Trading Of Over The Counter Gold And Silver To Be Illegal Beginning July 15

Tyler Durden's picture

One small step toward Executive Order 6102 part 2, and one giant leap for corruptcongressmankind.

From: FOREX.com <info@forex.com>
Date: Fri, Jun 17, 2011 at 6:11 PM
Subject: Important Account Notice Re: Metals Trading
To: xxx

Important Account Notice Re: Metals Trading

           
We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.

In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.

We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.

We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.

Sincerely,
The Team at FOREX.com      

So far we have only received this warning from Forex.com. We are waiting to see which other dealers inform their customers that trading gold and silver over the counter will soon be illegal.

It appears that Forex.com's interpretation of the law stems primarily from Section 742(a) of the Dodd-Frank act which "prohibits any person [which again includes
companies]from entering into, or offering to enter into, a transaction
in any commodity with a person that is not an eligible contract
participant or an eligible commercial entity, on a leveraged or margined
basis."

Some prehistory from Hedge Fund Law Blog:

The Dodd-Frank Wall Street Reform and Consumer Protection Act
(“Act”) has changed a number of laws in all of the securities acts
including the Commodity Exchange Act.  Two specific changes deal with
certain transactions in commodities on the spot market.  Specifically,
Section 742 of the Act deals with retail commodity transactions.  In
this section, the text of the Commodity Exchange Act is amended to
include new Section 2(c)(2)(D) (dealing with retail commodity
transactions) and new Section 2(c)(2)(E) (prohibiting trading in spot
forex with retail investors unless the trader is subject to regulations
by a Federal regulatory agency, i.e. CFTC, SEC, etc.).  According to a congressional rulemaking spreadsheet, these are effective 180 days from the date of enactment.

We provide an overview of the new sections and have reprinted them in full below.

New CEA Section 2(c)(2)(D) – Concerning Spot Commodities (Metals)

The central import of new CEA Section 2(c)(2)(D) is to broaden the
CFTC’s power with respect to retail commodity transactions.  Essentially
any spot commodities transaction (i.e. spot metals) will be subject to
CFTC jurisdiction and rulemaking authority.  There is an exemption for
commodities which are actually delivered within 28 days.  While the CFTC
wanted an exemption in which commodities would need to be delivered
within 2 days, various coin collectors were able to lobby congress for a
longer delivery period (see here).

It is likely we will see the CFTC propose regulations under this new
section and we will keep you updated on any regulatory pronouncements
with respect to this new section.

New CEA Section 2(c)(2)(E) – Concerning Spot Forex

The central import of new CEA Section 2(c)(2)(E) is to regulate the
spot forex markets.  While the section requires the CFTC to finalize
regulations with respect to spot forex (which were proposed earlier in
January), it also, interestingly, provides  oversight of the markets to
other federal regulatory agencies such as the CFTC.  This means that in
the future, different market participants may be subject to different
regulatory regimes with respect to trading in same underlying
instruments.  A Wall Street Journal article
discusses the impact of this with respect to firms which engage in
other activities in addition to retail forex transactions.  The CFTC’s
proposed rules establish certain compliance parameters for retail forex
transactions, requires registration of retail forex managers and requires such managers to pass a new regulatory exam called the Series 34 exam.
 We do not yet know whether the other regulatory agencies will adopt
rules similar to the CFTC or if they will write rules from scratch.

Next, from Henderson & Lyman:

The prohibition of Section 742(a) does not apply, however, if such a
transaction results in actual delivery within 28 days, or creates an
enforceable obligation to deliver between a seller and a buyer that have
the ability to deliver, and accept delivery of, the commodity in
connection with their lines of business. This may be problematic as in
most spot metals trading virtually all contracts fail to meet these
requirements. As a result, although the courts’ interpretation of
Section 742(a) is unknown, Section 742(a) is likely to have a
significantly negative impact on the OTC cash precious metals industry.
Here too, it is essential that those who offer to be a counterparty to
OTC metals transactions seek professional help to discuss possible
operational and regulatory contingency plans.

