Credit to ForexSavior for making this known. Here is the link to the bill he found, and it has already passed House and Senate by a wide margin. http://agriculture.house.gov/inside/...onf/CRlang.pdf

There are 3 main things that make Retail Forex (and by extension) MT4 illegal in the US. First of all, the broker must enter every trade you do, at the same price, at the same volume or they pay a fee or become barred from trading. Second, they specifically forbid all "net aggregate" trading. Meaning 400 BUY and 500 SELL right now is usually just 100 SELL orders, but under the new laws it must be 900 orders total, matching 1:1. Third, any price injection carries a fine 3 times higher than the profit, and there are hints they can send the brokers to jail for securities fraud.

To be a broker requires a $20 million deposit, and following a lot of rules that are completely up to a new agency with total power.

There is also some strange text regarding "counterparty" trades and so on. Here are some pieces of the text. The whole bill is at http://agriculture.house.gov/inside/...onf/CRlang.pdf Start on page 548.

Here's the section that says they can send Interpol, HSA, or whatever agency they designate after the trader/broker/IB:
‘(III) The Commission may make, promulgate, and en-
force such rules and regulations as, in the judgment of the
Commission, are reasonably necessary to effectuate any of
the provisions of or to accomplish any of the purposes of
this Act in connection with agreements, contracts, or trans-
actions described in clause (i) of this subparagraph if the
agreements, contracts, or transactions are offered, or en-
tered into, by a person that is not described in item (aa)
through (ff) of subparagraph (B)(i)(II).

I'm not sure, but this section appears to mean *each trader* needs to be registered with the NFA. How do I register my EA exactly?
‘‘(iii)(I) A person, unless registered in such capacity as
the Commission by rule, regulation, or order shall deter-
mine and a member of a futures association registered
under section 17, shall not—
‘‘(aa) solicit or accept orders from any person that
is not an eligible contract participant in connection
with agreements, contracts, or transactions described
in clause (i) of this subparagraph entered into with or
to be entered into with a person who is not described
in item (aa), (bb), (dd), (ee), or (ff) of subparagraph
(B)(i)(II);

Essentially, to hit the "buy" or "sell" button you need to be one of these people from (B):
‘‘(iii)(I) A person, unless registered in such capacity as
the Commission by rule, regulation, or order shall deter-
mine and a member of a futures association registered
under section 17, shall not—
‘‘(aa) solicit or accept orders from any person that
is not an eligible contract participant in connection
with agreements, contracts, or transactions described
in clause (i) of this subparagraph entered into with or
to be entered into with a person who is not described
in item (aa), (bb), (dd), (ee), or (ff) of subparagraph
(B)(i)(II);
described in section 1a(20) of this Act, is reg-
istered under this Act, and is not a person de-
scribed in item (bb) of this subclause, if the af-
filiated person maintains adjusted net capital
equal to or in excess of the dollar amount that
applies for purposes of clause (ii) of this sub-
paragraph and is not a person described in
such item (bb), and the futures commission
merchant makes and keeps records under sec-
tion 4f(c)(2)(B) of this Act concerning the fu-
tures and other financial activities of the af-
filiated person;
‘‘(dd) an insurance company described in
section 1a(12)(A)(ii) of this Act, or a regulated
subsidiary or affiliate of such an insurance
company;
‘‘(ee) a financial holding company (as de-
fined in section 2 of the Bank Holding Com-
pany Act of 1956);
‘‘(ff) an investment bank holding company
(as defined in section 17(i) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q(i))); or
‘‘(gg) a retail foreign exchange dealer that
maintains adjusted net capital equal to or in
excess of the dollar amount that applies for
purposes of clause (ii) of this subparagraph
and is registered in such capacity with the
Commission, subject to such terms and condi-
tions as the Commission shall prescribe, and
is a member of a futures association registered
under section 17.

I'm getting the general impression that since this act includes the trader, the broker, the associated persons AND their counterparties, that this act essentially establishes all dominion over anyone in the US from doing business with anyone who *isn't* registered in the US. In other words, the US market can only trade with the US market, or firms outside the US market who have joined the US market regulations. It is hard to tell what is intended since the law was written to be so complex.


