[Federal Register Volume 76, Number 78 (Friday, April 22, 2011)]
[Proposed Rules]
[Pages 22633-22648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9821]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 48

[Docket ID OCC-2011-0007]
RIN 1557-AD42


Retail Foreign Exchange Transactions

AGENCY: Office of the Comptroller of the Currency, Department of the 
Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing a rule authorizing national banks, Federal branches or 
agencies of foreign banks, and their operating subsidiaries to engage 
in off-exchange transactions in foreign currency with retail customers. 
The proposed rule also describes various requirements with which 
national banks, Federal branches or agencies of foreign banks, and 
their operating subsidiaries must comply to conduct such transactions.

DATES: Comments on this notice of proposed rulemaking must be received 
by May 23, 2011.

ADDRESSES: Because paper mail in the Washington, DC, area is subject to 
delay, commenters are encouraged to submit comments by the Federal 
eRulemaking Portal or e-mail. Please use the title ``Retail Foreign 
Exchange Transactions'' to facilitate the organization and distribution 
of the comments. You may submit comments by any of the following 
methods:
     Federal eRulemaking Portal--``regulations.gov'': Go to 
http://www.regulations.gov. Select ``Document Type'' of ``Proposed 
Rules,'' and in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-
2011-0007,'' and click ``Search.'' On ``View By Relevance'' tab at 
bottom of screen, in the ``Agency'' column, locate the proposed rule 
for the OCC, in the ``Action'' column, click on ``Submit a Comment'' or 
``Open Docket Folder'' to submit or view public comments and to view 
supporting and related materials for this rulemaking action.
    Click on the ``Help'' tab on the Regulations.gov home page to get 
information on using Regulations.gov, including instructions for 
submitting or viewing public comments, viewing other supporting and 
related materials, and viewing the docket after the close of the 
comment period.
     E-mail: [email protected].
     Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 2-3, Washington, DC 20219.
     Fax: (202) 874-5274.
     Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2-3, 
Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2011-0007'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, e-mail addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this

[[Page 22634]]

proposed rule by any of the following methods:
     Viewing Comments Electronically: Go to http://www.regulations.gov. Select ``Document Type'' of ``Proposed Rules,'' 
and in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-2011-0007,'' 
and click ``Search.'' Comments will be listed under ``View By 
Relevance'' tab at bottom of screen. If comments from more than one 
agency are listed, the ``Agency'' column will indicate which comments 
were received by the OCC.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 250 E Street, SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.

FOR FURTHER INFORMATION CONTACT: Tena Alexander, Senior Counsel, or 
Roman Goldstein, Attorney, Securities and Corporate Practices Division, 
(202) 874-5120.

SUPPLEMENTARY INFORMATION: 

I. Background

    On July 21, 2010, President Obama signed into law the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank 
Act).\1\ As amended by the Dodd-Frank Act,\2\ the Commodity Exchange 
Act (CEA) provides that a United States financial institution \3\ for 
which there is a Federal regulatory agency \4\ shall not enter into, or 
offer to enter into, a transaction described in section 
2(c)(2)(B)(i)(I) of the CEA with a retail customer \5\ except pursuant 
to a rule or regulation of a Federal regulatory agency allowing the 
transaction under such terms and conditions as the Federal regulatory 
agency shall prescribe \6\ (a ``retail forex rule''). Section 
2(c)(2)(B)(i)(I) includes ``an agreement, contract, or transaction in 
foreign currency that * * * is a contract of sale of a commodity for 
future delivery (or an option on such a contract) or an option (other 
than an option executed or traded on a national securities exchange 
registered pursuant to section 6(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78f(a)).'' \7\ A Federal regulatory agency's retail 
forex rule must treat all such futures and options and all agreements, 
contracts, or transactions that are functionally or economically 
similar to such futures and options similarly.\8\
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    \1\ Public Law 111-203, 124 Stat. 1376.
    \2\ Dodd-Frank Act Sec.  742(c)(2) (to be codified at 7 U.S.C. 
2(c)(2)(E)). In this preamble, citations to the retail forex 
statutory provisions will be the section where the provisions will 
be codified in the CEA.
    \3\ The CEA defines ``financial institution'' as including ``a 
depository institution (as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813)).'' 7 U.S.C. 1a(21)(E). 
National banks are depository institutions. See 12 U.S.C. 1813(a)(1) 
and (c)(1).
    \4\ For purposes of the retail forex rules, ``Federal regulatory 
agency'' includes ``an appropriate Federal banking agency.'' 7 
U.S.C. 2(c)(2)(E)(i)(III). The OCC is the appropriate Federal 
banking agency for national banks and Federal branches and agencies 
of foreign banks. 12 U.S.C. 1813(q)(1); Dodd-Frank Act Sec.  
721(a)(2) (amending 7 U.S.C. 1a to define ``appropriate Federal 
banking agency'' by reference to 12 U.S.C. 1813).
    \5\ A retail customer is a person who is not an ``eligible 
contract participant'' under the CEA.
    \6\ 7 U.S.C. 2(c)(2)(E)(ii)(I).
    \7\ 7 U.S.C. 2(c)(2)B(i)(II).
    \8\ 7 U.S.C. 2(c)(2)(E)(iii)(II).
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    Retail forex rules must prescribe appropriate requirements with 
respect to disclosure, recordkeeping, capital and margin, reporting, 
business conduct, and documentation requirements, and may include such 
other standards or requirements as the Federal regulatory agency 
determines to be necessary.\9\ This Dodd-Frank Act amendment to the CEA 
takes effect 360 days from the enactment of the Act.\10\ Therefore, as 
of July 16, 2011, national banks, Federal branches and agencies of 
foreign banks, and operating subsidiaries of the foregoing 
(collectively, national banks) may not engage in a retail forex 
transaction except pursuant to retail forex rules issued by the OCC.
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    \9\ 7 U.S.C. 2(c)(2)(E)(iii)(I).
    \10\ See Dodd-Frank Act Sec.  754.
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    In addition, on July 21, 2011, the OCC will become the appropriate 
Federal banking agency for Federal savings associations.\11\ The OCC 
plans to regulate retail forex transactions conducted by Federal 
savings associations under the same terms as in this proposed rule. 
However, the OCC cannot issue regulations governing Federal savings 
associations until July 21, 2011. Therefore, the OCC anticipates 
issuing on that date an interim final rule with request for public 
comment that would expand the scope of this regulation to also cover 
Federal savings associations.
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    \11\ Dodd-Frank Act Sec.  312.
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    On September 10, 2010, the Commodity Futures Trading Commission 
(CFTC) adopted a retail forex rule for persons subject to its 
jurisdiction.\12\ After studying and considering the CFTC's retail 
forex rule, and being mindful of the desirability of issuing comparable 
rules, the OCC is proposing to adopt a substantially similar rule for 
national banks wishing to engage in retail forex transactions. The 
Dodd-Frank Act does not require that retail forex rules be issued 
jointly, or on a coordinated basis, with any other Federal regulatory 
agency. The Federal banking agencies (the OCC, Federal Reserve Board, 
and Federal Deposit Insurance Corporation) are issuing separate 
proposed rules. However, the Federal banking agencies intend to 
coordinate their efforts.
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    \12\ Regulation of Off-Exchange Retail Foreign Exchange 
Transactions and Intermediaries, 75 FR 55409 (Sept. 10, 2010) (Final 
CFTC Retail Forex Rule). The CFTC proposed these rules prior to the 
enactment of the Dodd-Frank Act. Regulation of Off-Exchange Retail 
Foreign Exchange Transactions and Intermediaries, 75 FR 3281 (Jan. 
20, 2010) (Proposed CFTC Retail Forex Rule).
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    For national banks, the requirements in this proposed rule could 
overlap with applicable expectations contained in the Interagency 
Statement on Retail Sales of Nondeposit Investment Products (NDIP 
Policy Statement).\13\ The NDIP Policy Statement sets out guidance 
regarding the OCC's expectations when a national bank engages in the 
sale of nondeposit investment products to retail customers. The NDIP 
Policy Statement addresses issues such as disclosure, suitability, 
sales practices, compensation, and compliance. The OCC preliminarily 
views retail forex transactions as nondeposit investment products, but 
the terms ``retail forex customer'' in this proposed rule and ``retail 
customer'' in the NDIP Policy Statement are not necessarily co-
extensive. After the effective date of the final version of this 
proposed rule, the OCC will expect national banks engaging in or 
offering retail forex transactions to also comply with the expectations 
set out in the NDIP Policy Statement to the extent such expectations do 
not conflict with the requirements of the OCC's final retail forex 
rule.
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    \13\ See OCC Bulletin 94-13 (Feb. 24, 1994); see also OCC 
Bulletin 1995-52 (Sept. 22, 1995).
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    Question I.1: Does the proposed regulation create issues concerning 
application of the NDIP Policy Statement to retail forex transactions 
that the OCC should address?