The actual rule language exempts a transaction if it "results in actual delivery within 28 days or such other 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;" Alas, the commission has decided not to intervene and keep the exemption status window so small as to affect virtually all exchanges which transact in the gold and silver spot market.

More here:

Elimination of OTC Forex

Effective 90 days
from its inception, the Dodd-Frank Act bans most retail OTC forex
transactions. Section 742(c) of the Act states as follows:

…A person [which includes companies]
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 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…

This provision will not come
into effect, however, if the CFTC or another eligible federal body
issues guidelines relating to the regulation of foreign currency within
90 days of its enactment. Registrants and the public are currently being
encouraged by the CFTC to provide insight into how the Act should be
enforced. See CFTC Rulemakings regarding OTC Derivatives located at the following website address,
under Section XX – Foreign Currency (Retail Off Exchange). It is
essential that OTC forex participants seek professional help to discuss
possible operational and regulatory contingency plans.

Elimination of OTC Metals

As
for OTC precious metals such as gold or silver, Section 742(a) of the
Act prohibits any person [which again includes companies]from entering
into, or offering to enter into, a transaction in any commodity with a
person that is not an eligible contract participant or an eligible
commercial entity, on a leveraged or margined basis. This provision
intends to expand the narrow so called “Zelener fix” in the Farm
Bill previously ratified by congress in 2008. The Farm Bill empowered
the CFTC to pursue anti-fraud actions involving rolling spot
transactions and/or other leveraged forex transactions without the need
to prove that they are futures contracts. The Dodd-Frank Act now expands
this authority to include virtually all retail cash commodity market
products that involve leverage or margin – in other words OTC precious
metals.

The prohibition of Section 742(a) does not apply,
however, if such a transaction results in actual delivery within 28
days, or creates an enforceable obligation to deliver between a seller
and a buyer that have the ability to deliver, and accept delivery of,
the commodity in connection with their lines of business. This may be
problematic as in most spot metals trading virtually all contracts fail
to meet these requirements. As a result, although the courts’
interpretation of Section 742(a) is unknown, Section 742(a) is likely to
have a significantly negative impact on the OTC cash precious metals
industry. Here too, it is essential that those who offer to be a
counterparty to OTC metals transactions seek professional help to
discuss possible operational and regulatory contingency plans.

Small Pool Exemption Eliminated

Pursuant to Section 403 of Act, theprivateadviserexemption, namelySection 203(b)(3) of the Investment Advisers Act of 1940 (“Advisers Act”), will be eliminated within one year of the Act’s effective date (July 21, 2011). Historically, many unregistered U.S. fund managers had relied on this exemption to avoid registration where they:

(1) had fewer than 15 clients in the past 12 months;

(2) do not hold themselves out generally to the public as investment advisers; and

(3) do not act as investment advisers to a registered investment company or business development company.

At present, advisers can treat the unregistered funds that they advise, rather than the investors in those funds, as their clients for purposes of
this exemption. A common practice has thus evolved whereby certain
advisers manage up to 14 unregistered funds without having to register
under the Advisers Act. Accordingly, the removal of this
exemption represents a significant shift in the regulatory landscape, as
this practice will no longer be allowable in approximately one year.

Also
an important consideration, the Dodd-Frank Act mandates new federal
registration and regulation thresholds based on the amount of assets a
manager has under management ("AUM"). Although not yet underway, it is
possible that various states may enact legislation designed to create a
similar registration framework for managers whose AUM fall beneath the
new federal levels.