‘‘SEC. 4b. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.
‘‘(a) UNLAWFUL ACTIONS.—It shall be unlawful—
‘‘(1) for any person, in or in connection with any order to
make, or the making of, any contract of sale of any commodity
in interstate commerce or for future delivery that is made, or to
be made, on or subject to the rules of a designated contract
market, for or on behalf of any other person; or
‘‘(2) for any person, in or in connection with any order to
make, or the making of, any contract of sale of any commodity
for future delivery, or other agreement, contract, or transaction
subject to paragraphs (1) and (2) of section 5a(g), that is made,
or to be made, for or on behalf of, or with, any other person,
other than on or subject to the rules of a designated contract
market—
‘‘(A) to cheat or defraud or attempt to cheat or defraud
the other person;
‘‘(B) willfully to make or cause to be made to the other
person any false report or statement or willfully to enter or
cause to be entered for the other person any false record;
‘‘(C) willfully to deceive or attempt to deceive the other
person by any means whatsoever in regard to any order or
contract or the disposition or execution of any order or con-
tract, or in regard to any act of agency performed, with re-
spect to any order or contract for or, in the case of para-
graph (2), with the other person; or
‘‘(D)(i) to bucket an order if the order is either rep-
resented by the person as an order to be executed, or is re-
quired to be executed, on or subject to the rules of a des-
ignated contract market; or
‘‘(ii) to fill an order by offset against the order or orders
of any other person, or willfully and knowingly and with-
out the prior consent of the other person to become the
buyer in respect to any selling order of the other person, or
become the seller in respect to any buying order of the other
person, if the order is either represented by the person as
an order to be executed, or is required to be executed, on or
subject to the rules of a designated contract market unless
the order is executed in accordance with the rules of the
designated contract market.

I called one broker and they agreed, this kills Retail Forex. The retail forex market would need to charge large commissions in order for trades to occur. The people that make the money under the new rules are obviously the Prime Brokers/Banks. The parties that actually handle settlement can now a ton more volume, at the expense of the retail market being completely eliminated from profitability. Also, the MT4 server is illegal in the US if it conducts net trades. Unless the ECN/Prime Broker is prepared to handle mini lots, mini lots are not possible. Leverage is mostly eliminated. Directly submitting trades to the ECN is also broken, because Buy cancels Sell.

If we can convince the Senators/Congressmen in America that this bill is more than subsidizing the pestiside farmers, we might be able to convince them to allow Bush to Veto the bill. Otherwise, this is the death of retail forex in the US and possibly the world. (counterparty may need to follow the same rules)

Thanks Daraknor for these usefull infos. Very much appreciated.

FerruFx

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MBTrading/EFXGroup might be the place for retail traders to go but the commissions are somewhat high. They do support mini lots as well. Since MBTrading is NFA registered for many years to trade stocks and commodities they will likely be fine under the new system. Their client supports mini trades right now. They also have high leverage, but this is essentially the line of credit that they are able to offer.

Now say someone heavily modifies MT4 server or MT5 supports straight through processing with no net trading (100% of trades made are lots in volume). Let's also assume this someone manages to convert MBTrading to work as the order filler for MT4mod. Every trade placed as a Buy goes on account A, and every trade placed as a Sell goes on account B. To close the trades on account A, the sell is entered in. This is STP without net trading.

What is the revenue model for this broker? As far as I can tell the only way they can make money at all is to increase the commissions that they must pay to MBTrading. Because they can't net trade, the leverage options they are able to offer are the same as MBTrading. They must also pay $20 million into an account for the right to do this.

I know this problem well, because I am that "someone" who is modifying MT4 server to trade ECN. The broker that hired me is doing Net Trading because only 1 account with Currenex is used. The main reason to do retail accounts with the broker is not commission (almost nothing) but to increase their leverage on their traded money up from about 15:1. The main reason to use MT4 is the EA support. It is *very* difficult to run MT4 Server without a dealing desk, the main issue being threading.

We agree that the Prime Brokers don't want to lose volume to Retail Brokers trading net. I also agree that people can register with the Broker to be an "associated person" but based on my reading it appears you need to pay an annual fee to the NFA, take several tests, have a clean background and a few other requirements. It is not a simple agreement between Broker and Trader, but Trader and NFA validated to Broker. It does not surprise me that Interpol was used as a threat, the US Govt will definitely enforce their laws on the world.

Anyone actually bother to read the text of the bill? LOL.