II. Section-by-Section Description of the Rule

Structure and Approach

    The OCC's proposed retail forex rule is modeled on the CFTC's 
retail forex rule to promote consistent treatment of retail forex 
transaction regardless of whether a retail forex customer's dealer is a 
national bank or a CFTC registrant. The proposal includes various 
changes

[[Page 22635]]

that reflect differences between OCC and CFTC supervisory regimes and 
differences between national banks and CFTC registrants. For example:
     The OCC's proposed retail forex rule leverages the OCC's 
existing comprehensive supervision of national banks. For example, the 
OCC's proposed retail forex rule does not include registration 
requirements, because national banks are already subject to 
comprehensive supervision by the OCC. Thus, instead of a registration 
requirement, national banks must receive a supervisory non-objection to 
conduct a retail forex business.
     Because national banks are already subject to various 
capital and other supervisory requirements,\14\ the OCC's proposed 
retail forex rule generally requires national banks wishing to engage 
in retail forex transactions to be ``well capitalized.''
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    \14\ See, e.g., 12 CFR parts 3, 6, and 28.
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Section 48.1--Authority, Purpose, and Scope

    This section authorizes a national bank to conduct retail forex 
transactions.
    The OCC notes that some national banks may also engage in retail 
forex transactions through their foreign branches. The CEA does not 
clearly define whether foreign branches of national banks may be 
considered United States financial institutions that can be included in 
the scope of this proposed rule. Generally, the OCC defines a national 
bank to include all its branches, foreign and domestic. Using that 
definition, the proposed retail forex rule would include these 
branches, and all their transactions would be subject to the terms of 
this proposed rule.
    Question II.1.1: The OCC requests comment on whether this rule 
should apply to national banks' foreign branches conducting retail 
forex transactions abroad, whether with U.S. or foreign customers.

