel; or Angie Le, Special Counsel, at (202) 551-5777, Division 

of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington, 

DC 20549.  

http://www.sec.gov/rules/interim-final-temp.shtml�
http://www.sec.gov/rules/interim-final-temp.shtml�
mailto:[email protected]�
http://www.regulations.gov/�
http://www.sec.gov/rules/interim-final-temp.shtml�


  

3 

SUPPLEMENTARY INFORMATION:  The Commission is adopting new Rule 15b12-1T 

under the Exchange Act as an interim final temporary rule.  The rule will expire and no longer be 

effective on July 16, 2012.  The Commission is soliciting comments on all aspects of this interim 

final temporary rule.  The Commission will carefully consider any comments received and 

intends to take further action if it determines that further action is necessary or appropriate, either 

prior to or following the expiration of the rule.  In making this determination, the Commission 

may consider a number of alternative approaches with respect to retail forex transactions, 

including proposing new rules for public comment; issuing a final rule amending the interim 

final temporary rule; issuing a final rule adopting the interim final temporary rule as final; or 

allowing the interim final temporary rule to expire without further action, which would allow the 

statutory prohibition to take effect.    

I. Background   

On July 21, 2010, President Obama signed into law the Dodd-Frank Act.1  As amended 

by the Dodd-Frank Act,2 the Commodity Exchange Act (“CEA”) provides that a person for 

which there is a Federal regulatory agency,3 including a broker-dealer registered under section 

15(b) (except pursuant to paragraph (11) thereof) or 15C of the Exchange Act,4

                                                 
1  Public Law 111–203, 124 Stat. 1376. 

 shall not enter 

into, or offer to enter into, a transaction described in section 2(c)(2)(B)(i)(I) of the CEA with a 

2  Public Law 111–203, § 742(c)(2) (to be codified at 7 U.S.C. 2(c)(2)(E)). 
3  7 U.S.C. 2(c)(2)(E)(i), as amended by § 742(c) of the Dodd-Frank Act, defines a “Federal 

regulatory agency” to mean the Commodity Futures Trading Commission (“CFTC”), the 
Securities and Exchange Commission, an appropriate Federal banking agency, the 
National Credit Union Association, and the Farm Credit Administration.   

4  7 U.S.C. 2(c)(2)(B)(i)(II).   



  

4 

person who is not an “eligible contract participant”5 except pursuant to a rule or regulation of a 

Federal regulatory agency allowing the transaction under such terms and conditions as the 

Federal regulatory agency shall prescribe6 (“retail forex rule”).7  Transactions described in CEA 

section 2(c)(2)(B)(i)(I) include “an agreement, contract, or transaction in foreign currency that . . 

. is a contract of sale of a commodity for future delivery (or an option on such a contract) or an 

option (other than an option executed or traded on a national securities exchange registered 

pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)).”8  A Federal 

regulatory agency’s retail forex rule must treat all agreements, contracts, and transactions in 

foreign currency described in CEA section 2(c)(2)(B)(i)(I) and all agreements, contracts, and 

transactions in foreign currency that are functionally or economically similar to agreements, 

contracts, or transactions described in CEA section 2(c)(2)(B)(i)(I), similarly.9

                                                 
5  “Eligible contract participant” (“ECP”) is defined in CEA section 1a(18), as re-

designated and amended by section 721 of the Dodd-Frank Act.  See Public Law 111-
203, § 721 (amending CEA section 1a).  The CEA’s definition of ECP generally is 
comprised of regulated persons;

 
entities that meet a specified total asset test (e.g., a 

corporation, partnership, proprietorship, organization, trust, or other entity with total 
assets exceeding $10 million)

 
or an alternative monetary test coupled with a non-

monetary component (e.g., an entity with a net worth in excess of $1 million and 
engaging in business-related hedging;

 
or certain employee benefit plans, the investment 

decisions of which are made by one of four enumerated types of regulated entities); and 
certain governmental entities and individuals that meet defined thresholds.  The 
Commission and the CFTC recently have proposed rules under the CEA that further 
define “eligible contract participant” with respect to transactions with major swap 
participants, swap dealers, major security-based swap participants, security-based swap 
dealers, and commodity pools.  See Exchange Act Release No. 63452 (Dec. 7, 2010), 75 
FR 80174 (Dec. 21, 2010).  Because transactions that are the subject of this release are 
commonly referred to as “retail forex transactions,” this release uses the term “retail 
customer” to describe persons who are not ECPs.  

  Any retail forex 

6  7 U.S.C. 2(c)(2)(E)(ii)(I). 
7  As used in this release, “retail forex rule” refers to any rule proposed or adopted by a 

Federal regulatory agency pursuant to section 742(c)(2) of the Dodd-Frank Act.  
8  7 U.S.C. 2(c)(2)(B)(i)(I). 
9  7 U.S.C. 2(c)(2)(E)(iii)(II). 



  

5 

rule also must prescribe appropriate requirements with respect to disclosure, recordkeeping, 

capital and margin, reporting, business conduct, and documentation, and may include such other 

standards or requirements as the Federal regulatory agency determines to be necessary.10

This amendment to the CEA takes effect on July 16, 2011, which is 360 days from the 

date of enactment of the Dodd-Frank Act.

  

11  After that date, for purposes of CEA section 

2(c)(2)(B), broker-dealers for which the Commission is the “Federal regulatory agency” may not 

engage in off-exchange retail forex futures and options with a customer except pursuant to a 

retail forex rule issued by the Commission.12  This prohibition will not apply to (1) forex 

transactions with a customer who qualifies as an ECP, or (2) transactions that are spot forex 

contracts or forward forex contracts irrespective of whether the customer is an ECP.13  However, 

consistent with other Federal regulatory agencies’ retail forex rules, Rule 15b12-1T applies to 

“rolling spot” transactions in foreign currency by broker-dealers.14

                                                 
10  7 U.S.C. 2(c)(2)(E)(iii)(I). 

  The discussion of the 

11  See Public Law 111-203, § 754. 
12  See 7 U.S.C. 2(c)(2)(B)(i)(II) and 7 U.S.C. 2(c)(2)(E)(ii)(I).  On September 10, 2010, the 

CFTC adopted a retail forex rule for persons subject to its jurisdiction.  See Regulation of 
Off-Exchange Retail Foreign Exchange Transactions and Intermediaries, 75 FR 55410 
(Sept. 10, 2010) (“Final CFTC Retail Forex Rule”).  The CFTC had proposed its rules 
regarding retail forex transactions prior to the enactment of the Dodd-Frank Act.  See 
Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries, 
75 FR 3282 (Jan. 20, 2010) (“Proposed CFTC Retail Forex Rule”).  The Federal Deposit 
Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency 
(“OCC”) subsequently proposed similar rules.  See Retail Foreign Exchange 
Transactions, 76 FR 28358 (May 17, 2011); Retail Foreign Exchange Transactions, 76 
FR 22633 (Apr. 22, 2011) (“Proposed OCC Retail Forex Rule”).  On July 6, 2011, the 
FDIC adopted final retail forex rules.  See Retail Foreign Exchange Transactions, 76 FR 
40779 (July 12, 2011) (“Final FDIC Retail Forex Rule”).   

13  See 7 U.S.C. 2(c)(2)(C)(i)(I) and 7 U.S.C. 2(c)(2)(C)(i)(II); see also Final FDIC Retail 
Forex Rule, supra note 12; Proposed OCC Retail Forex Rule, supra note 12. 

14  See Final FDIC Retail Forex Rule, supra note 12 (explaining that its retail forex rule 
applies to rolling spot forex transactions); Proposed OCC Retail Forex Rule, supra note 
12 (stating that rolling spot forex transactions should be regulated as retail forex 



  

6 

definition of “retail forex transaction” below addresses the distinctions between rolling spot 

forex transactions and spot and forward forex contracts.  

