Dodd-Frank Claims Niche Gold Trading Form
Source: MarketWatch, Claudia Assis (6/22/11)
"Dodd-Frank act restricts all trading to exchanges, eliminating over-the-counter retail currency investing."
A little -known form of gold investing used by some retail currency traders is disappearing, ahead of tighter regulations scheduled to go into effect next month.
Forex.com, a large retail foreign-exchange operation, on Friday told clients it will discontinue its gold and silver over-the-counter products marketed to retail investors who are U.S. residents. It asked investors to close their positions by July 15.
"It is our interpretation that we just can't offer it legally" in response to regulatory provisions in the 2010 Dodd-Frank Act that kicks in after July 15, said Alicia Brown, a spokeswoman for Gain Capital, the parent company of Forex.com.
The allure of gold as an alternative to paper currencies has helped propel the precious metal to record highs, alongside a surge in retail currency trading.
Trading gold and silver over the counter—bypassing a futures exchange—offered investors a chance to enter a highly speculative, leveraged market that also left many investors at risk of fraud, according to one trade group.
"In order to trade, it needs to be done in an exchange, or it can't be done at all," said Dan Driscoll, a vice president with the National Futures Association.
The industry group asked Congress for such changes, due to numerous cases of fraud in such contracts. Doing business with a futures exchange offers retail investors more protections and transparency, he said.
Firms that "continue to offer these run the risk of government action," Driscoll said.
After July 15, commodities transactions between retail investors that are leveraged and not delivered in 28 days, must be conducted in a "designated contract market," a board of trade or exchange designated by the CFTC, according to the new rules.