Section 48.2--Definitions

    This section defines terms specific to retail forex transactions 
and to the regulatory requirements that apply to retail forex 
transactions.
    The definition of ``retail forex transaction'' generally includes 
the following transactions in foreign currency between a national bank 
and a person that is not an eligible contract participant: \15\ (i) A 
future or option on such a future; \16\ (ii) options not traded on a 
registered national securities exchange; \17\ and (iii) certain 
leveraged or margined transactions.\18\ This definition has several 
important features.
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    \15\ The definition of ``eligible contract participant'' is 
found in the CEA and is discussed below.
    \16\ 7 U.S.C. 2(c)(2)(B)(i)(I).
    \17\ 7 U.S.C. 2(c)(2)(B)(i)(I).
    \18\ 7 U.S.C. 2(c)(2)(C).
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    First, certain transactions in foreign currency are not ``retail 
forex transactions.'' For example, a ``spot'' forex transaction where 
one currency is bought for another and the two currencies are exchanged 
within two days would not meet the definition of a ``retail forex 
transaction,'' since actual delivery occurs as soon as practicable.\19\ 
Similarly, a ``retail forex transaction'' does not include a forward 
contract with a commercial entity that creates an enforceable 
obligation to make or take delivery, provided the commercial 
counterparty has the ability to make delivery and accept delivery in 
connection with its line of business.\20\ In addition, the definition 
does not include transactions done through an exchange, because in 
those cases the exchange would be the counterparty to both the national 
bank and the retail forex customer, rather than the national bank 
directly facing the retail forex customer.
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    \19\ See generally CFTC v. Int'l Fin. Servs. (New York), Inc., 
323 F. Supp. 2d 482, 495 (S.D.N.Y. 2004) (distinguishing between 
foreign exchange futures contracts and spot contracts in foreign 
exchange, and noting that foreign currency trades settled within two 
days are ordinarily spot transactions rather than futures 
contracts); see also Bank Brussels Lambert v. Intermetals Corp., 779 
F. Supp. 741, 748 (S.D.N.Y. 1991).
    \20\ See generally CFTC v. Int'l Fin. Servs. (New York), Inc., 
323 F. Supp. 2d 482, 495 (S.D.N.Y. 2004) (distinguishing between 
forward contracts in foreign exchange and foreign exchange futures 
contracts); see also William L. Stein, The Exchange-Trading 
Requirement of the Commodity Exchange Act, 41 Vand. L.Rev. 473, 491 
(1988). In contrast to forward contracts, futures contracts 
generally include several or all of the following characteristics: 
(i) Standardized nonnegotiable terms (other than price and 
quantity); (ii) parties are required to deposit initial margin to 
secure their obligations under the contract; (iii) parties are 
obligated and entitled to pay or receive variation margin in the 
amount of gain or loss on the position periodically over the period 
the contract is outstanding; (iv) purchasers and sellers are 
permitted to close out their positions by selling or purchasing 
offsetting contracts; and (v) settlement may be provided for by 
either (a) cash payment through a clearing entity that acts as the 
counterparty to both sides of the contract without delivery of the 
underlying commodity; or (b) physical delivery of the underlying 
commodity. See Edward F. Greene et al., U.S. Regulation of 
International Securities and Derivatives Markets Sec.  14.08[2] (8th 
ed. 2006).
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    Second, rolling spot forex transactions (so-called Zelener \21\ 
contracts), including without limitation such transactions traded on 
the Internet, through a mobile phone, or on an electronic platform, 
could fall within the definition's third category; the OCC 
preliminarily believes that rolling spot transactions should be 
regulated as retail forex transactions.\22\ A rolling spot forex 
transaction nominally requires delivery of currency within two days, 
like spot transactions. However, in practice, the contracts are 
indefinitely renewed every other day and no currency is actually 
delivered until one party affirmatively closes out the position.\23\ 
Therefore, the contracts are economically more like futures than spot 
contracts, although courts have held them to be spot contracts in 
form.\24\
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    \21\ CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004); see also 
CFTC v. Erskine, 512 F.3d 309 (6th Cir. 2008).
    \22\ 7 U.S.C. 2(c)(2)(E)(iii) (requiring that retail forex rules 
treat all functionally or economically similar transactions 
similarly); see 17 CFR 5.1(m) (defining ``retail forex transaction'' 
for CFTC-registered retail forex dealers).
    \23\ For example, in Zelener, the retail forex dealer retained 
the right, at the date of delivery of the currency to deliver the 
currency, roll the transaction over, or offset all or a portion of 
the transaction with another open position held by the customer. See 
CFTC v. Zelener, 373 F.3d 861, 868 (7th Cir. 2004).
    \24\ See, e.g., CFTC v. Erskine, 512 F.3d 309, 326 (6th Cir. 
2008); CFTC v. Zelener, 373 F.3d 861, 869 (7th Cir. 2004).
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    Question II.2.1: Should leveraged or margined forex transactions, 
including rolling spot forex transactions and functionally or 
economically similar transactions, be included in the definition of 
``retail forex transaction''? Would excluding such transactions create 
a regulatory gap for retail forex products?
    This section defines several terms by reference to the CEA, the 
most important of which is ``eligible contract participant.'' Foreign 
currency transactions with eligible contract participants are not 
considered retail forex transactions and are therefore not subject to 
this rule. In addition to a variety of financial entities, certain 
governmental entities, businesses, and individuals may be eligible 
contract participants.\25\
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    \25\ The term ``eligible contract participant'' is defined at 7 
U.S.C. 1a(18), and for purposes most relevant to this proposed rule 
generally includes:
    (a) A corporation, partnership, proprietorship, organization, 
trust, or other entity--
    (1) That has total assets exceeding $10,000,000;
    (2) The obligations of which under an agreement, contract, or 
transaction are guaranteed or otherwise supported by a letter of 
credit or keepwell, support, or other agreement by certain other 
eligible contract participants; or
    (3) That--
    (i) Has a net worth exceeding $1,000,000; and
    (ii) Enters into an agreement, contract, or transaction in 
connection with the conduct of the entity's business or to manage 
the risk associated with an asset or liability owned or incurred or 
reasonably likely to be owned or incurred by the entity in the 
conduct of the entity's business;
    (b) Subject to certain exclusions,
    (1) A governmental entity (including the United States, a State, 
or a foreign government) or political subdivision of a governmental 
entity;
    (2) A multinational or supranational governmental entity; or
    (3) An instrumentality, agency or department of an entity 
described in (b)(1) or (2); and
    (c) An individual who has amounts invested on a discretionary 
basis, the aggregate of which is in excess of--
    (1) $10,000,000; or
    (2) $5,000,000 and who enters into the agreement, contract, or 
transaction in order to manage the risk associated with an asset 
owned or liability incurred, or reasonably likely to be owned or 
incurred, by the individual.

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[[Page 22636]]

    Question II.2.2: Does the Commodity Exchange Act's definition of 
``eligible contract participant'' appropriately capture who is not a 
retail customer for purposes of this proposed rule? Should the OCC 
expand the definition of retail forex customer to include persons who 
are eligible contract participants? If so, which eligible contract 
participants should be considered retail forex customers?

Section 48.3--Prohibited Transactions

    This section prohibits a national bank and its institution-
affiliated parties from engaging in fraudulent conduct in connection 
with retail forex transactions. This section also prohibits a national 
bank from acting as a counterparty to a retail forex transaction if the 
national bank or its affiliate exercises discretion over the customer's 
retail forex account because the OCC views such self-dealing as 
inappropriate.