Prior to June 2011, the Commission had not been made aware of industry concerns with 

respect to the operation of section 742 of the Dodd-Frank Act in the absence of Commission 

rulemaking.  In mid-June 2011, however, market participants for the first time brought to the 

attention of Commission staff the possibility that section 742 of the Dodd-Frank Act may have 

serious adverse consequences for certain securities markets in the absence of rulemaking by the 

Commission before the impending effective date of the provision (i.e., July 16, 2011).15

                                                                                                                                                             
transactions); Final CFTC Retail Forex Rule, supra note 12 (stating that the CFTC has the 
authority to fully regulate “look-alike,” leveraged forex contacts, also called off-exchange 
Zelener contracts; as discussed below, Zelener contracts are also called rolling spot 
transactions); Proposed CFTC Retail Forex Rule, supra note 12 (“The [CFTC 
Reauthorization Act of 2008] amends the [CEA] to require that certain intermediaries for 
forex futures and options and for look-alike contracts (i.e., those at issue in Zelener) 
register in such capacity as the Commission shall determine . . . .”). 

  

Although this correspondence from market participants brought this issue to the attention of 

Commission staff, the Commission understands that this is in fact a wider concern shared by 

several other market participants.  One potential consequence concerns the ability of broker-

dealers to facilitate the settlement of foreign securities transactions for retail customers.  For 

example, a broker-dealer may purchase a foreign currency or exchange a foreign currency for 

U.S. dollars on behalf of a retail customer in connection with the customer’s purchase or sale of 

a security listed on a foreign exchange and denominated in the foreign currency.  In particular, a 

representative of certain market participants informed the staff that section 742 could operate to 

preclude broker-dealers from continuing to engage in certain foreign exchange transactions that 

15  See Memorandum from P. Georgia Bullitt, Morgan Lewis, on Pershing LLC – Proposed 
Relief regarding transactions in Retail Foreign Exchange to James Brigagliano et al.  
(June 17, 2011) (available at http://www.sec.gov/comments/other/other-
initiatives/otherinitiatives-56.pdf) (“Morgan Lewis Memo”). 



  

7 

are inherent in certain of their customers’ securities transactions, and that serve to minimize their 

customers’ risk exposure to changes in foreign currency rates.16

The Commission further understands that there may be other situations in which broker-

dealers engage in foreign exchange transactions in connection with facilitating the ordinary 

execution, clearance, or settlement of customers’ securities transactions and that may warrant 

rulemaking by the Commission in order to avoid market disruption due to the potential 

application of section 742 of the Dodd-Frank Act.  At the same time, the Commission notes that 

media coverage over the past few years has highlighted potentially abusive practices by some 

intermediaries in connection with retail forex transactions.

 

17  The Commission also notes that 

other regulators have expressed concerns with regard to the retail forex practices of the entities 

that they regulate.18

In order to provide the Commission with the opportunity to receive comments regarding 

practices in this area and to consider prescribing additional rules to address investor protection 

concerns (e.g., abusive sales practices, volatility and riskiness of the forex market)

  

19

                                                 
16  See id. 

 as they 

17  See Gregory Zuckerman, Carrick Mollenkamp & Lingling Wei, Suspicion of Forex 
Gouging Spreads, The Wall Street Journal (Feb. 10, 2011) at A1 (describing allegations 
of overcharging of customers by custody banks in currency trades).   

18  See, e.g., Press Release, CFTC, CFTC Releases Final Rules Regarding Retail Forex 
Transactions (Aug. 30, 2010) (available at 
http://www.cftc.gov/PressRoom/PressReleases/pr5883-10.html?dbk) (noting that retail 
forex is the largest area of retail fraud that the CFTC oversees); see also the Financial 
Industry Regulatory Authority’s (“FINRA”) Regulatory Notice 08-66, (Retail Foreign 
Currency Exchange) (November 2008) (“FINRA Forex Notice”) (describing the retail 
forex market as opaque, volatile, and risky). 

19  In one of its notices to members, FINRA identified several investor protection concerns, 
including, among other things, the following: “[t]he retail customer typically does not 
having pricing information and cannot determine whether the price quoted by the dealer 
is fair”; “the dealer acts as counterparty and establishes the price, which means that the 
dealer has a conflict of interest in the transaction”; “[p]rice comparisons are also 

http://www.cftc.gov/PressRoom/PressReleases/pr5883-10.html?dbk�


  

8 

affect the regulatory treatment of retail forex transactions by broker-dealers – while also 

preserving potentially beneficial market practices identified to the Commission only weeks 

before the July 16, 2011 effective date for section 742 of the Dodd-Frank Act – the Commission 

today is adopting interim final temporary Rule 15b12-1T under the Exchange Act to enable 

broker-dealers to engage in a retail forex business under the existing regulatory regime for one 

year.  By receiving comments regarding practices in this area, the Commission will be better 

positioned to determine, for example, the scope of retail forex business conducted by broker-

dealers that may be beneficial and poses limited risk to customers and any aspects of the business 

that may pose substantial undue risks to customers.  The Commission will carefully consider 

comments on what additional rulemaking may be necessary, if any.   

II. Discussion 

The Commission is adopting interim final temporary Rule 15b12-1T to maintain the 

ability of broker-dealers to engage in a retail forex business during a one-year period under the 

existing regulatory framework that now applies to broker-dealers providing these services.  The 

Commission solicits comment on each aspect of the rule and the nature and circumstances 

surrounding retail forex business conducted by broker-dealers.  The Commission intends to 

carefully consider comments received to determine what further regulatory action, if any, would 

be appropriate.  In making this determination, the Commission may consider a number of 

alternatives with respect to retail forex transactions, including proposing new rules for public 

comment; issuing a final rule amending the interim final temporary rule; issuing a final rule 

                                                                                                                                                             
complicated by different compensation structures”; and “[t]he currency market is 
extremely volatile and retail forex customers are exposed to substantial currency risk.”  
See FINRA Forex Notice, supra note 18. 



  

9 

adopting the interim final temporary rule as final; or allowing the interim final temporary rule to 

expire without further action, which would allow the statutory prohibition to take effect.       

A. Rule 15b12-1T(a):  Definitions   

Rule 15b12-1T(a) sets forth the definitions of terms specific to the interim final 

temporary rule.  Many of the terms (i.e., broker, dealer, person, registered broker or dealer, and 

self-regulatory organization) have the same meanings as in the Exchange Act.  The term “Act,” 

as used in the rule, refers to the Exchange Act.20

The term “retail forex business” is defined as “engaging in one or more retail forex 

transactions with the intent to derive income from those transactions, either directly or 

indirectly.”

  The Commission chose these terms and 

definitions because their meanings are readily understood in the industry.    

21  This definition mirrors the definition contained in the FDIC’s final retail forex 

rules and the OCC’s proposed rules.22

The term “retail forex transaction” is defined as “any account, agreement, contract or 

transaction in foreign currency that is offered or entered into by a broker or dealer with a person 

that is not an eligible contract participant as defined in section 1a(18) of the Commodity 

Exchange Act (7 U.S.C. 1a(18)) and that is: (i) a contract of sale of a commodity for future 

  This term is intended to include retail forex transactions 

that may not generate income to the broker-dealer or a retail forex business that is ultimately not 

profitable.  The Commission chose this definition because it focuses on the intent to engage in a 

series of forex transactions with a business purpose, whether or not the transactions result in 

income or profits.    

                                                 
20  Exchange Act Rule 15b12-1T(a)(1). 
21  Exchange Act Rule 15b12-1T(a)(2). 
22  See Final FDIC Retail Forex Rule, supra note 12; Proposed OCC Retail Forex Rule, 

supra note 12 (each defining “retail forex business”). 