First thing this does is just amend an old set of rules to include forex. But it doesn't include forex in all rules, so it's questionable as to whether most of this even applies. The 2 biggest changes will be the 20m cash minimum broker requirement (it phases in tho) and the requirement that a fund operator, account manager or trade advisor be registered. That's not an overly restrictive requirement set, altho the 20m cash requirement is arguably useless (yay special interest legislation... sigh) for consumer protection.

Individual traders need not be registered or fall under "eligible parties." Only 1 of the parties need be eligible, which means either you or your broker. It does not say that you must be eligible in order to purchase contracts, but rather that you cannot accept orders or funds unless you qualify.

As for the "no bucketing" rules listed. It doesn't say you can't bucket trades or pair trades, it says you can't do it IF you claim the trades "are to be executed" ... read that carefully.

You cannot fill an order by offset or by being the buyer/seller IF you represent that the order is "an order to be executed" or is required to be executed by the rules of the exchange/market. Since retail forex is OTC there is no exchange or market rules, which means that as long as the broker declares in writing "not all orders may be executed to the open market, some orders may be filled in-house or paired" I'd think they should be fine.

The sky is not falling.

Thanks for the insight and welcome to the forum.

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You're the third person I know of to read it, and the only who has been able to discuss it. I read excerpts 3 times, and some of the difficulty I see in reading this is that it often references other bills, amends other sections of law, etc. The Commission is given absolute domain over this, and I haven't found out who "the Commission" is yet because I haven't spent 10 hours on researching this, only about 2 reading, 1 discussing, and then 2 hours trying to contact people about it.

The optional "i give you permission to do net, paired and bucket trades" is very key. Thank you very much for pointing that out. The explicit permission shouldn't be hard to get from most people but I'm still unclear about the tangled web I see here and I have tried to state that.

Are you able to answer the Counterparty question? I can't tell if this is US only, or would involve all agencies that the US permits US companies to do business with (They used a similar tact with the Patriot Act for Banking Regulations).

"Commission by rule/regulation/order AND member of a futures association (NFA?) shall not SOLICIT OR ACCEPT ORDERS..." This is the counterparty question. What do you think it means? I really want a second opinion. This is the Counterparty question. The contracts in (i) need to be studied, I didn't paste that section.

The real question in the US isn't what the law is, the real question is how they enforce the law. NFA is quick with the seize and desist letters, and I don't know how much power they are granted here.

Obviously the "Wild Wild West" days of Forex are over.

I wonder if all MT4 needs for compliance is to remove all references to the word "execute" in reference to orders. I also wonder about Net orders still. We need a lawyer who knows NFA/CFTC/Securities to review this thing for a few days. In the meantime, I'm trying to read between the lines and figure out what the new reality is.

It certainly doesn't seem as clear-cut as it was made out to be.

As for 'the wild-west days' being over - about time! Few would dispute that almost every Metatrader broker that has ever existed has abused its position, hugely aided by the platform itself which is specifically designed to aid in fleecing its customers...

btw, go to any forum that caters more to the prime-broker markets and you will find that threads b*tching about brokers stop-hunting, spiking, trading-against - in other words, all the stuff that is a daily occurrence with Metatrader brokers - in general, do not exist! The reason being, that this type of chicanery doesn't occur with 'real' brokers, or certainly nowhere near the extent suffered by retail-forex, which seems to attracts scum-bags in droves.

So if this bill facilitates in removing this vermin, and the 'steal-your-money' features from Metatrader - I'm all for it! It will also be interesting to see how this effects Metaquotes' business plan...

"to fill an order by offset against the order or orders
of any other person, or willfully and knowingly and with-
out the prior consent of the other person "
I see two parts there, and I don't know what they mean. The first part activates as fraud when "fill an order by offset against the order or orders" happens. I don't know what that means in legal terms. There is a separate fraud after the comma: "or willfully and knowingly and without the prior consent."

IMO as written, permission cannot be given to allow "offset" trades. Permission can be given for net trades. Other opinions?

I had about 70% bad fill rate from Deutsch Bank's dealer desk. The statistics are on another machine but I could still dig them up. Requote slippage was 3-4 pips if memory serves.

What forums do you know of for Prime Brokers? I have 2 different Prime Broker relationships, one through a fellow programmer.

This bill definitely aids in fighting stop loss hunting, those people have very clear penalties.