Trading Forex in the US after new Dodd-frank rule

P

panganp

As most US forex traders already know, in 2016 a new SEC / dodd-frank rule prohibited US brokers regulated by the SEC to do forex with non-eligible contract persons (ECP); that is, no US forex clients with assets under USD 10 million. Interactive Brokers is SEC regulated and was thus affected by this. This did not affect FX brokers that do not deal in securities and are regulated by the CFTC alone. And it did not affect non-US forex traders.

I am a London based full-time trader. I use Interactive Brokers. Two-thirds of my business is forex. The remainder is futures, ETFs and sovereign bonds. I have a complex Python/SQL/R based system that interacts with IB for data gathering and statistical analyses. I'm balls deep with IB. But I am moving to the US for personal reasons and I shall soon be a "US person". This represents a problem, and I am facing the following alternatives for trading forex:

1) Keep my trading business outside of the US, undeclared - This for me is an absolute no go.
2) Increase trading capital to USD 10 million - Not realistic.
3) Move all forex to forex futures - This is a feasible option, though far from ideal for multiple reasons. Spot trumps futures.
4) Move my FX trading to FXCM or Gain Capital - Far from ideal due to coding integration and splitting trading capital between accounts (I do need IB regardless for etfs and bonds).
5) Setup a BVI for forex trading - Would cost extra time and money (setup/maintenance costs, cumbersome US tax forms). But would it work? I'll find out! I'm not sure if a BVI with one US person as owner qualifies as non-US client.
6) State I have assets over USD 10 million to be recognized as an eligible contract person - Lying is never good, but would it be illegal? It may very well be 100% legal. The SEC rule regulating this (17 CFR Part 240) states SEC regulated brokers are prohibited from doing retail forex transactions with non-eligible contract participants. But I have found nothing indicating that falsely claiming to have assets over 10 million is illegal in any way. And I have read hundreds of pages of legal documents looking for it.

I would greatly welcome any insights into #5 and #6, particularly the latter, refraining please from righteous statements regarding right vs wrong. This is about legal or illegal, not right vs wrong. If legal its OK, if illegal it is not.

Thank you all.
 
panganp said:
As most US forex traders already know, in 2016 a new SEC / dodd-frank rule prohibited US brokers regulated by the SEC to do forex with non-eligible contract persons (ECP); that is, no US forex clients with assets under USD 10 million. Interactive Brokers is SEC regulated and was thus affected by this. This did not affect FX brokers that do not deal in securities and are regulated by the CFTC alone. And it did not affect non-US forex traders.

I am a London based full-time trader. I use Interactive Brokers. Two-thirds of my business is forex. The remainder is futures, ETFs and sovereign bonds. I have a complex Python/SQL/R based system that interacts with IB for data gathering and statistical analyses. I'm balls deep with IB. But I am moving to the US for personal reasons and I shall soon be a "US person". This represents a problem, and I am facing the following alternatives for trading forex:

1) Keep my trading business outside of the US, undeclared - This for me is an absolute no go.
2) Increase trading capital to USD 10 million - Not realistic.
3) Move all forex to forex futures - This is a feasible option, though far from ideal for multiple reasons. Spot trumps futures.
4) Move my FX trading to FXCM or Gain Capital - Far from ideal due to coding integration and splitting trading capital between accounts (I do need IB regardless for etfs and bonds).
5) Setup a BVI for forex trading - Would cost extra time and money (setup/maintenance costs, cumbersome US tax forms). But would it work? I'll find out! I'm not sure if a BVI with one US person as owner qualifies as non-US client.
6) State I have assets over USD 10 million to be recognized as an eligible contract person - Lying is never good, but would it be illegal? It may very well be 100% legal. The SEC rule regulating this (17 CFR Part 240) states SEC regulated brokers are prohibited from doing retail forex transactions with non-eligible contract participants. But I have found nothing indicating that falsely claiming to have assets over 10 million is illegal in any way. And I have read hundreds of pages of legal documents looking for it.

I would greatly welcome any insights into #5 and #6, particularly the latter, refraining please from righteous statements regarding right vs wrong. This is about legal or illegal, not right vs wrong. If legal its OK, if illegal it is not.

Thank you all.
More...
On option 6 the illegality wouldn't be you falsely claiming over $10M in assets but the broker accepting you. IB compliance is a joke, so you might get away with it with them, but in general a broker's compliance division is going to want to see some proof because it's their ass on the line, not yours, and as you pointed out you're incentivized to lie about it.