Accredited Investor Qualifications

Section
413(a) of the Act alters the financial qualifications of who can be
considered an accredited investor, and thus a qualified as eligible
participant (“QEP”). Specifically, the revised accredited investor
standard includes only the following types of individuals:

1) A natural person whose individual net worth, or joint net worth with spouse, is at least $1,000,000, excluding the value of such investor's primary residence;

2) A
natural person who had individual income in excess of $200,000 in each
of the two most recent years or joint income with spouse in excess of
$300,000 in each of those years and a reasonable expectation of reaching
the same income level in the current year; or

3) A
director, executive officer, or general partner of the issuer of the
securities being offered or sold, or a director, executive officer, or
general partner of a general partner of that issuer.

Based on
this language, it is important to note that the revised accredited
investor standard only applies to new investors and does not cover
existing investors. However, additional subscriptions from existing
investors are generally treated as requiring confirmation of continuing
investor eligibility.

On July 27th, 2010, the SEC
provided additional clarity regarding the valuation of an individual’s
primary residence when calculating net worth. In particular, the SEC has
interpreted this provision as follows:

Section
413(a) of the Dodd-Frank Act does not define the term “value,” nor does
it address the treatment of mortgage and other indebtedness secured by
the residence for purposes of the net worth calculation…Pending
implementation of the changes to the Commission’s rules required by the
Act, the related amount of indebtedness secured by the primary residence
up to its fair market value may also be excluded. Indebtedness secured
by the residence in excess of the value of the home should be considered
a liability and deducted from the investor’s net worth.

h/t Ryan

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Hansel's picture

Further, what products does forex.com offer related to XAU and XAG, which are indices of miners?

If this stops money from flowing into derivatives of an index and into actual gold and silver, it might be a good thing.

speconomist's picture

You're wrong dude, XAU and XAG are spot gold and silver for forex.com and many other brokers.

AGoldhamster's picture

that is a gold and silver stock index like the HUI.

though we are talking here about something completely different - has nothing to do with stocks!

Hansel's picture

I realize that now, but thank you.

speconomist's picture

No problem, weeks ago, I had the opposite problem when someone was talking about the XAU index and completely different value of the spot price for gold, I was really confused.

swissinv's picture

don't confuse XAU currency with ^XAU philadelphia index

Arrowflinger's picture

What about Dr. Copper?

Leave him out and every city goes dark from massive thefts.

pcrs's picture

In the Netherlands they had a new law regarding the increased VAT on the arts passed januari 1st. Turned out that silver coins were also considered art and it's VAT tax also went up. Even the silver bullion dealers were only notified just before jan 1.

I call these stealth laws. Like the 1099 form law was fumbled away in the Obama health care bill and caused bullion dealers enormous amount of administrative burden (taken out btw).

Reptil's picture

numismatic modern coins? art? they're joking!?

lol "vadertje staat is failliet".

there's still whole tribes here that know absolutely nothing about currency; the word fiat means small car.

 

Prometheus418's picture

Now, now.

Be fair.  Just because of this comment, I pulled out an American silver eagle in an air-tight holder.

Let's do an artistic assessment- To be fair, the tail side is kind of weak.  Sure, it has an eagle, but it's kind of squashed and institutional looking.  But the "heads" side?  +100 for good taste. 

Unless you're one of the modern art types, I think you should take a second look.  Art Nouveau was a great movement, and worthy of being captured in a precious metal.

(Edit due to premature "save" hitting)

The old walking liberties are better- and comprise more of my personal collection.  That old-fashioned eagle on the back looks like he's about to step on a shit-headed banker.

(</edit>)

pcrs's picture

no also investment coins like libertads, philharmonics, eagels, maple leafs.

yeah, our benevolent benefactors are grabbing left and right for our money now.

Johnson Sandwich's picture

hoi hoi Reptil...

 

talking about the Netherlands... can anyone recommend a few good coin shops and/or bullion dealer in the nl?

