OANDA Deems CFTC Leverage Proposal Unfair and Non-Competitive

(See OANDA's full response to the CFTC.)


NEW YORK, March 19, 2010—OANDA Corporation, provider of innovative online forex trading and services, strongly opposes the 10:1 leverage cap that the U.S. Commodity Futures Trading Commission (CFTC) has proposed for Forex Dealer Members (FDMs) of the National Futures Association (NFA).

The CFTC announced its leverage proposal on January 13, 2010. It has received an unprecedented number of letters almost uniformly opposed to the 10:1 proposal. The proposal has also received attention on Capitol Hill, with concerns expressed in the United States House Committee on Agriculture from Chairman Collin C. Peterson (Dem., Minnesota) and Rep. Jim Marshall (Dem., Ga.). Senator Orrin Hatch (Rep., Utah) has also voiced his opposition.

As the March 22, 2010 deadline for public comments nears, OANDA wants to communicate why we believe the 10:1 leverage limit is highly restrictive and discriminates against retail traders.

1. Maximum 10:1 leverage puts retail forex clients at a disadvantage: Despite its stated aim to protect individual investors from losing money, the proposed 10:1 rule will increase their risk, because they will need to deposit more capital upfront that they could potentially lose. Those not able to deposit the necessary margin capital might be tempted to use offshore market makers in loosely regulated jurisdictions.

2. 10:1 is an arbitrary, low number: A 10:1 cap will be the lowest of any forex regulator in the world. The FSA in Japan is introducing a 50:1 leverage cap this year, lowering it to 25:1 in 2011. IIROC in Canada varies leverage requirements monthly depending on individual currency pair liquidity and historical price volatility, and typically caps popular currency pairs at around 33:1. Companies licensed under the FSA in the UK, for better or worse, are not subject to any leverage cap.

3. Comparisons with other types of market makers are not valid: The Financial Industry Regulatory Authority (FINRA) regulates securities brokers, and its 4:1 margin requirement has been cited as one justification for the CFTC's leverage proposal. This cap may be appropriate for securities brokers, who have very low capital requirements and check margin on a daily basis. By contrast, Forex Dealer Members access highly liquid markets and protect their clients with real-time margin checking and auto-closeout technology that minimizes the possibility that clients will experience negative balances.

4. The CFTC is setting up an anti-competitive environment: Part of the CFTC mission is to foster open, competitive, and financially sound futures and option markets. The proposed 10:1 cap on FDMs, if enacted, will not apply to the Chicago Mercantile Exchange (CME), NASDAQ or large banks, all of which can continue to offer leverage up to 50:1 or more, sanctioned by the CFTC. The Internet has no national boundaries, so FDMs operating under foreign regulators will still be offering higher leverages to their U.S.-based clients.

5. Some currencies are more volatile than others. The NFA has been the traditional regulator of leverage for U.S.-based FDMs and through long experience has recognized that a one-size-fits-all approach to leverage does not make sense. On November 30, 2009, it introduced a two-tier approach to leverage that recognizes that higher leverage levels of 100:1 are appropriate for popular currency pairs, but not for the more volatile exotics, which are currently capped at 25:1.

There are better ways to protect the funds of forex traders.

OANDA CEO Michael Stumm is chairing the NFA Forex Dealer Member Advisory Committee, which includes CEOs from the major FDMs. This committee is working on recommendations that will go much further to provide dynamic, flexible solutions to protect FDM clients from the dangers of everyday forex market volatility. In an ideal world, leverage should be tailored to the risk and liquidity of every individual currency pair and updated every month.

Stumm would like to see other regulatory approaches as well. "Forex traders would benefit from regulation that allows FDMs to protect their customer funds in segregated accounts - something that other entities regulated by the CFTC offer their clients already. Introducing brokers should also be regulated more thoroughly so clients are aware of how much money they're paying these middlemen."

Stumm reassures OANDA clients that his company will continue to practice a conservative business strategy and transparent way of doing business to provide the best value possible for its trading clients, and will fully support U.S.-based clients to trade within their jurisdiction under CFTC and NFA regulations.


OANDA started in 1995 as the first online provider of comprehensive currency exchange information. Since then the "OANDA Rate®" has become the touchstone for corporations, tax authorities, auditing firms and even central banks. In 2001 OANDA launched fxTrade, the first fully automated online forex trading platform. fxTrade was the first platform to offer immediate execution, support trades and accounts of any size, enable true 24/7 trading, and the first to eliminate the rollover swap by calculating interest by the second. OANDA's innovative technology has enabled it to sustain a large trading volume. Peak performance has been measured at 1.5 million trades a day, far exceeding the volume typically handled through any of the three leading global banks or electronic communication networks (ECNs) that trade forex. OANDA is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA).

SOURCE OANDA Corporation

Your capital is at risk. Losses can exceed investment. Leverage trading is high risk and not for everyone - find out more