Section 48.4--Supervisory Non-Objection

    This section requires a national bank to obtain a written 
supervisory non-objection prior to engaging in a retail forex business. 
To obtain such non-objection, the national bank will have to provide 
such information as the OCC deems necessary to determine that the 
national bank would satisfy the requirements of the rule. This 
information will include information on: customer due diligence 
(including credit evaluations, customer appropriateness, and ``know 
your customer'' documentation); new product approvals; haircuts for 
noncash margin; and conflicts of interest. In addition, the national 
bank must establish that it has adequate written policies, procedures, 
and risk measurement and management systems and controls.
    National banks engaged in retail forex transactions as of the 
effective date of this rule who promptly request the OCC's review of 
their retail forex business will have six months, or a longer period 
provided by the OCC, to bring their operations into conformance with 
the rule. Under this rule, a national bank that requests the OCC's 
review within 30 days of the effective date of the final retail forex 
rule and submits the information requested by the OCC will be deemed to 
be operating its retail forex business pursuant to a rule or regulation 
of a Federal regulatory agency, as required under the Commodity 
Exchange Act, for such period.\26\
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    \26\ 7 U.S.C. 2(c)(2)(E)(ii)(I).
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    A national bank need not join a futures self-regulatory 
organization as a condition of conducting a retail forex business.

Section 48.5--Application and Closing Out of Offsetting Long and Short 
Positions

    This section requires a national bank to close out offsetting long 
and short positions in a retail forex account. The national bank would 
have to offset such positions regardless of whether the customer has 
instructed otherwise. The CFTC concluded that ``keeping open long and 
short positions in a retail forex customer's account removes the 
opportunity for the customer to profit on the transactions, increases 
the fees paid by the customer and invites abuse.'' \27\ The OCC agrees 
with this concern. A national bank may offset retail forex transactions 
as instructed by the retail forex customer or the customer's agent if 
the instructions do not come from the national bank.
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    \27\ Proposed CFTC Retail Forex Rule, 75 FR at 3287 n.54.
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Section 48.6--Disclosure

    This section requires a national bank to provide retail forex 
customers with a risk disclosure statement similar to the one required 
by the CFTC's retail forex rule, but tailored to address certain unique 
characteristics of retail forex in national banks. The prescribed risk 
disclosure statement would describe the risks associated with retail 
forex transactions. The disclosure statement would make clear that a 
national bank is prohibited from applying customer losses arising out 
of retail forex transactions against any property of a customer other 
than money or property specifically given as margin for retail forex 
transactions; the national bank may not use rights of set-off to 
collect margin for or cover losses arising out of retail forex 
transactions.
    In its retail forex rule, the CFTC requires its registrants to 
disclose to retail customers the percentage of retail forex accounts 
that earned a profit, and the percentage of such accounts that 
experienced a loss, during each of the most recent four calendar 
quarters.\28\ The CFTC initially explained that ``the vast majority of 
retail customers who enter these transactions do so solely for 
speculative purposes, and that relatively few of these participants 
trade profitably.'' \29\ In its final rule, the CFTC found this 
requirement appropriate to protect retail customers from ``inherent 
conflicts embedded in the operations of the retail over-the-counter 
forex industry.'' \30\ The OCC generally agrees with the CFTC and this 
proposed rule requires this disclosure; however, the OCC invites 
comments regarding this approach.
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    \28\ 17 CFR 5.5(e)(1).
    \29\ Proposed CFTC Retail Forex Rule, 75 FR at 3289.
    \30\ Final CFTC Retail Forex Rule, 75 FR at 55412.
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    Question II.6.1: Does this disclosure provide meaningful 
information to retail customers of national banks? Would alternative 
disclosures more effectively accomplish the objectives of the 
disclosure?
    Similarly, the CFTC's retail forex rule requires a disclosure that 
when a retail customer loses money trading, the dealer makes money on 
such trades, in addition to any fees, commissions, or spreads.\31\ The 
proposed rule includes this disclosure requirement.
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    \31\ 17 CFR 5.5(b).
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    Question II.6.2: Does this disclosure provide meaningful 
information to retail customers of national banks? Would alternative 
disclosures more effectively accomplish the objectives of the 
disclosure?
    As proposed, the risk disclosure must be provided as a separate 
document.
    Question II.6.3: Would it be convenient to national banks and 
retail forex customers to allow the retail forex risk disclosure to be 
combined with other disclosures that national banks make to their 
customers? Or would combining disclosures diminish the impact of the 
retail forex disclosure?
    Question II.6.4: Should the rule require disclosure of the fees the 
national bank charges retail forex customers for retail forex 
transactions? What fees do national banks currently charge retail forex 
customers for retail forex transactions? Are there other costs to 
retail forex customers of engaging in retail forex transactions that 
national banks should disclose? If so, what are these costs?

Section 48.7--Recordkeeping

    This section specifies which documents and records a national bank 
engaged in retail forex transactions must retain for examination by the 
OCC. This section also prescribes document maintenance standards.

[[Page 22637]]

Section 48.8--Capital Requirements

    This section requires that a national bank that offers or enters 
into retail forex transactions must be ``well capitalized'' as defined 
in the OCC's prompt corrective action regulation \32\ or the national 
bank must obtain an exemption from the OCC. In addition, a national 
bank must continue to hold capital against retail forex transactions as 
provided in the OCC's capital regulation.\33\ This rule does not amend 
the OCC's prompt corrective action regulation or capital regulation.
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    \32\ 12 CFR part 6.
    \33\ 12 CFR part 3.
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Section 48.9--Margin Requirements