Johnson Sandwich's picture

talking about the Netherlands... can anyone recommend a few good coin shops and/or bullion dealers?   how about in Sweden? highly appreciated.

ps. is there a website with a list of active bullion dealers in Europe?

thanks

Weisbrot's picture

 

10:1 leverage ratio and not 100:1 leverage

seems to make a whole lot of sense

 

 

trentusa's picture

Why would Tyler post something untrue, part smthng that will give people all around the country instananeous heart attacks? Hey Tyler you're hilarious- so can i like just go to forex.com and totally sell a short put on a gold futures contract (bc thats the kind of sophisticated investor i am) and overthrow the Federal Reserve while making ourselves stinkin' rich at the same time?

      Anybody else watching Judge Neapolitano making Sarah Palin look just real damn stupid on Freedom Watch right now? Go Mavs.

TeMpTeK's picture

Doesnt matter anyway...

No act of Congress or executive order from the
 Prez carries weight in any one of the 50 states
of the union unless it has to do with interstate
 commerce... Dodd-Frank is no exception...
 For proof of this fact lets all laugh at the following..

1).The Real ID ACT 2005 (Totally Nullified by the
States) So much for Congressional authority.

2) The Gun Free School Zone Act ( Mocked by a gun
toting student. Act wrongfully applied outside Fed
 Jurisdiction in the Great state of Texas..Act overturned
 by SCOTUS and deemend "Unconsitutional".

3) All Federal Marijuana Laws totally ignored
by the State of CA and others are following suit. Medical
Marijuana  towns have sprouted up.. The Feds Powerless
 to Stop. Why?? NO JURISDICTION in any one of the
50 states of the Union..Fed drug laws DO NOT APPLY in the states.
 Thats why we have local representatives and our own laws
 in each state.

So if Congress cannot force the states into implementing REAl ID..
If they Cannot Stop California from taxing and selling illegal
Marijuana.. and if they cannot legislate gun possesion laws
in school zones within any one of the 50 sates of the union..
Please tell me what makes anyone think Congress and the President
via Frank-Dodd or any executive order can legislate sale of a legal comodity in any way...
Lets not even talk about the
Myth of GOLD Confiscation that has duped so many
well meaning individuals...
Congress writes the laws for Fed territories and
Enclaves ONLY.. ie D.C. Puerto Rico , Guam, Samoas,
US Virgin Isles.. ETC..

The President is the Commander in Chief of the MILITARY..
Not the individual States.. His executive orders are
Not Law they are mearly inhouse suggestions..

Cmon Tyler.. Dont give these Bufoons in Washington any legitimacy....They are
total fake phony imposters...

 

 

 

Libertarian777's picture

No act of Congress or executive order from the
 Prez carries weight in any one of the 50 states
of the union unless it has to do with interstate
 commerce... Dodd-Frank is no exception...

 

Hate to break the bad news to you, but Wickard v Fillburn totally destroys that theory. Every positive action is basically interstate commerce due to that court case.

And now with Obamacare, every negative action (i.e things you DON'T do) are also interstate commerce related.

 

[stupid captcha...can anyone explain why the captcha uses negative numbers but then doesn't allow you to enter a negative answer? 4 x -35 = -140... but you can't enter that answer.]

 

 

HungrySeagull's picture

Congress cannot mandate Interstate Commerce across the entire nation by forcing US Citizens to buy goods or services such as the Healthcare Act. That is why so many States have take it back to the Courts because the 111th congress rammed it down our throats, we say up yours.

 

Employers and Unions by the thousands got Waivers, Others consider dropping Health care all together and some like myself think carefully about not participating at all and stay cash only with the Fam Doctor for boo boo's only.

snowball777's picture

It's bugged...not your fault...call it an extra layer of protection against those with a lack of persistence.

 

TeMpTeK's picture

Oh So,... US v Lopez overturned? CA now under fed mandate

to stop Medical Marijuana shops? Real ID in full effect?.. PLEASE

Over 200+ years of well settled law says America is still a

free country, the people and states are soveriegn.. the 2nd

ammendment guarantees this fact by enforcement if need be..

 

Let me also beat Tyler to this future headline..

