Setting up a legal entity with a US forex licence. Service offer

US forex brokers are supervised by various regulatory bodies, including (but not limited to):

• SEC (Securities & Exchange Commission);
• National Futures Association (NFA);
• Commodity Futures Trading Commission (CFTC);
• Financial Industry Regulatory Authority (FINRA).

NFA is the primary agency responsible for forex brokers licensing and supervision, while CFTC is responsible for developing regulations and guidelines for financial markets.

The scope of NFA activities is as follows:

• To provide necessary licences (after due diligence) to eligible forex brokers to conduct forex trading business;
• To enforce compliance with necessary capital requirements;
• To combat fraud;
• To enforce detailed record-keeping and reporting requirements regarding all transactions and related business activities.

FINRA, in turn, is a US self-regulatory organisation (SRO) that acts as an independent agency to regulate securities firms, financial brokers, investors, and other market players that interact with the various US stock exchanges.

FINRA has created specific guidelines for its regulated member firms to be transparent about their forex products, and such brokers are also expected to register with CFTC and NFA for comprehensive regulatory protection.

FINRA is also responsible for levying fines on non-compliant firms and for providing fair compensation to investors in cases of broker abuse.

Under the Commodity Exchange Act (CEA), companies must register with the Commodity Futures Trading Commission (CFTC) to be able to provide forex products to customers.

The licensing rules vary for broker-dealers, investment banks, introducing brokers, and others. To become a Forex Dealer Member (FDM), you must have a minimum net capital of USD 20 000 000. If you offer or accept orders to buy or sell retail over-the-counter forex contracts and accept money or assets from retail customers, the company must qualify as a Forex Dealer Member.

The Commodity Exchange Act (CEA or the Act) gives the Commodity Futures Trading Commission (CFTC) jurisdiction over over-the-counter foreign currency futures and options transactions as well as certain leveraged foreign currency transactions offered to or entered into with retail customers. Under the CEA, only certain regulated entities may be counterparties to these over-the-counter trades with retail customers. These regulated entities are certain registered futures commission merchants (FCM) and registered retail foreign exchange dealers (RFED). All other over-the-counter futures and options transactions with US retail customers are unlawful unless they comply with or are subject to the rules of a regulated exchange.

A futures commission merchant (FCM) is an entity that solicits or accepts orders to buy or sell futures contracts, options on futures, retail over-the-counter forex contracts, or swaps, and accepts money or other assets from customers to support such orders.

A customer is any party to a forex trade who is not an eligible contract participant as defined in the Act. This includes individuals with assets of less than USD 10 000 000 and most small businesses.

A company may only act as a counterparty, or offer to act as a counterparty, to any forex transaction if the company is one of the regulated entities listed in the CEA. These entities (authorised counterparties) are:

• US-based financial institutions (e.g., banks and savings associations);
• financial holding companies;
• registered FCMs that are primarily or substantially engaged in on-exchange futures activities;
• RFEDs;
• FCMs and RFEDs must be members of NFA and be approved by NFA as forex firms.

Individuals employed by an FCM, RFED, introducing broker (IB), commodity pool operator, or commodity trading advisor who solicit or accept retail forex customer orders or supervise any person who solicits or accepts retail forex customer orders must register as associated persons (AP) and be approved as forex APs by NFA.

No member may be approved as a forex firm unless at least one of its principals is registered as an AP and approved as a forex AP.

Except for otherwise regulated US-based financial institutions, registered broker-dealers and certain affiliates and financial holding companies, entities or individuals that introduce forex customers to registered FCMs or RFEDs must register as IBs and be NFA members.

Each FDM must maintain adjusted net capital (ANC) (as defined in CFTC Regulation 5.7) equal to or in excess of the greatest of:

1. USD 20 000 000; or
2. The amount required by (1.) plus:

• 5% of all liabilities exceeding USD 10 000 000 that the FDM owes to customers (as customer is defined in NFA Compliance Rule 2-36(s)(2)) and to eligible contract participant counterparties that are not an affiliate of the FDM and are not acting as a dealer; and
• 10% of all liabilities the FDM owes to eligible contract participant counterparties that are an affiliate of the FDM not acting as a dealer; and
• 10% of all liabilities eligible contract participant counterparties that are an affiliate of the FDM and acting as a dealer owe to their customers (including eligible contract participants), including liabilities related to retail commodity transactions as described in Section 2(c)(2)(D) of the Commodity Exchange Act (CEA); and
• 10% of all liabilities the FDM owes to eligible contract participant counterparties acting as a dealer that are not an affiliate of the FDM, including liabilities related to retail commodity transactions as described in Section 2(c)(2)(D) of the Commodity Exchange Act (CEA); or
• For FCMs, any other amount required under NFA Financial Requirements Section 1.

Adjusted Net Capital (ANC) is computed as follows:

*The fees are valid as of August 2024.