  

10 

delivery or an option on such a contract; (ii) an option, other than an option executed or traded 

on a national securities exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 

78(f)(a)); or (iii) offered, or entered into, on a leveraged or margined basis, or financed by a 

broker or dealer or any person acting in concert with the broker or dealer on a similar basis, other 

than: (A) a security that is not a security futures product as defined in section 1a(47) of the 

Commodity Exchange Act (7 U.S.C. 1a(47)); or (B) a contract of sale that: (1) results in actual 

delivery within two days; or (2) creates an enforceable, obligation to deliver between a seller and 

buyer that have the ability to deliver and accept delivery, respectively, in connection with their 

line of business.”23  This definition is based on the CEA, incorporates the terms described in 

CEA sections 2(c)(2)(B) and 2(c)(2)(C),24 and is substantially the same as the definition in the 

FDIC’s final section 349.225 and the OCC’s proposed section 48.2.26

First, certain transactions in foreign currency are excluded from the definition of the term 

“retail forex transaction.”  For example, the CEA expressly excludes “a contract of sale [in 

foreign currency] that . . . results in actual delivery within 2 days.”

  This definition has at least 

two important features. 

27  As defined by court 

decisions as well as the retail forex rules of other Federal regulatory agencies, this term refers to 

a “spot” forex transaction, in which one currency is purchased for another, the transaction is 

settled within two days, and actual delivery occurs as soon as practicable.28

                                                 
23  Exchange Act Rule 15b12-1T(a)(3). 

  Similarly, based 

24  7 U.S.C. 2(c)(2)(B) and 7 U.S.C. 2(c)(2)(C). 
25  See Final FDIC Retail Forex Rule, supra note 12 (defining “retail forex transaction”). 
26  See Proposed OCC Retail Forex Rule, supra note 12 (defining “retail forex transaction”). 
27  See 7 U.S.C. 2(c)(2)(C)(i)(II). 
28  See generally CFTC v. Int’l Fin. Servs. (New York), Inc., 323 F. Supp. 2d 482, 495 

(S.D.N.Y. 2004) (distinguishing between foreign exchange futures contracts and spot 



  

11 

upon the language in the CEA,29 a “retail forex transaction” does not include a contract of sale 

that creates an enforceable obligation to deliver between a buyer and seller that have the ability 

to deliver and accept delivery, respectively, in connection with their line of business.30  This 

statutory language refers to a retail forex forward contract with a commercial entity that creates 

an enforceable obligation to make or take delivery, provided the commercial counterparty has the 

ability to make delivery and accept delivery in connection with its line of business.31

                                                                                                                                                             
contracts in foreign exchange, and noting that spot transactions – unlike futures contracts 
– ordinarily call for settlement within two days); see also Bank Brussels Lambert v. 
Intermetals Corp., 779 F. Supp. 741, 748 (S.D.N.Y. 1991) (noting that the spot market is 
essentially the current market rather than the market for future delivery); Final FDIC 
Retail Forex Rule, supra note 12 (explaining that its retail forex rule does not apply to 
spot forex contracts); Proposed OCC Retail Forex Rule, supra note 12 (explaining that its 
retail forex rule does not apply to spot forex contracts); Final CFTC Retail Forex Rule, 
supra note 12 (defining “retail forex transaction” as any account, agreement, contract or 
transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the CEA; as discussed above, 
by its terms, CEA section 2(c)(2)(C)(i)(II) excludes what are referred to as spot forex 
transactions). 

  In addition, 

consistent with the approach of other Federal regulatory agencies’ retail forex rules, the 

29  See 7 U.S.C. 2(c)(2)(C)(i)(II). 
30  Exchange Act Rule 15b12-1T(a)(3)(iii)(B)(2).    
31  See generally CFTC v. Int’l Fin. Servs. (New York), Inc., 323 F. Supp. 2d at 495 

(distinguishing between forward contracts in foreign exchange and foreign exchange 
futures contracts); see also William L. Stein, The Exchange-Trading Requirement of the 
Commodity Exchange Act, 41 Vand. L. Rev. 473, 491 (1988).  In contrast to forward 
contracts, futures contracts generally include several or all of the following 
characteristics: (i) standardized nonnegotiable terms (other than price and quantity); (ii) 
parties are required to deposit initial margin to secure their obligations under the contract; 
(iii) parties are obligated and entitled to pay or receive variation margin in the amount of 
gain or loss on the position periodically over the period the contract is outstanding; (iv) 
purchasers and sellers are permitted to close out their positions by selling or purchasing 
offsetting contracts; and (v) settlement may be provided for by either (a) cash payment 
through a clearing entity that acts as the counterparty to both sides of the contract without 
delivery of the underlying commodity; or (b) physical delivery of the underlying 
commodity.  See Edward F. Greene et al., U.S. Regulation of International Securities and 
Derivatives Markets § 14.08[2] (8th ed. 2006).  See also Final FDIC Retail Forex Rule, 
supra note 12; Proposed OCC Retail Forex Rule, supra note 12 (each explaining that their 
retail forex rule would not apply to forex forward contracts). 



  

12 

definition does not include forex transactions executed or traded on an exchange or designated 

contract market.32

Second, a “rolling spot” forex transaction (also known as a Zelener contract),

 

33 including 

without limitation such a transaction traded on the Internet, through a mobile phone, or on an 

electronic platform, falls within the definition of “retail forex transaction,”34

                                                 
32  See Final CFTC Retail Forex Rule, supra note 12; Final FDIC Retail Forex Rule, supra 

note 12; Proposed OCC Retail Forex Rule, supra note 12. 

 and thus is not 

excluded from the definition as a “spot” transaction.  This interpretation is consistent with the 

approach of other Federal regulatory agencies acting pursuant to section 742 of the Dodd-Frank 

Act to treat all agreements, contracts, and transactions in foreign currency described in CEA 

section 2(c)(2)(B)(i)(I) and all agreements, contracts, and transactions in foreign currency that 

are functionally or economically similar to agreements, contracts, or transactions described in 

33  See CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004); see also CFTC v. Erskine, 512 F.3d 
309 (6th Cir. 2008) (discussing Zelener contracts). 

34  CEA section 2(c)(2)(E)(ii) refers to agreements, contracts, or transactions described in 
CEA section 2(c)(2)(B)(i)(I) (which is incorporated into subparts (i) and (ii) of the 
Commission’s definition of “retail forex transaction”).  In addition, CEA section 
2(c)(2)(E)(iii)(II) requires the Commission to treat similarly all agreements, contracts, 
and transactions in foreign currency described in CEA section 2(c)(2)(B)(i)(I) and all 
agreements, contracts, and transactions that are functionally or economically similar to 
agreements, contracts, or transactions described in CEA section 2(c)(2)(B)(i)(I).  The 
Commission preliminarily believes that agreements, contracts, and transactions described 
in CEA section 2(c)(2)(C)(i) (including rolling spot forex transactions) are functionally or 
economically similar to agreements, contracts, or transactions described in CEA section 
2(c)(2)(B)(i)(I).  Therefore, the Commission is defining “retail forex transaction” to 
encompass the types of agreements, contracts, and transactions described in CEA section 
2(c)(2)(C)(i), such as rolling spot forex transactions, and is reflected in subpart (iii) of the 
Commission’s definition.  See also Final FDIC Retail Forex Rule, supra note 12; 
Proposed OCC Retail Forex Rule, supra note 12 (both concluding that rolling spot forex 
transactions are more like futures than spot contracts).  Some courts have held these 
contracts to be spot contracts in form.  See, e.g., CFTC v. Erskine, 512 F.3d 309, 326 (6th 
Cir. 2008); CFTC v. Zelener, 373 F.3d 861, 869 (7th Cir. 2004). 



  

13 

CEA section 2(c)(2)(B)(i)(I), similarly.35  Like a spot forex transaction, a rolling spot forex 

transaction with a retail customer may initially require delivery of currency within two days.  In 

practice, however, contracts with a retail customer for a rolling spot forex transaction may be 

indefinitely renewed every other day, and no currency is actually delivered until one party 

affirmatively closes out the position.36

B. Rule 15b12-1T(b):  Broker-dealers Engaged in a Retail Forex Business   

  The Commission preliminarily believes that a contract 

with a retail customer for a rolling spot forex transaction is economically more similar to a retail 

forex future, as described in CEA section 2(c)(2)(B)(i)(I), than a spot forex contract.  

