Rolling spot forex definition
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Close alert You've unfollowed this author. You won't receive any more email notifications from this author. Last month Commissioner Bart Chilton of the Commodity Futures Trading Commission CFTC confirmed that the CFTC intends to extend the definition of swap to include retail rolling spot forex FX transactions hereinafter, Rolling FX. A Rolling FX transaction occurs when a net open position in the spot market is not physically delivered but is rather rolled forward until it is offset. The CFTC deems Rolling FX to be a swap due to the speculative nature of the product and the ability to exchange one asset or liability for a similar asset or liability to shift risk. In his announcement, Commissioner Forex Chilton stated that: For instance, the CFTC believes that Rolling FX can be seen as a contract for difference CFDwhich in turn can fit under the definition of a swap. These firms contend that a CFD grants no ownership rights with respect to the transacting party, whereas in Rolling FX the party to the contract maintains the right to receive physical delivery of the referenced currency on demand. The CFTC apparently does not share this same opinion, however, regarding the fundamental distinction between a CFD and Rolling FX. The CFTC is expected to proceed with definition plans to require all U. Some retail FX brokers, such as Gain Capital and FXCM, have already registered in this capacity in March of this year. Some spot participants believe that the CFTC is likely to grant more leeway for institutional FX transactions and is likely to seek input from firms forex offer these products when defining the parameters of a rolling spot in that situation. In this regard, institutional firms point to the distinction that in retail FX the positions are generally rolled over automatically whereas institutional FX requires manual rollover. Institutional FX firms in turn believe this distinction would render their transactions exempt from the swap spot. As a further consideration, the U. Treasury exemption for FX swaps and forwards, which was finalized in Novemberexempts these products from mandatory clearing and exchange trading requirements. While this exemption is thought to cover FX spot that are physically delivered, it is presently unclear as to whether it would also apply to Rolling FX. Based on this additional uncertainty, some firms are preparing themselves to be able spot report on Rolling FX. Many of them are uncertain, however, as to when, how or whether to begin preparing for the possibility that such transactions may eventually require clearing as well. As has been the case for most of the rolling, forex regulations in the U. During the last decade, both federal and self-regulatory organizations, on numerous occasions, have established rules only to subsequently second guess themselves. With each new regulatory go-around the industry has suffered. This has forced more accounts and brokerages to seek regulatory shelter outside of the U. It has also driven the compliance cost of operating an FX brokerage in the U. We are hoping this time around the CFTC and Commissioner Chilton are able to land on a concrete set of rules that will stand over time. In this case, perhaps more than any rolling, regulatory uncertainty inadvertently eroded the very safeguards put in place to protect U. Further Guidance We encourage you to seek assistance if you have any questions regarding how the expected change in the registration requirements for retail FX firms might affect your firm. Please note that the information set forth in this summary is not intended to be all-inclusive and does not constitute legal advice. For instance, retail FX firms should start becoming aware of the requirements for swap dealer registration, as well as the ongoing requirements once registered. 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