That said, there is an option 6.5 as it were. The way the rule is written it isn't entirely clear that you have to have a net worth of $10M or just have $10M in notional contracts in your account. At 50:1 that would only require $200k in actual cash.
 
panganp said:
As most US forex traders already know, in 2016 a new SEC / dodd-frank rule prohibited US brokers regulated by the SEC to do forex with non-eligible contract persons (ECP); that is, no US forex clients with assets under USD 10 million. Interactive Brokers is SEC regulated and was thus affected by this. This did not affect FX brokers that do not deal in securities and are regulated by the CFTC alone. And it did not affect non-US forex traders.

I am a London based full-time trader. I use Interactive Brokers. Two-thirds of my business is forex. The remainder is futures, ETFs and sovereign bonds. I have a complex Python/SQL/R based system that interacts with IB for data gathering and statistical analyses. I'm balls deep with IB. But I am moving to the US for personal reasons and I shall soon be a "US person". This represents a problem, and I am facing the following alternatives for trading forex:

1) Keep my trading business outside of the US, undeclared - This for me is an absolute no go.
2) Increase trading capital to USD 10 million - Not realistic.
3) Move all forex to forex futures - This is a feasible option, though far from ideal for multiple reasons. Spot trumps futures.
4) Move my FX trading to FXCM or Gain Capital - Far from ideal due to coding integration and splitting trading capital between accounts (I do need IB regardless for etfs and bonds).
5) Setup a BVI for forex trading - Would cost extra time and money (setup/maintenance costs, cumbersome US tax forms). But would it work? I'll find out! I'm not sure if a BVI with one US person as owner qualifies as non-US client.
6) State I have assets over USD 10 million to be recognized as an eligible contract person - Lying is never good, but would it be illegal? It may very well be 100% legal. The SEC rule regulating this (17 CFR Part 240) states SEC regulated brokers are prohibited from doing retail forex transactions with non-eligible contract participants. But I have found nothing indicating that falsely claiming to have assets over 10 million is illegal in any way. And I have read hundreds of pages of legal documents looking for it.

I would greatly welcome any insights into #5 and #6, particularly the latter, refraining please from righteous statements regarding right vs wrong. This is about legal or illegal, not right vs wrong. If legal its OK, if illegal it is not.

Thank you all.
More...
Is this you trading your own money or you trading clients money ?
 
panganp said:
As most US forex traders already know, in 2016 a new SEC / dodd-frank rule prohibited US brokers regulated by the SEC to do forex with non-eligible contract persons (ECP); that is, no US forex clients with assets under USD 10 million. Interactive Brokers is SEC regulated and was thus affected by this. This did not affect FX brokers that do not deal in securities and are regulated by the CFTC alone. And it did not affect non-US forex traders.

I am a London based full-time trader. I use Interactive Brokers. Two-thirds of my business is forex. The remainder is futures, ETFs and sovereign bonds. I have a complex Python/SQL/R based system that interacts with IB for data gathering and statistical analyses. I'm balls deep with IB. But I am moving to the US for personal reasons and I shall soon be a "US person". This represents a problem, and I am facing the following alternatives for trading forex:

1) Keep my trading business outside of the US, undeclared - This for me is an absolute no go.
2) Increase trading capital to USD 10 million - Not realistic.
3) Move all forex to forex futures - This is a feasible option, though far from ideal for multiple reasons. Spot trumps futures.
4) Move my FX trading to FXCM or Gain Capital - Far from ideal due to coding integration and splitting trading capital between accounts (I do need IB regardless for etfs and bonds).
5) Setup a BVI for forex trading - Would cost extra time and money (setup/maintenance costs, cumbersome US tax forms). But would it work? I'll find out! I'm not sure if a BVI with one US person as owner qualifies as non-US client.
6) State I have assets over USD 10 million to be recognized as an eligible contract person - Lying is never good, but would it be illegal? It may very well be 100% legal. The SEC rule regulating this (17 CFR Part 240) states SEC regulated brokers are prohibited from doing retail forex transactions with non-eligible contract participants. But I have found nothing indicating that falsely claiming to have assets over 10 million is illegal in any way. And I have read hundreds of pages of legal documents looking for it.

I would greatly welcome any insights into #5 and #6, particularly the latter, refraining please from righteous statements regarding right vs wrong. This is about legal or illegal, not right vs wrong. If legal its OK, if illegal it is not.

Thank you all.
More...

Trading forex futures seems the best option, less than ideal but the best of the lot...
 
wintergasp said:
Is this you trading your own money or you trading clients money ?
More...