    Paragraph (a) requires a national bank that engages in retail forex 
transactions, in advance of any such transaction, to collect from the 
retail forex customer margin equal to at least two percent of the 
notional value of the retail forex transaction if the transaction is in 
a major currency pair, and at least five percent of the notional value 
of the retail forex transaction otherwise. These margin requirements 
are identical to the requirements imposed by the CFTC's retail forex 
rule. A major currency pair is a currency pair with two major 
currencies. The major currencies currently are the U.S. Dollar (USD), 
Canadian Dollar (CAD), Euro (EUR), United Kingdom Pound (GBP), Japanese 
Yen (JPY), Swiss franc (CHF), New Zealand Dollar (NZD), Australian 
Dollar (AUD), Swedish Kronor (SEK), Danish Kroner (DKK), and Norwegian 
Krone (NOK).\34\ An evolving market could change the major currencies, 
so the OCC is not proposing to define the term ``major currency,'' but 
rather expects that national banks will obtain an interpretive letter 
from the OCC prior to treating any currency other than those listed 
above as a ``major currency.'' \35\
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    \34\ See National Futures Association, Forex Transaction: A 
Regulatory Guide 17 (Feb. 2011); New York Federal Reserve Bank, 
Survey of North American Foreign Exchange Volume tbl. 3e (Jan. 
2011); Bank for International Settlements, Report on Global Foreign 
Exchange Market Activity in 2010 at 15 tbl. B.6 (Dec. 2010).
    \35\ The Final CFTC Retail Forex Rule similarly does not define 
``major currency.''
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    Question II.9.1: The OCC requests comment on whether it should 
explicitly define the major currencies or major currency pairs in the 
proposed rule and whether commenters have any other suggestions on how 
the OCC should identify a major currency or major currency pair.
    For retail forex transactions, margin protects the retail forex 
customer from the risks related to trading with excessive leverage. The 
volatility of the foreign currency markets exposes retail forex 
customers to substantial risk of loss. High leverage ratios can 
significantly increase a customer's losses and gains. Even a small move 
against a customer's position can result in a substantial loss. Even 
with required margin, losses can exceed the margin posted, and if the 
account is not closed out, and depending on the specific circumstances, 
the customer could be liable for additional losses. Given the risks 
that inhere in the trading of retail forex transactions by retail 
customers, the only funds that should be invested in such transactions 
are those that the customer can afford to lose.
    Prior to the CFTC's rule, non-bank dealers routinely permitted 
customers to trade with 1 percent margin (leverage of 100:1) and 
sometimes with as little as 0.25 percent margin (leverage of 400:1). 
When the CFTC proposed its retail forex rule in January 2010, it 
proposed a margin requirement of 10 percent (leverage of 10:1). In 
response to comments, the CFTC reduced the required margin in the final 
rule to 2 percent (leverage of 50:1) for trades involving major 
currencies and 5 percent (leverage of 20:1) for trades involving non-
major currencies.
    Question II.9.2: The OCC believes that these margin requirements 
are appropriate to protect retail customers, but invites comments on 
whether the requirements should be adjusted.
    Paragraph (b) specifies the acceptable forms of margin that 
customers may post. National banks must establish policies and 
procedures providing for haircuts for noncash margin collected from 
customers and must review these haircuts annually. It may be prudent 
for national banks to review and modify the size of the haircuts more 
frequently.
    Question II.9.3: Should the OCC provide for haircuts for noncash 
margin posted for retail forex transactions? If so, what should those 
haircuts be?
    Paragraph (c) requires a national bank to hold each retail forex 
customer's retail forex transaction margin in a separate account that 
contains only that customer's retail forex margin. This paragraph is 
designed to work with the prohibition on set-off in paragraph (e), so 
that a national bank may not have an account agreement that treats all 
of a retail forex customer's assets held by a bank as margin for retail 
forex transactions.
    Paragraph (d) requires a national bank to collect additional margin 
from the customer or to liquidate the customer's position if the amount 
of margin held by the national bank fails to meet the requirements of 
paragraph (a). The proposed rule requires the national bank to mark the 
customer's open retail forex positions and the value of the customer's 
margin to the market daily to ensure that a retail forex customer does 
not accumulate substantial losses not covered by margin.
    Question II.9.4: How frequently do national banks currently mark 
retail forex customers' open retail forex positions and the value of 
the customers' margin to the market? Should the rule require marking 
customer positions and margin to the market daily, or would more 
frequent marks be more appropriate in light of the speed at which 
currency markets move? What is the most frequent mark to market 
requirement that is practical in light of the characteristics of the 
forex markets and the assets that retail forex customers may pledge as 
margin for retail forex transaction?
    Paragraph (e) prohibits a national bank from applying a retail 
forex customer's losses against any asset or liability of the retail 
forex customer other than money or property given as margin. A national 
bank's relationship with a retail forex customer may evolve out of a 
prior relationship of providing financial services or may evolve into 
such a relationship. Thus it is more likely that a national bank acting 
as a retail forex counterparty will hold other assets or liabilities of 
a retail forex customer, for example a deposit account or mortgage, 
than a retail forex dealer regulated by the CFTC. The OCC believes it 
is inappropriate to allow a national bank to leave trades open and 
allow additional losses to accrue that can be applied against a retail 
forex customer's other assets or liabilities held by the national bank.

Section 48.10--Required Reporting to Customers

    This section requires a national bank engaging in retail forex 
transactions to provide each retail forex customer a monthly statement 
and confirmation statements.
    Question II.10.1: The OCC requests comment on whether this section 
provides for statements that would be meaningful and useful to retail 
customers, or whether, in light of the distinctive characteristics of 
retail forex transactions, other information would be more appropriate.

Section 48.11--Unlawful Representations

    This section prohibits a national bank and its institutional-
affiliated parties from representing that the Federal government, the 
OCC, or any other Federal agency has sponsored, recommended, or 
approved retail forex

[[Page 22638]]

transactions or products in any way. This section also prohibits a 
national bank from implying or representing that it will guarantee 
against or limit retail forex customer losses or not collect margin as 
required by section 48.9. This section does not prohibit a national 
bank from sharing in a loss resulting from error or mishandling of an 
order, and guaranties entered into prior to effectiveness of the 
prohibition would only be affected if an attempt is made to extend, 
modify, or renew them. This section also does not prohibit a national 
bank from hedging or otherwise mitigating its own exposure to retail 
forex transactions or any other foreign exchange risk.

Section 48.12--Authorization to Trade

    This section requires a national bank to have specific written 
authorization from a retail forex customer before effecting a retail 
forex transaction for that customer.

