Spot Gold and Silver Trading Regulation
Recently I've noticed some people confused with some of the possible implications and desired effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding: Section 742, and Section 413(a) and a few other recently amended additions. I will provide one full section with a link to the entire legislation below.
(a) In General- Section 2(c) of the Commodity Exchange Act (7 U.S.C. 2(c)) is amended--
(1) in paragraph (1), by striking ‘5a (to the extent provided in section 5a(g)), 5b, 5d, or 12(e)(2)(B))’ and inserting ‘, 5b, or 12(e)(2)(B))’;
(2) in paragraph (2), by adding at the end the
‘(D) RETAIL COMMODITY TRANSACTIONS-
‘(i) APPLICABILITY- Except as provided in clause (ii), this subparagraph shall apply to any agreement, contract, or transaction in any commodity that is--
‘(I) entered into with, or offered to (even if not entered into with), a person that is not an eligible contract participant or eligible commercial entity; and
‘(II) entered into, or offered (even if not entered into), on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis.
‘(ii) EXCEPTIONS- This subparagraph shall not apply to--
‘(I) an agreement, contract, or transaction described in paragraph (1) or subparagraphs (A), (B), or (C), including any agreement, contract, or transaction specifically excluded from subparagraph (A), (B), or (C);
‘(II) any security;
‘(III) a contract of sale that--
‘(aa) results in actual delivery within 28 days or such other period as the Commission may determine by rule or regulation based upon the longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved; or
‘(bb) creates an enforceable obligation to deliver between a seller and a buyer that have the ability to deliver and accept delivery, respectively, in connection with the line of business of the seller and buyer; or
‘(IV) an agreement, contract, or transaction that is listed on a national securities exchange registered under section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); or
‘(V) an identified banking product, as defined in section 402(b) of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C.27(b)).
‘(iii) ENFORCEMENT- Sections 4(a), 4(b), and 4b apply to any agreement, contract, or transaction described in clause (i), as if the agreement, contract, or transaction was a contract of sale of a commodity for future delivery.
‘(iv) ELIGIBLE COMMERCIAL ENTITY- For purposes of this subparagraph, an agricultural producer, packer, or handler shall be considered to be an eligible commercial entity for any agreement, contract, or transaction for a commodity in connection with the line of business of the agricultural producer, packer, or handler.‘(v) ACTUAL DELIVERY- For purposes of clause (ii)(III), the term ‘actual delivery’ does not include delivery to a third party in a financed transaction in which the commodity is held as collateral.’.
(b) Gramm-Leach-Bliley Act- Section 206(a) of the Gramm-Leach-Bliley Act (Public Law 106-102; 15 U.S.C. 78c note) is amended, in the matter preceding paragraph (1), by striking ‘For purposes of’ and inserting ‘Except as provided in subsection (e), for purposes of’.
(c) Conforming Amendments Relating to Retail Foreign Exchange Transactions-
(1) Section 2(c)(2)(B)(i)(II) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)) is amended--
(A) in item (aa), by inserting ‘United States’ before ‘financial institution’;
(B) by striking items (dd) and (ff);
(C) by redesignating items (ee) and (gg) as items (dd) and (ff), respectively; and
(D) in item (dd) (as so redesignated), by striking the semicolon and inserting ‘; or’.
(2) Section 2(c)(2) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)) (as amended by subsection (a)(2)) is amended by adding at the end the following:
‘(E) PROHIBITION-
‘(i) DEFINITION OF FEDERAL REGULATORY AGENCY- In this subparagraph, the term ‘Federal regulatory agency’ means--
‘(I) the
‘(II) the Securities and Exchange
‘(III) an appropriate Federal banking agency;
‘(IV) the National Credit Union Association; and
‘(V) the Farm Credit Administration.
‘(ii) PROHIBITION-
A person described‘(I) IN GENERAL- Except as provided in subclause (II), a person described in subparagraph (B)(i)(II) for which there is a Federal regulatory agency shall not offer to, or enter into with, a person that is not an eligible contract participant, any agreement, contract, or transaction in foreign currency described in subparagraph (B)(i)(I) except pursuant to a rule or regulation of a Federal regulatory agency allowing the agreement, contract, or transaction under such terms and conditions as the Federal regulatory agency shall prescribe.
‘(II) EFFECTIVE DATE- With regard to persons described in subparagraph (B)(i)(II) for which a Federal regulatory agency has issued a proposed rule concerning agreements, contracts, or transactions in foreign currency described in subparagraph (B)(i)(I) prior to the date of enactment of this subclause, subclause (I) shall take effect 90 days after the date of enactment of this subclause.
‘(iii) REQUIREMENTS OF RULES AND REGULATIONS-
‘(I) IN GENERAL- The rules and regulations described in clause (ii) shall prescribe appropriate requirements with respect to--
‘(aa) disclosure;
‘(bb) recordkeeping;
‘(cc) capital and margin;
‘(dd) reporting;
‘(ee) business conduct;
‘(ff) documentation; and
‘(gg) such other standards or requirements as the Federal regulatory agency shall determine to be necessary.
‘(II) TREATMENT- The rules or regulations described in clause (ii) shall treat all agreements, contracts, and transactions in foreign currency described in subparagraph (B)(i)(I), and all agreements, contracts, and transactions in foreign currency that are functionally or economically similar to agreements, contracts, or transactions described in subparagraph (B)(i)(I), similarly.’.
Over the counter spot gold and silver derivatives will not be available to retail investors. These pairs are traded as USD/XAG and USD/XAU (EUR/XAG etc) like foreign exchange currency pairs, with what was, up to 200:1 leverage.
I can assume many traders started trading these pairs and got eaten up by margin calls on volatile days due to poor strategy and little experience trading like this. If you don't plan on buying or selling actual gold or silver in the next month (28 days) you may no longer speculate on the spot price action in this way.
Additionally "accredited investor" has been redefined as a company head who is issuing shares, an investor with a $1,000,000+ portfolio (net worth not including personal home) or $200,000/year income or $300,000/year w/spouse income for at least two years and maintaining a comparable income stream for this year.
On top of this, people who may have a business where they deal with a legal number of clients managing capital or advising, must now take the Series 65 and register with the SEC as a Registered Investment Adviser (RIA) or Investment Adviser Representative (IAR) in order to serve US based clients. It removes the exemption for "small pools," meaning (i.e.) a Hedge Fund with 14 clients last year does not need to do what I described above.
This also may affect rule 506, section D, of the Securities act of 1933 to allow firms to not register their company with the SEC.
These sections are regulation geared toward smaller operations and I am quite confident the legislation will essentially leave the largest pools unregulated. OTC spot pair trades are a grain of sand on a massive beach in the derivatives world.
ty for this
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