Rule 15b12-1T(b) allows any registered broker or dealer to engage in a retail forex 

business provided that such broker or dealer complies with the Exchange Act, the rules and 

regulations thereunder, and the SRO rules, including, but not limited to, the disclosure, 

recordkeeping (or documentation), capital and margin, reporting, and business conduct 

requirements, insofar as they are applicable to retail forex transactions.  In order for broker-

dealers to engage in retail forex transactions after July 16, 2011, the Commission must adopt 

rules prescribing appropriate requirements with respect to disclosure, recordkeeping, capital and 

margin, reporting, business conduct, documentation,37 and such other standards or requirements 

that the Commission determines to be necessary.38

                                                 
35  7 U.S.C. 2(c)(2)(E)(iii)(II); see also Final FDIC Retail Forex Rule, supra note 12; 

Proposed OCC Retail Forex Rule, supra note 12. 

  Because broker-dealers engaging in a retail 

36  For example, in Zelener, the retail forex dealer retained the right, at the date of delivery 
of the currency, to deliver the currency, roll the transaction over, or offset all or a portion 
of the transaction with another open position held by its customer.  See CFTC v. Zelener, 
373 F.3d 861, 868 (7th Cir. 2004). 

37  The Commission considers the documentation requirements as a subset of recordkeeping 
requirements.  To avoid confusion, the Commission will refer to these requirements 
collectively as recordkeeping requirements.  

38  See Public Law 111-203, § 742(c)(2) (amending CEA section 2(c)(2)). 



  

14 

forex business are already subject to numerous regulatory requirements with respect to this 

business under the Exchange Act, the rules and regulations thereunder, and SRO rules, the 

Commission does not intend to create any new obligations under this interim final temporary rule 

for broker-dealers that are engaged in a retail forex business.  The Commission provides below 

illustrative examples of obligations, including certain SRO requirements, applicable to broker-

dealers’ retail forex transactions.39

Disclosure Requirements 

   

Broker-dealers that engage in a retail forex business must comply with the disclosure 

requirements in NASD Rule 2210.40  NASD Rule 2210 requires all communications with the 

public by members of FINRA – including forex-related communications – to be based on 

principles of fair dealing and good faith, to be fair and balanced, and to provide a sound basis for 

evaluating the facts regarding the market generally and a customer’s specific transaction.41

                                                 
39  In this connection, the Commission notes that in the FINRA Forex Notice, FINRA 

described specific FINRA rules that apply to retail forex activities of broker-dealers, 
which are referenced below.  See FINRA Forex Notice, supra note 18. 

  

NASD Rule 2210 further prohibits broker-dealers from making “any false, exaggerated, 

unwarranted or misleading statement or claim in any communication with the public.”  As stated 

in the FINRA Forex Notice, a broker-dealer’s communications with the public “must adequately 

disclose the risks associated with forex trading, including the risks of highly leveraged trading,” 

and a broker-dealer “must also make sure that [its] communications with the public are not 

misleading regarding, among other things: [t]he likelihood of profits or the risks of forex trading, 

including leveraged trading; [t]he firm’s role in or compensation from the trade; [t]he firm’s or 

the customer’s access to the interbank currency market; or [t]he performance or accuracy of 

40  See id. 
41  See id. 



  

15 

electronic trading platforms or software sold or licensed by or through the firm to customers in 

connection with forex trading, including falsely advertising claims regarding slippage rates.”42

Further, FINRA stated in its regulatory notice to members that FINRA Rule 2010 

(formerly NASD Rule 2110), which requires broker-dealers, in the conduct of their business, to 

observe high standards of commercial honor and just and equitable principles of trade, applies to 

all of a broker-dealer’s business, including its retail forex business.

  

43  FINRA stated, for 

example, that to comply with FINRA Rule 2010, a member firm must adequately disclose to its 

retail customers that the firm is acting as a counterparty to a transaction, the risks associated with 

forex trading, and the risks and terms of leveraged trading.44

Recordkeeping Requirements 

 

Exchange Act Rules 17a-3 and 17a-4 require a broker-dealer to make, keep current, and 

preserve records regarding its business.  For example, Exchange Act Rules 17a-3(a)(2) and 17a-

3(a)(11) require a broker-dealer to make and keep current a general ledger, which provides 

details relating to all assets, liabilities, and nominal accounts.  

A broker-dealer is also required to preserve, for a period of not less than three years, 

originals of all communications received and copies of all communications (and any approvals 

thereof) sent by the broker-dealer relating to its business as such, including all communications 

that are subject to SRO rules regarding communications with the public.45

                                                 
42  Id. 

  As discussed above, 

43  Id.  
44  Id. 
45  Exchange Act Rule 17a-4(b)(4).  See Exchange Act Release No. 44992 (Oct. 26, 2001), 

66 FR 55818 (Nov. 23, 2001).   



  

16 

communications with the public regarding retail forex are subject to NASD Rule 2210.46

Another example of recordkeeping requirements applicable to retail forex transactions 

derives from the Bank Secrecy Act (“BSA”), as amended by the USA PATRIOT Act and 

implemented under rules promulgated by the U.S. Treasury Department’s Financial Crimes 

Enforcement Network (“FinCEN”), which requires broker-dealers to make, keep, retain, and 

report certain records that have a high degree of usefulness for the purposes of criminal, tax, or 

regulatory matters.

  In 

addition, Exchange Act Rule 17a-4(b)(7) requires a broker-dealer to preserve, for a period of not 

less than three years, all written agreements (or copies thereof) entered into by the broker-dealer 

relating to its business as such, including agreements with respect to any account.  Accordingly, 

broker-dealers must preserve, for a period of not less than three years, originals of all 

communications received and copies of all communications (and any approvals thereof) sent by 

the broker-dealer and any written agreements with respect to retail forex transactions.  

47  Exchange Act Rule 17a-8 requires broker-dealers to comply with the 

reporting, recordkeeping, and record retention requirements of the BSA’s implementing 

regulations.48

                                                 
46  See supra note 40 and accompanying text regarding NASD Rule 2210 (communications 

with the public). 

   

47  See 31 C.F.R. Chapter X (formerly 31 C.F.R. Part 103); see also 67 FR 44048 (July 1, 
2002) (amendments to BSA regulations requiring that a broker-dealer report suspicious 
transactions).   

48  See Exchange Act Release No. 18321 (Dec. 10, 1981); 46 FR 61454 (Dec. 17, 1981); see 
also FINRA Rule 3310 (formerly NASD Rule 3011) (requiring FINRA member firms to 
establish and implement policies and procedures that can be reasonably expected to 
detect and cause the reporting of suspicious transactions).  As FINRA noted, “FINRA 
member firms engaging in retail forex activities should ensure their Anti-Money 
Laundering Program addresses the risks associated with the business and includes 
procedures for monitoring, detecting, and reporting suspicious transactions associated 
with their retail forex activities.”  FINRA Forex Notice, supra note 18. 