Section 48.13--Trading and Operational Standards

    This section largely follows the trading standards of the CFTC's 
retail forex rule, which were developed to prevent some of the 
deceptive or unfair practices identified by the CFTC and the National 
Futures Association.
    Under paragraph (a), a national bank engaging in retail forex 
transactions is required to establish and enforce internal rules, 
procedures and controls (1) to prevent front running, in which 
transactions in accounts of the national bank or its related persons 
are executed before a similar customer order; (2) to establish 
settlement prices fairly and objectively; and (3) to record and 
maintain transaction records and make them available to customers.
    Paragraph (b) prohibits a national bank engaging in retail forex 
transactions from disclosing that it holds another person's order 
unless disclosure is necessary for execution or is made at the OCC's 
request.
    Paragraph (c) ensures that institution-affiliated parties of 
another retail forex counterparty do not open accounts with a national 
bank without the knowledge and authorization of the account 
surveillance personnel of the other retail forex counterparty to which 
they are affiliated. Similarly, paragraph (d) ensures that institution-
affiliated parties of a national bank do not open accounts with other 
retail forex counterparties without the knowledge and authorization of 
the account surveillance personnel of the national bank to which they 
are affiliated.
    Paragraph (e) prohibits a national bank engaging in retail forex 
transactions from (1) entering a retail forex transaction to be 
executed at a price that is not at or near prices at which other retail 
forex customers have executed materially similar transactions with the 
national bank during the same time period, (2) changing prices after 
confirmation, (3) providing a retail forex customer with a new bid 
price that is higher (or lower) than previously provided without 
providing a new ask price that is similarly higher (or lower) as well, 
and (4) establishing a new position for a retail forex customer (except 
to offset an existing position) if the national bank holds one or more 
outstanding orders of other retail forex customers for the same 
currency pair at a comparable price.
    Paragraph (e)(3) does not prevent a national bank from changing the 
bid or ask prices of a retail forex transaction to respond to market 
events. The OCC understands that market practice among CFTC-registrants 
is not to offer requotes, but to simply reject orders and advise 
customers they may submit a new order (which the dealer may or may not 
accept). Similarly, a national bank may reject an order and advise 
customers they may submit a new order.
    Question II.13.1: Does this requirement appropriately protect 
retail forex customers? If not, how it should be modified? Would it be 
simpler for the rule to simply prohibit requoting, because national 
banks may instead reject an order and accept new orders from their 
retail forex customers?
    Paragraph (e)(4) requires a national bank engaging in retail forex 
transactions to execute similar orders in the order they are received. 
The prohibition prevents a national bank from offering preferred 
execution to some of its retail forex customers but not others.

Section 48.14--Supervision

    This section imposes on a national bank and its agents, officers, 
and employees a duty to supervise subordinates with responsibility for 
retail forex transactions to ensure compliance with the OCC's retail 
forex rule.
    Question II.14.1: Does this section impose any additional 
requirements not already encompassed by safety and soundness standards 
applicable to national banks and their agents, officers, and employees?

Section 48.15--Notice of Transfers

    This section describes the requirements for transferring a retail 
forex account. Generally, a national bank must provide retail forex 
customers 30 days' prior notice before transferring or assigning their 
account. Affected customers may then instruct the national bank to 
transfer the account to an institution of their choosing or liquidate 
the account. There are three exceptions to the above notice 
requirement: a transfer in connection with the receivership or 
conservatorship under the Federal Deposit Insurance Act; a transfer 
pursuant to a retail forex customer's specific request; and a transfer 
otherwise allowed by applicable law. A national bank that is the 
transferee of retail forex accounts must generally provide the 
transferred customers with the risk disclosure statement of section 6 
and obtain each affected customer's written acknowledgement within 60 
days.

Section 48.16--Customer Dispute Resolution

    This section imposes limitations on how a national bank may handle 
disputes arising out of a retail forex transaction. For example, this 
section would restrict a national bank's ability to require mandatory 
arbitration for such disputes.

III. Request for Comments

    The OCC requests comment on all aspects of the proposed rule, 
including the questions posed in the preamble. In addition, the OCC 
requests comments on the following questions:
     Question III.1: Does the proposed rule appropriately 
protect retail forex customers of national banks?
     Question III.2: Are the proposed rule's variations from 
the CFTC retail forex rule appropriately tailored to the differences 
between national banks and CFTC registrants and the regulatory regimes 
applicable to each?

To assist in the review of comments, the OCC requests that commenters 
identify their comments by question number.

IV. Regulatory Analysis

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA) 
generally requires an agency that is issuing a proposed rule to prepare 
and make available for public comment an initial regulatory flexibility 
analysis that describes the impact of the proposed rule on small 
entities. The RFA provides that an agency is not required to prepare 
and publish an initial regulatory flexibility analysis if the agency 
certifies that the proposed rule will not, if promulgated as a final 
rule, have a significant economic impact on a substantial number of 
small entities. Under regulations issued by the Small Business 
Administration, a small entity

[[Page 22639]]

includes a commercial bank with assets of $175 million or less.\36\ The 
proposed rule would impose recordkeeping and disclosure requirements on 
banks, including small banks, which engage in retail forex transactions 
with their customers.
---------------------------------------------------------------------------

    \36\ Small Business Administration regulations define ``small 
entities'' to include banks with a four-quarter average of total 
assets of $175 million or less (13 CFR 121.201).
---------------------------------------------------------------------------

    Pursuant to section 605(b) of the RFA, the OCC certifies that this 
proposed rule will not have a significant economic impact on a 
substantial number of the small entities it supervises. Accordingly, a 
regulatory flexibility analysis is not required. In making this 
determination, the OCC estimated that there are no small banking 
organizations currently engaging in retail forex transactions with 
their customers. Therefore, the OCC estimates that no small banking 
organizations under its supervision would be affected by the proposed 
rule.
    Persons wishing to submit written comments regarding the OCC's 
certification under the RFA should refer to the instructions for 
submitting comments in the front of this release. Such comments will be 
considered and placed in the same public file as comments on the 
proposal itself.

