The United States Securities and Exchange Commission (SEC) has just made a new announcement. On Wednesday the agency declared changes in the regulatory system of the OTC. The regulator indicated that the regulatory structure of the Over-the-counter market needs some kind of restructuring, adding a new component of its already existing organizational rules.
Transformations refer mainly to market disclosure, increasing the safety measures for investor security in the OTC market. The need for the new law has arisen for the broker-dealers who provide access to the OTC securities, ensuring that they publish quotations to protect the issuer when their private details aren’t publicly available. According to the new regulation, they have to evaluate the information about the basic issuer first and take some quotations about them for the OTC instruments only after this. The regulator’s main aim is to reduce fraud and make operating of the OTC market more effective.
Why is regulatory clarity important?
While some people are concerned about the new mandatories, in general, regulatory clarity is quite important for any broker. Because forex brokers provide financial services and take part in one of the most liquid market sectors of the world, regulations are an essential part of protecting the consumers and investors. Without regulations stealing money from the clients would be something easy but official laws ensure the emergence of trust and empathy between the broker and the client. For example, according to this T1Markets review, the Securities and Exchange Commission of Cyprus is responsible for controlling the operating system of the financial companies in the country. CySEC generally gives licenses to investment companies and even more, it has the right to impose sanctions if something is wrong. This regulatory body changed the way of regulating the financial system and took a big part in avoiding all the possible harm and manipulation, which means updating the regulation system can be useful to overcome potential challenges.
US regulation system
Ensuring regulatory clarity is especially important in the United States where combating fraud is becoming a more and more difficult task for the regulators. The number of US forex traders raises every day and catching the speculative traders in this growing market is becoming hard. The country’s territory is very large and it has one of the most advanced economies in the terms of GDP. Also, the US dollar is the most traded currency in the world, requiring the strictest regulations for American fx brokers in the world. The consumers are vulnerable to be manipulated and this is why the US is very harsh and demanding when it comes to financial regulation.
First of all, to provide services to US-based traders a broker must have a license there. The requirements received in 2012 covers all financial service sectors and is considered as one of the most comprehensive in the financial sector of America. These regulations include limiting hedging to reduce losses while opening dual transactions on the same currency pair at the same time. Also, it adjusts the leverage gap for the main currency which is limited to 50:1. Besides, taxes for the US brokers are high which depends on the trader’s income bracket and they have to pay for every single profit made on the forex exchange market. US brokers are regulated by two agencies: CFTC (Commodity Future Trading Commission) and the NFA (National Future Association).
One of the regulations for American brokers is that they must be registered in CFTC and be a member of NFA. They have a number of specific regulations. For example, according to Forbes, CFTC requires US traders to buy leveraged financial products on-exchange, including bitcoin derivative products. But there is an exception and they can buy leveraged off-exchange forex contracts if it’s provided by a licensed retail foreign exchange dealer.
US regulations also include starting offshore, providing extra security for its citizens. Choosing a broker is always related to potential risk but it is safer when you keep in touch with an offshore broker, granting you greater access to your money. These harsh financial regulations scared many fx brokers and this is why many brokers simply avoid even trying to get a foothold in the country and as a result, only a few brokers accept US traders.
However, in European countries, they have free reign on targeting compared to America and the regulations aren’t as strict. They have an overhead regulatory entity and a specific law that regulates most of the continent which means that if a broker is registered in one of the European countries, they also have permission to operate in another European country.