  

17 

Net Capital and Margin Requirements 

Each broker-dealer must comply with Exchange Act Rule 15c3-1, which prescribes 

minimum regulatory net capital requirements for broker-dealers and is applicable to all business 

activities of the broker-dealer, including forex.  The Commission notes that, under Exchange Act 

Rule 15c3-1, any uncollateralized current exposure by a broker-dealer to retail forex transactions 

must be deducted when computing the firm’s net capital.  The provisions of the net capital rule 

dealing with contractual commitment charges under Rule 15c3-1(c)(2)(viii) also apply to 

commitments with respect to foreign currency.  Further, pursuant to Exchange Act section 7, 

broker-dealer margin requirements are generally set according to Regulation T49 and SRO 

margin rules.50

Reporting Requirements 

   

A broker-dealer is required to file with the Commission periodic financial and operational 

reports (i.e., FOCUS Reports), as prescribed in Exchange Act Rule 17a-5, that include relevant 

information regarding the broker-dealer, including information regarding its retail forex business, 

                                                 
49  12 C.F.R. Part 220. 
50  In 2009, FINRA solicited comment on proposed FINRA Rule 2380 to establish a 

leverage limitation for retail forex.  Specifically, proposed FINRA Rule 2380, as 
modified by Amendment No. 2, would prohibit any member firm from permitting a 
customer to: (1) initiate any forex position with a leverage ratio of greater than 4 to 1; and 
(2) withdraw money from an open forex position that would cause the leverage ratio for 
such position to be greater than 4 to 1.  In addition, it would exempt from the proposed 
leverage limitation any security as defined in Exchange Act section 3(a)(10).  See FINRA 
Regulatory Notice 09-06 (Retail Forex) (January 2009).  FINRA filed Amendment No. 1 
to the proposed rule change on August 27, 2009.  See Letter from Gary L. Goldsholle, 
Vice President and Associate General Counsel, FINRA, to Elizabeth M. Murphy, 
Secretary, Commission (Aug. 27, 2009).  On November 12, 2009, FINRA filed 
Amendment No. 2 to the proposed rule.  Amendment No. 2 replaced and superseded 
Amendment No. 1 in its entirety.  The proposed rule change, as modified by Amendment 
No. 2, was published for comment in the Federal Register on December 8, 2009.  
Exchange Act Release No. 61090 (Dec. 1, 2009), 74 FR 64776 (Dec. 8, 2009). 



  

18 

if any.  In addition, FINRA has advised its member firms that a broker-dealer’s expansion of its 

business to include retail forex transactions constitutes a material change in business operations 

pursuant to NASD Rule 1017(a), and broker-dealers must first apply for and receive approval 

from FINRA to conduct this activity.51  Additionally, as discussed above, Exchange Act Rule 

17a-8 requires broker-dealers to report to FinCEN certain enumerated types of transactions, 

including suspicious transactions in foreign currencies and foreign currency futures and 

options.52

Business Conduct Requirements 

 

In the course of complying with certain Exchange Act requirements, rules and regulations 

thereunder, and SRO rules relating to business conduct, broker-dealers must address their retail 

forex business.  For example, as discussed above, FINRA Rule 2010 (formerly NASD Rule 

2110), which requires broker-dealers, in the conduct of their business, to observe high standards 

of commercial honor and just and equitable principles of trade, applies to all of a broker-dealer’s 

business, including its retail forex business.53

                                                 
51  See FINRA Forex Notice, supra note 18 (emphasizing that a broker-dealer’s expansion of 

business into retail forex constitutes a material change in business operations under 
NASD rules). 

  FINRA has noted that the following examples of 

conduct in relation to a retail forex business are prohibited under FINRA Rule 2010, including: 

misappropriating or mishandling customer funds; using, selling, or leasing electronic trading 

platforms that allow “slippage” of trade executions in a manner that disproportionately or 

unfairly affects the customer; manipulating or displaying false quotes; offering mock, or 

“demonstration,” accounts that do not accurately reflect the risks of forex trading; making post-

execution price adjustments that are inappropriate and unfavorable to the customer; soliciting 

52  See supra note 48 and accompanying text. 
53  See FINRA Forex Notice, supra note 18. 



  

19 

business for and introducing customers to a forex dealer without conducting adequate due 

diligence on the forex dealer, or in a way that misleads the customer about the forex dealer or 

forex trading, including how customer funds will be held; failing to conduct due diligence on any 

solicitors that introduce forex customers to the broker-dealer; and accepting forex-related trades 

from an entity or individual that solicits retail forex business on behalf of the firm in a 

misleading or deceptive way.54

Broker-dealers also need to address retail forex transactions in connection with the 

customer reserve bank account requirements under Exchange Act Rule 15c3-3.  In calculating 

what amount, if any, a broker-dealer must deposit on behalf of its customers in a reserve bank 

account pursuant to Exchange Act Rule 15c3-3(e), the broker-dealer must use the formula set 

forth in Exchange Act Rule 15c3-3a.  Specifically, the Commission staff has interpreted 

Exchange Act Rule 15c3-3 to require that the broker-dealer must include the net balance due to 

customers in non-regulated commodity accounts, reduced by any deposits of cash or securities 

with any clearing organization or clearing broker in connection with the open contracts in such 

accounts.

 

55

Furthermore, Exchange Act section 15(b)(4)(E) authorizes the Commission to impose 

sanctions against a broker-dealer for failing reasonably to supervise another person subject to the 

firm’s supervision who committed a violation of specified laws, including the CEA, unless the 

broker-dealer established procedures, and a system for applying such procedures, that would 

    

                                                 
54  See id. 
55  See Division of Market Regulation’s Interpretations of Rule 15c3-3 under the Securities 

Exchange Act of 1934, Exchange Act Release No. 9922 (Jan. 2, 1973); see also FINRA 
Forex Notice, supra note 18 (stating that the requirement in Exchange Act Rule 15c3-3 
applies to forex transactions). 



  

20 

reasonably be expected to prevent and detect, insofar as practicable, the violation of law.56

                                     *                    *                    * 

  Thus, 

broker-dealers engaged in a retail forex business should include in their policies and procedures 

mechanisms to prevent and detect potential violations of applicable laws and regulations in 

connection with that business.    

The examples provided above are not inclusive of all regulatory requirements 

administered by the Commission that are implicated by retail forex business conducted by 

broker-dealers.  By providing these examples, the Commission does not intend to suggest that 

other provisions, rules and regulations, including antifraud provisions and SRO rules, may not 

apply to retail forex business.  At the same time, this interim final temporary rule is not intended 

to impose new regulatory obligations for broker-dealers, in connection with such business.    

C. Rule 15b12-1T(c):  Broker-dealers Deemed to be Acting Pursuant to a 
Commission Rule  
 

Rule 15b12-1T(c) provides that any registered broker or dealer that engages in a retail 

forex business in compliance with paragraph (b) of this rule on or after the effective date of this 

rule will be deemed, until July 16, 2012, to be acting pursuant to rule or regulation described in 

CEA section 2(c)(2)(E)(ii)(I), as amended by section 742 of the Dodd-Frank Act.  This rule will 

allow broker-dealers that engage in a retail forex business to do so until July 16, 2012, subject to 

compliance with existing applicable requirements. 

Rule 15b12-1T(c) applies to broker-dealers that prior to the effective date of the rule had 

entered into retail forex transactions that continue after the effective date.  The rule also applies 

to broker-dealers that begin after the rule’s effective date to engage in retail forex transactions.  

As the Commission explained above, FINRA has advised its member firms that a broker-dealer 

                                                 
56  See 15 U.S.C. 78o(b)(4)(E).21 

that expands into a retail forex business must first apply for and receive approval to conduct this 

activity, as a change in business operations pursuant to NASD Rule 1017(a).57

D. Rule 15b12-1T(d):  Expiration 

 

Rule 15b12-1T(d) provides that the rule will expire and no longer be effective on July 16, 

2012.  The Commission believes that the sunset date is appropriate because it will allow the 

existing regulatory framework for a retail forex business to continue for a defined period and 

thereby give the Commission sufficient time to determine what further appropriate steps, if any, 

to take with respect to a retail forex business.   

III. Request for Comment  

The Commission is requesting comments from all members of the public regarding all 

aspects of the interim final temporary rule and the current market practices involving retail forex 

transactions, as well as any investor protection or other concerns that should be addressed by 

Commission rulemaking.  The Commission particularly requests comments from the point of 

view of broker-dealers that are presently engaged in a retail forex business, broker-dealers that 

plan to engage in such a business, customers that use retail forex transactions, and ECPs.  

Together with continued discussions with market participants and other regulators, the 

Commission considers this rulemaking to be an important avenue for gathering more information 

from affected parties about the current scope and nature of retail forex transactions.  Such 

information will inform the Commission’s thoughtful review of the appropriate regulatory 

framework for retail forex transactions before or beyond the expiration of the interim final rule.  