B. Paperwork Reduction Act

Request for Comment on Proposed Information Collection
    In accordance with section 3512 of the Paperwork Reduction Act 
(PRA) of 1995 (44 U.S.C. 3501-3521), the OCC may not conduct or 
sponsor, and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The information collection 
requirements contained in this notice of proposed rulemaking have been 
submitted by the OCC to OMB for review and approval under section 3506 
of the PRA and Sec.  1320.11 of OMB's implementing regulations (5 CFR 
part 1320 et seq.). The information collection requirements are found 
in Sec. Sec.  48.4-48.7, 48.9-48.10, 48.13, 48.15-48.16.
    Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the OCC's functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimate of the burden of the information 
collection, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments should 
be addressed to: Communications Division, Office of the Comptroller of 
the Currency, Public Information Room, Mailstop 2-3, Attention: 1557-
NEW, 250 E Street, SW., Washington, DC 20219. In addition, comments may 
be sent by fax to 202-874-5274, or by electronic mail to 
[email protected]. You may personally inspect and photocopy 
comments at the OCC, 250 E Street, SW., Washington, DC 20219. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling 202-874-4700. Upon arrival, 
visitors will be required to present valid government-issued photo 
identification and submit to security screening in order to inspect and 
photocopy comments.
    Additionally, you should send a copy of your comments to the OMB 
Desk Officer, by mail to U.S. Office of Management and Budget, 725 17th 
Street, NW., 10235, Washington, DC 20503, or by fax to 202-395-6974.
Proposed Information Collection
    Title of Information Collection: Retail Foreign Exchange 
Transactions.
    Frequency of Response: On occasion.
    Affected Public: Businesses or other for-profit.
    Respondents: National banks and Federal branches and agencies of 
foreign banks.
Reporting Requirements
    The reporting requirements in Sec.  48.4 would require that, prior 
to initiating a retail forex business, a national bank provide the OCC 
with prior notice and obtain a written supervisory non-objection 
letter. In order to obtain a supervisory non-objection letter, a 
national bank must have written policies and procedures, and risk 
measurement and management systems in controls in place to ensure that 
retail forex transactions are conducted in a safe and sound manner. The 
national bank must also provide other information required by the OCC, 
such as documentation of customer due diligence, new product approvals, 
and haircuts applied to noncash margins. A national bank already 
engaging in a retail forex business may continue to do so, provided it 
requests an extension of time.
Disclosure Requirements
    Under Sec.  48.5, regarding the application and closing out of 
offsetting long and short positions, would require a national bank to 
promptly provide the customer with a statement reflecting the financial 
result of the transactions and the name of the introducing broker to 
the account. The customer would provide specific written instructions 
on how the offsetting transaction should be applied.
    Section 48.6 would require that a national bank furnish a retail 
forex customer with a written disclosure before opening an account that 
will engage in retail forex transactions for a retail forex customer 
and receive an acknowledgment from the customer that it was received 
and understood. It also requires the disclosure by a national bank of 
its fees and other charges and its profitable accounts ratio.
    Section 48.10 would require a national bank to issue monthly 
statements to each retail forex customer and to send confirmation 
statements following transactions.
    Section 48.13(b) would allow disclosure by a national bank that an 
order of another person is being held by them only when necessary to 
the effective execution of the order or when the disclosure is 
requested by the OCC. Section 48.13(c) would prohibit a national bank 
engaging in retail forex transactions from knowingly handling the 
account of any related person of another retail forex counterparty 
unless it receives proper written authorization, promptly prepares a 
written record of the order, and transmits to the counterparty copies 
all statements and written records. Section 48.13(d) would prohibit a 
related person of a national bank engaging in forex transactions from 
having an account with another retail forex counterparty unless it 
receives proper written authorization and copies of all statements and 
written records for such accounts are transmitted to the counterparty.
    Section 48.15 would require a national bank to provide a retail 
forex customer with 30 days' prior notice of any assignment of any 
position or transfer of any account of the retail forex customer. It 
would also require a national bank to which retail forex accounts or 
positions are assigned or transferred to provide the affected customers 
with risk disclosure

[[Page 22640]]

statements and forms of acknowledgment and receive the signed 
acknowledgments within 60 days.
    The customer dispute resolution provisions in Sec.  48.16 would 
require certain endorsements, acknowledgments, and signature language. 
It also would require that within 10 days after receipt of notice from 
the retail forex customer that they intend to submit a claim to 
arbitration, the national bank provide them with a list of persons 
qualified in the dispute resolution and that the customer must notify 
the national bank of the person selected within 45 days of receipt of 
such list.
Policies and Procedures; Recordkeeping
    Sections 48.7 and 48.13 would require that a national bank engaging 
in retail forex transactions keep full, complete, and systematic 
records and establish and implement internal rules, procedures, and 
controls. Section 48.7 also would require that a national bank keep 
account, financial ledger, transaction and daily records, as well as 
memorandum orders, post-execution allocation of bunched orders, records 
regarding its ratio of profitable accounts, possible violations of law, 
records for noncash margin, and monthly statements and confirmations. 
Section 48.9 would require policies and procedures for haircuts for 
noncash margin collected under the rule's margin requirements, and 
annual evaluations and modifications of the haircuts.
Estimated PRA Burden
    Estimated Number of Respondents: 42 national banks; 3 service 
providers.
    Total Reporting Burden: 672 hours.
    Total Disclosure Burden: 54,166 hours.
    Total Recordkeeping Burden: 12,416 hours.
    Total Annual Burden: 67,254 hours.

C. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 \37\ 
(Unfunded Mandates Act), requires that an agency prepare a budgetary 
impact statement before promulgating any rule likely to result in a 
Federal mandate that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. The OCC has determined that 
this proposed rule, if adopted as a final rule, will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year.\38\ Accordingly, this 
proposed rule is not subject to section 202 of the Unfunded Mandates 
Act.
---------------------------------------------------------------------------

    \37\ 2 U.S.C. 1532.
    \38\ In particular, the OCC notes that forex transactions 
between national banks and governmental entities are not retail 
forex transactions subject to this rule, because governmental 
entities are eligible contract participants. See 7 U.S.C. 
1a(18)(A)(vii).
---------------------------------------------------------------------------

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the OCC to use 
plain language in all proposed and final rules published after January 
1, 2000. The OCC invites comment on how to make this proposed rule 
easier to understand. For example, the OCC requests comment on such 
questions as:
     Have we organized the material to suit your needs? If not, 
how could the material be better organized?
     Have we clearly stated the requirements of the rule? If 
not, how could the rule be more clearly stated?
     Does the rule contain technical language or jargon that is 
not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would make the regulation easier to 
understand?
     What else could we do to make the regulation easier to 
understand?

