A question came in from an attendee of last week's PIIGS panel discussion which wasn't directly related to the topic at hand, but which is clearly something that's on forex traders' minds these days. The question was "Is there a chance Dodd-Frank bill could end retail FX in the U.S." This is something I wrote about on my own blog last week, but I'll address it here again because it's something, which clearly needs further comment.
To answer the question very directly and succinctly, there is absolutely zero chance Dodd-Frank kills US retail forex.
That direct enough? :)
This question perhaps could have legitimately been asked a year ago when the bill was passed, but to bring it up now is useless. Basically, what Dodd-Frank said in regards to retail forex in the US is that the overseeing regulatory agencies must put regulations in place within a state period of time (a year I believe) or a prohibition would be put in place. The reason this has come up recently is that an SEC ruling came out which basically said (in order to meet the Dodd-Frank deadline) that existing rules regarding retail forex trading would stay as they are for a year while the agency considered new rules.
The fact that this SEC news has caused consternation in the retail forex trading community reflects the lack of understanding of how the market is regulated in the U.S. The SEC is only responsible for "securities" firms, which basically means stock brokers and stock exchanges. That means there are only a couple of minor forex players (and would-be players) falling under SEC purview.
The CFTC is the major regulator for retail forex trading in the US. The vast majority of forex brokers serving US customers are registered with that agency. The CFTC has already put through new rules. In fact, it was in the process of doing so even before Dodd-Frank. They didn't kill the US retail forex business then, even though there were loads of voices screaming that the FIFO, no-hedging, and 50:1 leverage limitation changes would do just that. The business is alive and well and not going anywhere.
I actually think the SEC could only really have a positive impact on US retail forex trading. The worst the agency could do is ban it for securities firms all together, but that's not something that's going to have any real impact on the industry because of the small footprint of stock brokers. If the SEC went the other way, though, and put the stock brokers in some kind of favorable position relative to the CTFC-regulated firms (or at least didn't put them in a disadvantaged position) it could actually create more positive competition in the industry.