February 27

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ECP Requirements – CFTC Regulation Forces OTC FX Traders out of FCMs and Prime Brokers

ECP Requirements – CFTC regulation making it hard for FX traders to find FCMs and prime brokers that accepts trader funds

I will start by defining ECP requirements, this is basically a list of rules and regulations that are mandatory for any company or an individual that wishes to become a FX broker or to be involved in foreign exchange trading business; from futures, commodities, financial institutions, insurance companies, and even government institutions, all these are required to comply with specific rules stipulated for each type of entity.

The meaning of ECP requirements

The initial ECP is an abbreviation for eligible contract participant and is made of three basic options with several sub-options under each of them. These provide the prospective brokers with the opportunity to qualify themselves as eligible contract participants. The ECP requirements mandate that the person or company select at least one option under the listed many which in several occasions end up being the stumbling block of the prospective brokers.

The ECP requirements have therefore forced the brokers to put even more stringent measures to the FX traders with a very particular interest in net worth. The specific clause in the eligible contract participant rules and regulation stating a minimum of $ 10,000,000 of net worth from anyone wishing to become a broker or an individual qualified to trade in regulated foreign exchange along with other licensing requirements have been a major contributor to that effect.

The Dodd-Frank Act VII and CFTC on OTC transactions

The Commodities and Futures Trading Commission (CFTC) was tasked with regulating the activities of Over the Counter (OTC) transactions back in 2010 when Barrack Obama signed the Dodd-Frank Act. This was an act taken to minimize investor exploitation during the Wall Street reformation. Foreign exchange is one of the most exciting yet risky methods of investing and many people have identified FX as one of their main portfolio instruments while others have made it their business to act as brokers in the market. It is actively traded as a derivative across counters and for many years has remained unregulated attracting a lot of interest from unsuspecting investors.

Getting a Prime Broker to Accept Your Funds

The fact that many investors end up being locked out because they can’t meet the $10,000,000 dollars threshold requirement or cannot find a top broker, does not mean that that’s the end of it all. There are few brokers out there who are willing to add to their pool of investors just like you. Don’t be fazed away by the recent development in the financial markets that tend to bar people like you from FX trading.

The Securities Exchange Commission (SEC) has also tightened the rope on OTC derivatives trading and hence the diminishing hopes of the future of the mini FX traders. The banks are taking the heavyweights in FX trading while the prime brokers are standing for nothing less either; all this with an effort to comply with the ECP regulations that mandate customer protection. It is therefore a very strong recommendation that you seek more information as early as now before the window of opportunity becomes dimmer. This financial blog page has indeed been very helpful for people who desperately search for this limited and waning number of brokers.

Why enforcement of the Commodities Exchange Act on Minimum required for FX Trading, Works against the Ordinary FX trader

The commodities commission act of 1934, which was actually enacted fully in 1936, has been one of the most saviors of many mini and micro FX traders. The rules have indeed been just but existing, allowing FX investors of the lower cadre to trade freely without having to keep an eye on the ever vivid watch dog. However, this is no loner the case as the commission has deemed it very necessary to tighten the rope on FX trading with a keen eye of kicking out the ordinary traders who can’t meet the required minimum.

This has actually not gone very well with one of the firms deemed to have gone against this rule facing the music back in May 2011; not quite a long time ago to be specific it’s less than a year. In May 12th, 2011, FX trading LLC was charged in a federal court to pay a sum of $110,000 for failing to maintain the required minimum capital to be involved in trading. This was seen as an example by the government for all FX traders that the minimum is indeed going to be taken seriously under all circumstances.


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