"Obamacare UNCONSTITUTIONAL"

Wanna bet your house? Noone can compel u to buy anything...

PERIOD!!!

Prometheus418's picture

Stop it, stop it.

C'mon now.  I've been simply itching to hang a banker, and you know that that's a fair feeling.  

So, are what you are saying is that I have been right for decades, when I've told the laity that "America always has her sons, even when she (apparently) hates them."?

pcrs's picture

The feds have the biggest guns and the printing press. The states ar bankrupt and in need of some printed money. They will obey. Wans't Texas recently threatened with a no fly zone by the feds, if they got rid of the 'hands down your pants' TSA?

snowball777's picture

They say possession is 9/10ths of the law...imagine how quickly CA could close its budget gap if it impounded and sold off every bit of MIC equipment being manufactured in the state on behalf of the Feds.

disabledvet's picture

i dug a little deeper a noticed this "in a foot note":

http://www.youtube.com/watch?feature=player_detailpage&v=pNjIpLHZNNs

seems you're right.  the government really is serious about their gold.

ViewfromUndertheBridge's picture

XAU & XAG will NOT be illegal to trade for US residents come July 15.

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/forexfinalrulefactsheet.pdf

This is the CFTC Final Rule Regarding Retail Foreign Exchange Transactions.

In short, to offer forex OTC trading platforms to US resident retail customers a company must register with the CFTC as a Retail Forex Exchange Dealer (RFED). This is a new category and requires strict reporting to increase transparency for retail clients. Information such as the number of participants who made a profit in the last quarter, any pending lawsuits and a warning if the company's remaining capital is approaching the new minimum limit, which is $20 million.

Leverage is limited to 50:1 (2% margin) for major currency pairs and 20:1 (5% margin) for others.

It looks to me as if XAU and XAG are included in the majors (50:1) on the basis that these are Oanda's margins for XAU and XAG and they are listed to be a compliant RFED. The National Futures Association can set refinements within these limits. If you do not know much about OTC forex trading and want to learn the basics the NFA offers a condescending 24 page booklet here:

http://www.nfa.futures.org/NFA-investor-information/publication-library/forex.pdf

To see if your OTC forex provider is a compliant RFED you can check here:

http://www.nfa.futures.org/basicnet/welcome.aspx

These companies would appear not to be compliant, because the CFTC is already suing them under the new rules:

http://www.cftc.gov/PressRoom/PressReleases/pr5974-11.html

Conclusion...Tyler, love your work but please lift your game.

Sudden Debt's picture

1$ SILVER HERE WE COME!!!!!

 

It's good to be: EUROPEAN!!

 

Popo's picture

Wait... What? This is "trading" is it not? When did it become religious fanaticism? There is a market. It is influenced by thousands of forces beyond ones control.

You trade the tape you get, or you dont know how to trade. This is a major shift in policy.. It may require a major shift in investment tactics. (one must note, that it was policy in the first place that pushed metals to new highs. That policy can turn on a dime)

The nimble survive. The emotional investor gets crushed.

IMHO, all this will really end up doing is forcing metals offshore.... A disastrous outcome for the USA....

Sudden Debt's picture

HELL NO!!

Nop, this means that the paper can drop really hard from here on. And a panic will cause a dump in silver first by the lemmings who know shit about it.

After that, gold and silver will skyrocket!

 

Panafrican Funktron Robot's picture

Such is the silver lining (pun intended!).  This will create a historic buying opportunity.

Panafrican Funktron Robot's picture

Such is the silver lining (pun intended!).  This will create a historic buying opportunity.

wisfool's picture

"... FOREX.com must discontinue metals trading for US residents... ."

 

Whats the simplest way to become a resident of another country so that I can continue trading metals?   Any suggestions? 

SilverIsKing's picture

I'm building a rocket ship in my garage and plan on leaving for the moon on July 16th.  You must leave all of your physical metals in my basement since there's not a lot of room aboard the ship and there are strict weight limitations.  As I understand it, the government on the moon is a lot more adept at managing the affairs up there than our government is down here.