The Commission also seeks comment on the particular questions below, which have been 

designed to elicit a robust discussion of the uses and reasons for such transactions as they occur 

                                                 
57  See FINRA Forex Notice, supra note 18.         



  

22 

today, as well as the potential need for additional regulation.  The Commission will carefully 

consider all comments received, and will benefit especially from detailed comments and 

comments responding to other commentary in the public file for this rulemaking.   

Interim Final Temporary Rule 

1. Should the Commission clarify or modify any of the definitions included in Rule 

15b12-1T?  If so, which definitions and what specific modifications are appropriate 

or necessary?   

2. Are the requirements in Rule 15b12-1T sufficiently clear?  Is additional guidance 

from the Commission necessary?  

3. Rule 15b12-1T is an interim final temporary rule that is set to expire on July 16, 

2012.  Should the Commission extend the expiration date of the rule and if so, for 

how long?    

Possible Permanent Rule Regulating a Retail Forex Business 

4. Should the Commission propose new rules relating to the retail forex business 

operated by broker-dealers for public comment, issue a final rule amending the 

interim final temporary rule, issue a final rule adopting the interim final temporary 

rule as final, or allow the interim final temporary rule to expire without further action, 

which would allow the statutory prohibition to take effect?  If further rulemaking is 

appropriate, what should those rules provide?   

5. Should the Commission prohibit a broker-dealer from engaging in retail forex 

transactions altogether?  Alternatively, should the Commission prohibit a broker-

dealer from engaging in retail forex transactions other than forex transactions 

engaged in solely (1) to effect the purchase or sale of a foreign security or in order to 



  

23 

clear or settle such purchase or sale, or (2) to facilitate distribution to customers of 

monies or securities received through corporate actions (e.g., coupons, dividends, 

class action settlements, and rights offerings) with respect to foreign securities?  

Should the Commission permit other retail forex transactions that otherwise facilitate 

customers’ securities transactions and minimize risk exposure to customers from 

changes in foreign currency rates?  Do investors have adequate recourse against 

broker-dealers for any misconduct related to retail forex transactions?  Would retail 

forex customers be harmed if broker-dealers were unable to provide them with certain 

forex-related services?  Which services?  What benefits might retail forex customers 

receive in connection with forex-related services offered by broker-dealers, as 

compared to other intermediaries?  Would the benefits outweigh potential harm? 

6. Should the Commission adopt rules modeled on the Final CFTC Retail Forex Rule, 

the Final FDIC Retail Forex Rule, or the Proposed OCC Retail Forex Rule?  If so, 

which aspects of those rules should the Commission consider adopting?  What would 

be the associated costs and benefits? 

7. Should the Commission adopt final permanent rules governing retail forex 

transactions?  If so, what should those rules address?   

8. Are there any requirements or prohibitions not covered in the Final CFTC Retail 

Forex Rule, the Final FDIC Retail Forex Rule, or the Proposed OCC Retail Forex 

Rule that the Commission should address?  Do existing Exchange Act provisions, 

rules and regulations thereunder, and SRO rules governing broker-dealers 

appropriately protect retail forex customers of broker-dealers?  Should the 



  

24 

Commission consider rulemaking to address any concerns that are not adequately 

addressed under the current regulatory framework? 

9. What distinctive characteristics of retail forex transactions should the Commission 

take into consideration if it were to engage in further rulemaking relating to such 

transactions?  Are there certain types of retail forex transactions (e.g., rolling spot 

transactions) that warrant Commission rulemaking to address specific disclosure and 

other investor protection concerns?58

Business Practices of Broker-dealers Engaged in Retail Forex Transactions 

 

10. What is the extent of the retail forex business currently conducted by broker-dealers?  

Does the retail forex business currently conducted by broker-dealers consist solely or 

primarily of forex transactions to facilitate customers’ securities transactions and 

minimize risk exposure to customers from changes in foreign currency rates?  In 

general, what proportion of the retail forex business currently conducted by broker-

dealers do such transactions account for?  Please provide as comprehensive of a 

description as possible of the retail forex activities of broker-dealers. 

11. For what other reasons do broker-dealers engage in retail forex transactions and what 

proportion of the retail forex business currently conducted by broker-dealers do such 

transactions account for?  What benefits do these transactions provide to customers?  

What risks do customers face by engaging in such transactions?    

12. Provide estimates of the absolute size of the retail forex business (in both dollar 

amounts and numbers of transactions) conducted by the broker-dealer.  What does 

                                                 
58  See, e.g., Gregory Zuckerman, Carrick Mollenkamp & Lingling Wei, Suspicion of Forex 

Gouging Spreads, The Wall Street Journal (Feb. 10, 2011) at A1 (describing allegations 
of overcharging of customers by custody banks in currency trades).   



  

25 

this business represent as an estimated percent of the broker-dealer’s total business?  

As an estimated percent of its total forex business? 

13. What is the estimated absolute size of the retail forex business (in both dollar amounts 

and numbers of transactions) conducted by broker-dealers overall?  What does this 

business represent as a percent of their total business?  As a percent of their total 

forex business? 

14. What types of customers engage in retail forex transactions, including rolling spot 

forex transactions?   

15. Is the existing regulatory framework for retail forex business as currently conducted 

by broker-dealers consistent with the protection of investors, the maintenance of fair, 

orderly, and efficient markets, and the facilitation of capital formation?   

16. What disclosures do broker-dealers provide to their customers regarding forex 

transactions that are conducted to facilitate settlement of securities transactions?  

What disclosures do broker-dealers provide to customers regarding forex transactions 

that are conducted for other purposes (e.g., at the customer’s request to hedge against 

currency exchange risk exposure associated with securities transactions, or to engage 

in speculative activity)?  Do broker-dealers adequately and fully disclose the risks 

associated with forex trading?  Do broker-dealers provide information to customers 

regarding pricing of forex transactions (e.g., pricing methodology, exchange rates for 

foreign currencies, how the price was calculated)?  If so, is this information provided 

in advance of or following the forex transactions?   

17. On what basis do broker-dealers price retail forex transactions?  For example, do 

broker-dealers use the end-of-day currency exchange rate or some other benchmark?  



  

26 

Do broker-dealers maintain policies and procedures that govern how forex 

transactions are handled and priced for retail forex customers?  If broker-dealers do 

not provide pricing information to retail customers, what documentation does the 

broker-dealer maintain to demonstrate the price provided in retail forex transactions? 

18. Are transaction-time records for retail forex transactions currently created and 

provided to retail customers?  If not, what would be the cost to create transaction-time 

records for retail forex transactions?  What would be the cost to report to customers 

the transaction time and/or the source or basis for the currency exchange rate 

provided on retail forex transactions? 

19. For broker-dealers that provide custody services to retail customers, please describe 

any retail forex business conducted with respect to these custody services.  What 

disclosures are provided to retail customers in connection with custody services?  

What pricing information is provided to retail customers in connection with forex 

transactions conducted in relation to custody services (e.g., pricing methodology, 

exchange rates for foreign currencies, how the price was calculated)?  If pricing 

information is provided, is this information provided in advance of or following the 

forex transactions?  On what basis do broker-dealers price retail forex transactions 

conducted in connection with custody services?  Do broker-dealers maintain policies 

and procedures that govern how forex transactions are handled and priced in 

connection with custody services for retail forex customers?  If broker-dealers do not 

provide pricing information to retail customers in connection with their custody 

business, what documentation do broker-dealers maintain to demonstrate to 

examiners the price provided in retail forex transactions? 



  

27 

20. Do broker-dealers provide retail customers alternatives for obtaining prevailing prices 

on retail forex transactions?  For example, do broker-dealers inform customers that 

the customer can choose whether the broker-dealers will handle retail forex 

transactions at rates set under a “standing instruction” (i.e., non-negotiated trades, 

where a customer provides the broker-dealer discretion with respect to handling the 

forex transaction) or as a negotiated trade?  Where a broker-dealer provides a 

“standing instruction” process for customers, what methods are used to determine the 

appropriate exchange rate?  Do retail customers receive the interbank rate or some 

other rate?   

