Forex Brokers to be Exempt of Dodd-Frank Rules?

Perhaps forex brokers will get some good news soon, maybe in April. The Dodd-Frank act consists of many limitations, that not every broker will be able to handle. But forex brokers could be exempt from these rules.

Discussions continue in Washington DC regarding the implementation of the Dodd-Frank legislation. The CFTC has to provide complementary rules regarding the legislation, regarding the foreign exchange markets.

The Wall Street Journal reports:

The $4 trillion-a-day spot market for currency trading, which is a cash-settlement market, doesn’t come within the law’s purview. The commission is deciding how to apply the new rules to foreign-exchange derivatives.

There is only one forex broker represented in these discussions: FXAll, which caters institutional clients rather than retail traders. Their CEO,  Philip Weisberg warned that if rules would be too harsh, the industry could find itself in London.

As this legislation is extremely complicated, the implications of the law aren’t clear to almost anyone. Will US forex traders be limited to trading solely with US forex brokers? Some US brokers “repatriated” their clients from their offshore  subsidiaries.

But as far as I know, severe enforcement to disable forex traders from trading overseas wasn’t seen. One rumor was that offshore forex brokers, including those that undergo serious regulation as in Britain, Switzerland and Australia, would get the same credit card classification as gambling (7995).

As far as I know, this never happened. It now seems that the CFTC will have a lighter hand on forex brokers. Leverage in American trading accounts is already limited to 50:1 since October 18th 2010. This major change already weighs on the industry, and I believe that the CFTC should wait before putting on new burdens.

Update: See important comments below by Michael Greenberg.