Let me know if you want me to hold a seat for you.

P.S. No pets allowed on board unless she's hot.

Sudden Debt's picture

You don't need to be citizen of Europe to buy it in Europe.

You go to Europe, open a PO box and let you silver be delivered in it.

Come back every 6 months and empty it. Go to a bank and rent a safe without a account (trackable) and put your stuff in it.

Or just rent a storageroom a shurgard and put it in there.

Once they back the dollar up by silver and gold, you come pick it up.

 

_Alekhine_'s picture

Unfortunately, in Europe you have to pay VAT (about 20%) on Silver. 

SovietCong's picture

Depends on the member state. Some places have VAT, some others don't. Plus, most countries exempt derivatives, including PM futures, from VAT and even capital gains. Even in those states that apply VAT, the tax, as its name suggests, only applies to the value added. Without a doubt this is not a good thing, but it is not as bad as it sounds. Moreover, if you can make a case that the trade you've made is related to your other business operations (and it's not such a high a standard to show this), you can basically offset whatever VAT you owe against the VAT you pay for services and goods you purchased in the same time for the purposes of your business activity.

alien-IQ's picture

buy a home in the Bahamas worth 500k or more an you can pretty easily become a Bahamian citizen. No capital gains tax there either...and the beaches do not suck AT ALL.

falak pema's picture

Oh dear now Bahamas will be even more full of US trolls on the run.

Confuchius's picture

This is not bad news.

To catch fish, one needs bait.

Voila! Troll bait!

Confuchius's picture

This is not bad news.

To catch fish, one needs bait.

Voila! Troll bait!

XPolemic's picture

Whats the simplest way to become a resident of another country so that I can continue trading metals?   Any suggestions? 

Citizenship of Dominica is only USD75,000.


Botox4U2's picture

Whats the simplest way to become a resident of another country so that I can continue trading metals?   Any suggestions? "

Are you idiots still down there? How many friggen times do people like Gerald Celente, Alex Jones and hundreds of others have to tell you to get out?  Frankly I'm tired of trying to reason with  people down there. Do you all imagine the "New World Order" won't affect you? The Jews who were stupid enough to stay in Germany after 1933 mostly perished.


Harlequin001's picture

"... FOREX.com must discontinue metals trading for US residents... ."

Whats the simplest way to become a resident of another country so that I can continue trading metals?   Any suggestions? 

 

You don't. You set up a trust in a non US jurisdiction and trade through the trustee. The law does not forbid you from benefiting from the trade, only executing it yourself in the US unless I am mistaken.

It is not illegal for US residents to benefit from an offshore trust or company, only to fail to declare it if you are...

ciscokid's picture

It will soon be law also in Europe.

Its all a way of stopping people from

owning gold and silver.

tgatliff's picture

Your assumption is that Tyler's statements above are true.  I cannot find anything from Forex.com that backs up what Tyler's article says.  

I would think that if such a large change was being made that Forex would at the very least have a press release on it.   Well, if they do then I (and many others) sure cannot find it...

tgatliff's picture

Your assumption is that Tyler's statements above are true.  I cannot find anything from Forex.com that backs up what Tyler's article says.  

I would think that if such a large change was being made that Forex would at the very least have a press release on it.   Well, if they do then I (and many others) sure cannot find it...

tgatliff's picture

Your assumption is that Tyler's statements above are true.  I cannot find anything from Forex.com that backs up what Tyler's article says.  

I would think that if such a large change was being made that Forex would at the very least have a press release on it.   Well, if they do then I (and many others) sure cannot find it...

tgatliff's picture

Your assumption is that Tyler's statements above are true.  I cannot find anything from Forex.com that backs up what Tyler's article says.  

I would think that if such a large change was being made that Forex would at the very least have a press release on it.   Well, if they do then I (and many others) sure cannot find it...