21. What conflicts of interest exist in connection with broker-dealers handling and 

pricing of retail forex transactions?  How do broker-dealers manage these conflicts of 

interest?  Do broker-dealers disclose when they are acting as a counterparty to a forex 

transaction with a retail customer?   

22. What compensation structures do broker-dealers apply to retail forex transactions 

(e.g., per trade commissions, spreads, both)?  Do broker-dealers charge retail forex 

customers rolling fees or additional transaction fees, such as maintenance charges, 

software licensing fees, commissions paid to introducing brokers or other third-party 

service providers?  Are there breakpoints offered to retail customers based on, for 

example, volume or number of trades?  If so, are the breakpoints available to all retail 

customers?   

23. What fees are charged by broker-dealers for each type of retail forex trade?  What is 

the prevailing market rate for retail forex transactions?  How does this differ from the 



  

28 

prevailing market rate for forex transactions with ECPs?  Does the prevailing market 

rate differ for standing instruction fees and negotiated trade fees? 

24. Do broker-dealers disclose all compensation charged to retail customers?  At what 

point during the customer relationship are compensation disclosures made (e.g., prior 

to any forex transactions, following a forex transaction)?  What is the scope and 

breadth of those disclosures?  Should the Commission consider rules that would 

expand broker-dealers’ disclosure obligations? 

25. In light of the authority provided under section 742 of the Dodd-Frank Act for the 

Commission to consider any other standards or requirements in connection with retail 

forex transactions that it determines to be necessary, when a broker-dealer solicits 

business for and introduces customers to a forex dealer, what due diligence does the 

broker-dealer conduct about the forex dealer?  What policies and procedures do 

broker-dealers have in place, if any, regarding supervision of unregistered solicitors 

that introduce forex customers to the broker-dealer and that are employees or agents 

of the broker-dealer? 

26. What policies and procedures do broker-dealers have in place regarding 

advertisements and marketing materials related to forex services offered to retail 

customers? 

27. Do broker-dealers provide information to customers regarding access to the interbank 

currency market? 

28. What disclosures do broker-dealers make to retail customers regarding the 

performance and accuracy (including slippage rates) of electronic trading platforms or 



  

29 

software sold or licensed by or through the firm to customers in connection with forex 

trading? 

29. What information do retail customers believe is important for them to receive from 

broker-dealers regarding their forex transactions? 

30. What business conduct concerns do retail customers have regarding the manner in 

which their broker-dealers handle and price forex transactions? 

31. Do broker-dealers provide structured products to retail customers that require forex 

transactions at maturity?  In connection with these types of products, how are the 

foreign exchange conversion fees calculated and disclosed?  Is the cost of the 

conversion embedded in the transaction itself, or must investors pay additional fees 

for conversion? 

32. What alternatives for handling forex transactions outside of broker-dealers are 

available to retail investors?  Would a transition of retail forex business out of broker-

dealers be efficient or costly from the standpoint of customers?   

IV. Other Matters 

The Administrative Procedure Act generally requires an agency to publish notice of a 

proposed rulemaking in the Federal Register.59  This requirement does not apply, however, if the 

agency “for good cause finds . . . that notice and public procedure are impracticable, 

unnecessary, or contrary to the public interest.”60  Further, the Administrative Procedure Act also 

generally requires that an agency publish an adopted rule in the Federal Register 30 days before 

it becomes effective.61

                                                 
59  See 5 U.S.C. 553(b). 

  This requirement, however, does not apply if the agency finds good 

60  Id. 
61  See 5 U.S.C. 553(d). 



  

30 

cause for making the rule effective sooner.62  The Commission, for the reasons discussed above 

and below, finds that notice and solicitation of comment before the effective date of Rule 15b12-

1T is impracticable, unnecessary, and contrary to the public interest.63

It was not until mid-June 2011 that market participants first informed the Commission of 

a possible disruption of a potentially important forex service provided by broker-dealers to retail 

investors if the Commission did not act swiftly to adopt a rule allowing retail forex transactions 

by July 16, 2011, the effective date of section 742 of the Dodd-Frank Act.

   

64  As noted above, one 

representative of certain market participants stated that “it would expose both broker-dealers and 

their retail customers to needless operational, price, credit and other risks if the [Commission 

did] not allow broker-dealers to engage in foreign exchange activity that is ancillary to the 

broker-dealer’s ordinary securities execution, clearing, settlement and booking activity.”65

                                                 
62  Id. 

  The 

Commission believes that Congress, in enacting section 742 of the Dodd-Frank Act, may not 

have intended to prohibit certain types of foreign exchange activity, which might be beneficial to 

retail investors.  To allow the existing regulatory framework for retail forex transactions to 

continue for a defined period, to avoid potentially unintended consequences from broker-dealers 

immediately discontinuing their retail forex business, and to provide the Commission sufficient 

time to determine the appropriate regulatory framework regarding retail forex transactions, the 

Commission is adopting on an interim final temporary basis Rule 15b12-1T.  The Commission 

63  This finding also satisfies the requirements of  5 U.S.C. 808(2), allowing the rules to 
become effective notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency 
finds that notice and public comment are “impractical, unnecessary or contrary to the 
public interest,” a rule “shall take effect at such time as the federal agency promulgating 
the rule determines”).  

64  See Morgan Lewis Memo, supra note 15. 
65  Id. 



  

31 

does not intend to create new regulatory obligations for broker-dealers in adopting this interim 

final temporary rule.  The Commission further emphasizes that it is requesting comment on all 

aspects of the rule.  The Commission will carefully consider the comments it receives.   

V.  Paperwork Reduction Act 

The Commission notes that interim final temporary Rule 15b12-1T does not create new 

regulatory obligations for broker-dealers, and therefore does not impose any new “collections of 

information” within the meaning of the Paperwork Reduction Act of 1995 (“PRA”),66

VI. Economic Analysis   

 nor does it 

create any new filing, reporting, recordkeeping, or disclosure reporting requirements for broker-

dealers that are or plan to be engaged in a retail forex business.  Accordingly, the Commission 

did not submit the interim final temporary rule to the Office of Management and Budget for 

review in accordance with the PRA.  The Commission requests comment on its conclusion that 

there are no collections of information. 

 
A. Introduction 

Exchange Act section 23(a)(2) requires the Commission, when adopting rules under the 

Exchange Act, to consider the impact that any new rule would have on competition, and 

prohibits the Commission from adopting any rule that would impose a burden on competition 

that is not necessary or appropriate in furtherance of the purposes of the Exchange Act.  

Furthermore, section 2(b) of the Securities Act of 1933 and Exchange Act section 3(f) require the 

Commission, when engaging in rulemaking where it is required to consider or determine whether 

an action is necessary or appropriate in the public interest, to also consider, in addition to the 

                                                 
66  44 U.S.C. 3501 et seq.   



  

32 

protection of investors, whether the action will promote efficiency, competition, and capital 

formation. 

As noted above, section 742(c) of the Dodd-Frank Act amended the CEA to prohibit 

broker-dealers from engaging in retail forex transactions after July 16, 2011, absent rulemaking 

by the Commission to allow such transactions.  If there is no such rulemaking in place, then 

certain transactions that may be considered beneficial to retail investors, such as hedging 

transactions and securities conversion trades that take more than two days to settle, may no 

longer be conducted by broker-dealers.  Retail investors who transact in foreign securities 

through a broker-dealer may find it difficult to minimize their currency risk exposure if risk-

minimizing hedging transactions are moved outside the broker-dealer. 

The Commission is adopting interim final temporary Rule 15b12-1T to allow broker-

dealers to engage in a retail forex business for one year.  This rule keeps in place the regulatory 

framework that currently exists for broker-dealers, and preserves the ability of broker-dealers to 

provide, among other services, hedging and conversion trades, to retail investors while the 

Commission considers what further appropriate steps to take, if any. 