My own at the moment. Considering taking in family money (all non-US). Which is the same as client money from a legal perspective. This could be important as far as #6 goes.
 
panganp said:
Looks like a 5+ year move.
More...

panganp said:
1) Keep my trading business outside of the US, undeclared - This for me is an absolute no go.
More...

If it was for a shorter time period, I would have highly recommended option #1.
I sometimes have a tendency to procrastinate things...but for a few practical reasons, it may still be a good idea to consider option #1...to at least to begin with.

1. For starters, given your situation of having been a UK resident until now, nobody (nor IB, nor the SEC/US GOV) is going to care (or even expect that someone would make these changes for 12-18mos).

2. In the above time-frame, one of two things could quite possibly happen - Dodd-Frank (or some part thereof) may be repealed, as POTUS has already expressed considerable interest in doing so. The other possibility, is that you may choose leave the US after shorter amount of time than originally anticipated.

3. Much like @Sig suggested with regards to Option 6, that the legal responsibility rests with the broker and not yourself, the same thing would apply here.

As I'm laying this out...I guess it's becoming more clear, that there are other extenuating circumstances as to why option #1 is a no-go (at least to start)??
 
@oversea thanks very much for your input! No other extenuating circumstances. I simply married an American, the US is looking like my long term destination, and I do not want to mess with the IRS. Delaying relocating my IB account may not be a big deal, but I still plan to pay US taxes on it come March 2018. Guess there's another option here: not relocating the account, and declaring it to the IRS as a foreign brokerage account.
 
I would argue it is a pretty clear cut case the way you presented it: if most of the assets are none of your own (family, friends,... Are not considered your own) then set up an advisor account in London with IB unless you have already done so. Even when you move to the US you would not need to declare anything to US authorities because those are not your own funds. You can be the advisor of said account and can trade cash fx for the client accounts without any issue as the UK account is a separate entity and is allowed to trade cash fx.

I strongly advise against lying, misrepresenting in any way as it will at some point come to light. IB does not hesitate a second if they see accounts in non US entities held with a US resident to report such to the IRS hence I would be extremely careful in doing such. But if you follow my above advice the client accounts would not be held by you but by your customers in the UK in the UK entity. You are merely trading their accounts.

I also strongly advise against #6 as you may be accused of wire fraud and lying to your broker despite their best KYC efforts. In that case the broker may be off the hook and you accused of lying to a regulated broker and clearly violating broker and exchange agreements as well as violating regulatory agreement which sanction and have oversight over your US accounts. This would be a strong no go if I was in your shoes.

panganp said:
As most US forex traders already know, in 2016 a new SEC / dodd-frank rule prohibited US brokers regulated by the SEC to do forex with non-eligible contract persons (ECP); that is, no US forex clients with assets under USD 10 million. Interactive Brokers is SEC regulated and was thus affected by this. This did not affect FX brokers that do not deal in securities and are regulated by the CFTC alone. And it did not affect non-US forex traders.

I am a London based full-time trader. I use Interactive Brokers. Two-thirds of my business is forex. The remainder is futures, ETFs and sovereign bonds. I have a complex Python/SQL/R based system that interacts with IB for data gathering and statistical analyses. I'm balls deep with IB. But I am moving to the US for personal reasons and I shall soon be a "US person". This represents a problem, and I am facing the following alternatives for trading forex:

1) Keep my trading business outside of the US, undeclared - This for me is an absolute no go.
2) Increase trading capital to USD 10 million - Not realistic.
3) Move all forex to forex futures - This is a feasible option, though far from ideal for multiple reasons. Spot trumps futures.
4) Move my FX trading to FXCM or Gain Capital - Far from ideal due to coding integration and splitting trading capital between accounts (I do need IB regardless for etfs and bonds).
5) Setup a BVI for forex trading - Would cost extra time and money (setup/maintenance costs, cumbersome US tax forms). But would it work? I'll find out! I'm not sure if a BVI with one US person as owner qualifies as non-US client.
6) State I have assets over USD 10 million to be recognized as an eligible contract person - Lying is never good, but would it be illegal? It may very well be 100% legal. The SEC rule regulating this (17 CFR Part 240) states SEC regulated brokers are prohibited from doing retail forex transactions with non-eligible contract participants. But I have found nothing indicating that falsely claiming to have assets over 10 million is illegal in any way. And I have read hundreds of pages of legal documents looking for it.

I would greatly welcome any insights into #5 and #6, particularly the latter, refraining please from righteous statements regarding right vs wrong. This is about legal or illegal, not right vs wrong. If legal its OK, if illegal it is not.

Thank you all.
More...
 
You must log in or register to reply here.
Back
Top