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Addressing Investor Risks in the Retail Forex Business

Commissioner Luis A. Aguilar

U.S. Securities and Exchange Commission

July 11, 2013

Section 742(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) prohibits a regulated financial institution from entering into certain foreign exchange transactions with retail customers (“Retail Forex”) unless, and until, the financial institution’s regulator has promulgated rules specifically addressing these transactions.  In 2010,[2] the U.S. Commodity Futures Trading Commission (“CFTC”) adopted rules applicable to such transactions because it had “observed a number of improper practices that have raised concern, among them solicitation fraud, a lack of transparency in the pricing and execution of transactions, unresponsiveness to customer complaints, and the targeting of unsophisticated, elderly, low net worth and other vulnerable individuals.”[3]  The U.S. Securities and Exchange Commission (“Commission” or “SEC”) by contrast has yet to propose, much less adopt, Retail Forex rules addressing these transactions as mandated by Section 742(c) of the Dodd-Frank Act.
In fact, in July 2011, the Commission adopted an Interim Rule that prevented Section 742(c) from going into effect and allowed registered broker-dealers to engage in Retail Forex transactions until July 2012,[4] and then extended the Interim Rule to July 16, 2013.[5]  It was my expectation that, during that period of time, the Commission would consider rules to address investor protection concerns, such as abusive sales practices and risks associated with the Retail Forex market.[6]
However, this has not taken place.  To date the Commission has not proposed (and, at this time, does not intend to propose) any Retail Forex rule.[7]  Instead, the Commission now expects the Financial Industry Regulatory Authority (“FINRA”) to consider rulemaking initiatives in the Retail Forex area.[8]
Today, the Commission announced a further delay in the implementation of Section 742(c) for another three years, to July 31, 2016.  Notwithstanding the two years that have passed, the staff’s rationale is that it needs additional time to assess the Retail Forex market and determine whether, among other options, Retail Forex rules need to be proposed or the rule extension be allowed to expire.[9]
I am disappointed by the delay.  To ensure that more is accomplished in the next three years than in the past two years, at my request, the staff has developed an approach to address the issues raised by the Retail Forex market.  To this end, the staff has undertaken, among other things, to work with FINRA and gather information about the Retail Forex market, discuss any rules that FINRA should consider for its members, and consult with other regulatory agencies to identify potential areas of investor harm.[10]
Though Retail Forex transactions may provide benefits, they can pose great risks to investors.  I continue to have concerns, many of which I have expressed in the past.[11]  In fact, I was so concerned that, at my suggestion, the Commission’s Office of Investor Education and Advocacy issued an investor alert that warns investors about the potential risks and conflicts inherent in Retail Forex transactions.[12]  The CFTC and FINRA have also articulated the risks posed by the Retail Forex market to retail customers.[13]
I remain concerned about the risks posed by Retail Forex transactions, and request that both the SEC staff and FINRA staff remain vigilant about such transactions and move swiftly to address any inappropriate activities.
It is my expectation that the Commission and the SEC staff will work in earnest to assess this market and either adopt new rules that accomplish Congress’ intent or allow the law to go into effect.  It is simply not acceptable for the Commission to continue to delay the fact-finding and decision-making process, and any further delay will only serve to heighten, rather than lessen, investor harm.
[1] The views expressed in this statement are those of Commissioner Luis A. Aguilar and do not necessarily reflect the views of the SEC, other SEC Commissioners, or members of the staff. 
[2] Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries, 75 FR 55410 (Sept. 10, 2010), available at (the CFTC’s adopting release states, “[the Dodd-Frank Act] … clearly indicates the intent of Congress that retail forex transactions in the United States either be comprehensively regulated or be prohibited outright.”  75 FR 55410, 55413 n.17 (citing Section 742 of the Dodd-Frank Act)).
[3] Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries, 75 FR 3282, 3286 (Jan. 20, 2010), available at  
[4] Retail Foreign Exchange Transactions, Exchange Act Release No. 34-64874 (July 13, 2011), available at
[5] Extension of Interim Final Temporary Rule on Retail Foreign Exchange Transactions, Exchange Act Release No. 34-67405 (July 11, 2012), available at
[6] See supra note 4 at pp.7-8.
[7] The Dodd-Frank Act intended for regulators to start providing retail customers with additional protections in the Retail Forex area.
[8] See Retail Foreign Exchange Transactions, Exchange Act Release No. 34-69964, pp.14, 16-17 (July 9, 2013), available at
[9] See id. at p.13.
[10] See id. at pp.13-14.
[11] Sarah N. Lynch, Reuters, SEC’s Aguilar Seeks Investor Alert On Retail Forex, (July 15, 2011), available at
[12] See Investor Bulletin: Foreign Currency Exchange (Forex) Trading For Individual Investors (July 2011), available at
[13] See Press Release, CFTC, CFTC Releases Final Rules Regarding Retail Forex Transactions (Aug. 30, 2010) (noting that Retail Forex is “the largest area of retail fraud that the CFTC oversees”), available at; FINRA Regulatory Notice 08-66 (Retail Foreign Currency Exchange) (Nov. 2008) (describing the Retail Forex market as “opaque, volatile, and risky”), available at; see also, Retail Foreign Exchange Transactions, Exchange Act Release No. 34-64874, p.7 (July 13, 2011) (report about potential abuses in the Retail Forex market), available at
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