B. Benefits and Impact on Efficiency, Competition, and Capital Formation 

Rule 15b12-1T is intended to minimize market disruptions that may occur when section 

724(c) of the Dodd-Frank Act goes into effect.  Absent rulemaking by the Commission, broker-

dealers would be required to exit the retail forex business.  Consequently, retail customers who 

transact with a broker-dealer for their foreign investments may need to find another service 

provider for their foreign exchange transactions, which could interrupt the customers’ ability to 

trade in forex, depending on the availability of retail forex-related services outside of broker-

dealers. 



  

33 

The interim final temporary rule preserves retail customers’ access to the forex markets 

through broker-dealers.  To the extent that this provides hedging opportunities for foreign 

investments or otherwise promotes an efficient investment opportunity set by, for example, 

permitting the continued use of forex in connection with clearing trades in foreign securities, 

economic benefits accrue to retail investors, assuming that no close substitutes exist or that retail 

access to forex is not easily available elsewhere. 

Furthermore, by preserving a channel for retail customers to access forex transactions, the 

interim final temporary rule prevents any loss of competition in the retail forex space that could 

result if broker-dealers were required to exit the business.  Potential effects of reduced 

competition include, but are not limited to, higher customer fees for retail forex transactions 

charged by remaining service providers, as well as reduced availability of forex services to retail 

customers if customers no longer have access to these transactions through broker-dealers. 

C. Costs and Impact on Efficiency, Competition, and Capital Formation 

Because Rule 15b12-1T preserves the regulatory regime that is in place prior to the 

effective date of section 742(c) of the Dodd-Frank Act, the rule imposes no new regulatory 

burdens beyond those that already exist for broker-dealers engaged in a retail forex business.  

The Commission recognizes, however, that broker-dealers will face regulatory costs and 

requirements associated with operating in the retail forex market, which are costs and 

requirements that they already shoulder from doing business.  These include costs related to 

disclosure, recordkeeping and documentation, capital and margin, reporting, and business 

conduct.  For example, a broker-dealer that presently engages in forex transactions with retail 

customers incurs costs associated with establishing, maintaining, and implementing policies and 

procedures to comply with regulatory requirements; preparing disclosure documents; 



  

34 

establishing and maintaining forex-related business records; and preparing filings with the 

Commission, which may include legal and accounting fees. 

As discussed above, the Commission is aware of potentially abusive practices that may be 

occurring in the retail forex market.  To the extent that such practices continue, for example, lack 

of disclosure about fees and forex pricing, or insufficient capital or margin requirements, the 

retail forex market may bear costs associated with the inefficient provision of retail forex 

services.  The Commission believes, however, that the cost of market disruption that may occur 

if the Commission does not promulgate the interim final temporary rule is greater than the cost of 

maintaining the current regulatory regime while the Commission seeks comment and evaluates 

whether a more comprehensive regulatory regime is necessary. 

Because the regulatory requirements for broker-dealers operating in the retail forex 

market will remain unchanged, Rule 15b12-1T will impose no new burden on competition.  

Similarly, since the rule preserves an existing regulatory structure, the Commission does not 

expect any potential impairment of the capital formation process.  Finally, because the rule 

allows hedging transactions, securities conversions, and other transactions that allow investors to 

continue to have access to these vehicles, the Commission believes that the interim temporary 

final rule will promote efficiency. 

VII. Regulatory Flexibility Certification   

The Commission hereby certifies that pursuant to 5 U.S.C. 605(b) the interim final 

temporary rule contained in this release will not have a significant economic impact on a 

substantial number of small entities.  The interim final temporary rule applies to broker-dealers 

that may engage in retail forex transactions.  However, the Commission does not intend for the 

interim final temporary rule to impose new regulatory obligations, costs, or burdens on such 



  

35 

broker-dealers. While the rule applies to broker-dealers that may be small businesses, any costs 

or regulatory burdens incurred as a result of the rule are the same as those incurred by small 

broker-dealers prior to the effective date of section 742 of the Dodd-Frank Act.  Broker-dealers 

have already incurred those costs and regulatory burdens through establishing compliance with 

the rules adopted by the Commission under the Exchange Act applicable to broker-dealers.  

Further, the interim final temporary rule does not change the burdens on small broker-dealers 

relative to large broker-dealers.  Accordingly, the interim final temporary rule should not have a 

significant economic impact on a substantial number of small entities.  The Commission requests 

comment on its conclusion that Rule 15b12-1T should not have a significant economic impact on 

a substantial number of small entities. 

VIII.  Statutory Basis and Text of Amendments   

The Commission is adopting Exchange Act Rule 15b12-1T pursuant to section 2(c)(2) of 

the Commodity Exchange Act, as well as pursuant to the Exchange Act, as amended.   

List of Subjects in 17 CFR Part 240 

Brokers, Consumer protection, Currency, Reporting and recordkeeping requirements. 

In accordance with the foregoing, the Securities and Exchange Commission is amending 

Title 17, chapter II of the Code of Federal Regulations as follows: 

PART 240 – GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 
ACT OF 1934 
 

1. The general authority citation for Part 240 is revised to read as follows: 

Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 

77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 

78q, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 

and 7201 et. seq.; 18 U.S.C. 1350; 12 U.S.C. 5221(e)(3); and 7 U.S.C. 2(c)(2)(E), unless 



  

36 

otherwise noted. 

* * * * *  

2. Add § 240.15b12-1T to read as follows: 

§ 240.15b12-1T  Brokers or dealers engaged in a retail forex business.  

(a) Definitions.  In addition to the definitions in this section, the following terms have the 

same meaning as in the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.): “broker,” 

“dealer,” “person,” “registered broker or dealer,” and “self-regulatory organization.”  

(1) Act means the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). 

(2) Retail forex business means engaging in one or more retail forex transactions with the 

intent to derive income from those transactions, either directly or indirectly. 

(3) Retail forex transaction means any account, agreement, contract or transaction in 

foreign currency that is offered or entered into by a broker or dealer with a person that is not an 

eligible contract participant as defined in section 1a(18) of the Commodity Exchange Act (7 

U.S.C. 1a(18)) and that is: 

(i) A contract of sale of a commodity for future delivery or an option on such a contract; 

(ii) An option, other than an option executed or traded on a national securities exchange 

registered pursuant to section 6(a) of the Act (15 U.S.C. 78(f)(a)); or 

(iii) Offered, or entered into, on a leveraged or margined basis, or financed by a broker or 

dealer or any person acting in concert with the broker or dealer on a similar basis, other than: 

(A) A security that is not a security futures product as defined in section 1a(47) of the 

Commodity Exchange Act (7 U.S.C. 1a(47)); or 

(B) A contract of sale that: 

(1) Results in actual delivery within two days; or 



  

37 

(2) Creates an enforceable obligation to deliver between a seller and buyer that have the 

ability to deliver and accept delivery, respectively, in connection with their line of business. 

(b) Any registered broker or dealer may engage in a retail forex business provided that 

such broker or dealer complies with the Act, the rules and regulations thereunder, and the rules of 

the self-regulatory organization(s) of which the broker or dealer is a member, including, but not 

limited to, the disclosure, recordkeeping, capital and margin, reporting, business conduct, and 

documentation requirements, insofar as they are applicable to retail forex transactions. 

(c) Any registered broker or dealer that is engaged in a retail forex business in 

compliance with paragraph (b) of this section on or after the effective date of this section shall be 

deemed, until the date specified in paragraph (d) of this section, to be acting pursuant to a rule or 

regulation described in section 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C. 

2(c)(2)(E)(ii)(I)). 

(d) This section will expire and no longer be effective on July 16, 2012. 
 
 
By the Commission. 
 
 
        Elizabeth M. Murphy 
        Secretary 

 
Dated:  July 13, 2011