List of Subjects in 12 CFR Part 48

    Consumer protection, Definitions, Federal branches and agencies, 
Foreign currencies, Foreign exchange, National banks, Reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, the OCC proposes to add 
part 48 to Title 12, Chapter I of the Code of Federal Regulations to 
read as follows:

PART 48--RETAIL FOREIGN EXCHANGE TRANSACTIONS

Sec.
48.1 Authority, purpose, and scope.
48.2 Definitions.
48.3 Prohibited transactions.
48.4 Supervisory non-objection.
48.5 Application and closing out of offsetting long and short 
positions.
48.6 Disclosure.
48.7 Recordkeeping.
48.8 Capital requirements.
48.9 Margin requirements.
48.10 Required reporting to customers.
48.11 Unlawful representations.
48.12 Authorization to trade.
48.13 Trading and operational standards.
48.14 Supervision.
48.15 Notice of transfers.
48.16 Customer dispute resolution.

    Authority: 12 U.S.C. 1, 24, 93a, 161, 1813(q), 1818, 1831o, 
3102, 3106a, 3108.


Sec.  48.1  Authority, purpose and scope.

    (a) Authority. A national bank may engage in retail foreign 
exchange transactions. A national bank engaging in such transactions 
shall comply with the requirements of this part.
    (b) Purpose. This part establishes rules applicable to retail 
foreign exchange transactions engaged in by national banks and applies 
on or after the effective date.
    (c) Scope. This part applies to national banks.


Sec.  48.2  Definitions.

    In addition to the definitions in this section, for purposes of 
this part, the following terms have the same meaning as in the 
Commodity Exchange Act: ``affiliated person of a futures commission 
merchant''; ``associated person''; ``contract of sale''; ``commodity''; 
``eligible contract participant''; ``futures commission merchant''; 
``security''; and ``security futures product''.
    Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. 1 
et seq.).
    Forex means foreign exchange.
    Institution-affiliated party or IAP has the same meaning as in 12 
U.S.C. 1813(u)(1), (2), or (3).
    Introducing broker means any person who solicits or accepts orders 
from a retail forex customer in connection with retail forex 
transactions.
    National bank means:
    (1) A national bank;
    (2) A Federal branch or agency of a foreign bank, each as defined 
in 12 U.S.C. 3101; and
    (3) An operating subsidiary of a national bank or a Federal branch 
or agency of a foreign bank.
    Related person, when used in reference to a retail forex 
counterparty, means:
    (1) Any general partner, officer, director, or owner of ten percent 
or more of the capital stock of the national bank;
    (2) An associated person or employee of the retail forex 
counterparty, if the retail forex counterparty is not a national bank;

[[Page 22641]]

    (3) An IAP, if the retail forex counterparty is a national bank; 
and
    (4) Any relative or spouse of any of the foregoing persons, or any 
relative of such spouse, who shares the same home as any of the 
foregoing persons.
    Retail foreign exchange dealer means any person other than a retail 
forex customer that is, or that offers to be, the counterparty to a 
retail forex transaction, except for a person described in item (aa), 
(bb), (cc)(AA), (dd), or (ff) of section 2(c)(2)(B)(i)(II) of the 
Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)).
    Retail forex account means the account of a retail forex customer, 
established with a national bank, in which retail forex transactions 
with the national bank as counterparty are undertaken, or the account 
of a retail forex customer that is established in order to enter into 
such transactions.
    Retail forex account agreement means the contractual agreement 
between a national bank and a retail forex customer that contains the 
terms governing the customer's retail forex account with the national 
bank.
    Retail forex business means engaging in one or more retail forex 
transactions with the intent to derive income from those transactions, 
either directly or indirectly.
    Retail forex customer means a customer that is not an eligible 
contract participant, acting on his, her, or its own behalf and 
engaging in retail forex transactions.
    Retail forex proprietary account means: A retail forex account 
carried on the books of a national bank for one of the following 
persons; a retail forex account of which 10 percent or more is owned by 
one of the following persons; or a retail forex account of which an 
aggregate of 10 percent or more of which is owned by more than one of 
the following persons:
    (1) The national bank;
    (2) An officer, director or owner of ten percent or more of the 
capital stock of the national bank; or
    (3) An employee of the national bank, whose duties include:
    (i) The management of the national bank's business;
    (ii) The handling of the national bank's retail forex transactions;
    (iii) The keeping of records, including without limitation the 
software used to make or maintain those records, pertaining to the 
national bank's retail forex transactions; or
    (iv) The signing or co-signing of checks or drafts on behalf of the 
national bank;
    (4) A spouse or minor dependent living in the same household as of 
any of the foregoing persons; or
    (5) An affiliate of the national bank;
    Retail forex counterparty includes, as appropriate:
    (1) A national bank;
    (2) A retail foreign exchange dealer;
    (3) A futures commission merchant; and
    (4) An affiliated person of a futures commission merchant.
    Retail forex transaction means an agreement, contract, or 
transaction in foreign currency that is offered or entered into by a 
national bank with a person that is not an eligible contract 
participant and that is:
    (1) A contract of sale of a commodity for future delivery or an 
option on such a contract;
    (2) An option, other than an option executed or traded on a 
national securities exchange registered pursuant to section 6(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78(f)(a)); or
    (3) Offered or entered into on a leveraged or margined basis, or 
financed by a national bank, its affiliate, or any person acting in 
concert with the national bank or its affiliate on a similar basis, 
other than:
    (i) A security that is not a security futures product as defined in 
section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)); or
    (ii) A contract of sale that--
    (A) Results in actual delivery within two days; or
    (B) Creates an enforceable obligation to deliver between a seller 
and buyer that have the ability to deliver and accept delivery, 
respectively, in connection with their line of business.


Sec.  48.3  Prohibited transactions.

    (a) Fraudulent conduct prohibited. No national bank or its IAPs 
may, directly or indirectly, in or in connection with any retail forex 
transaction:
    (1) Cheat or defraud or attempt to cheat or defraud any person;
    (2) Willfully make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (3) Willfully deceive or attempt to deceive any person by any means 
whatsoever.
    (b) Acting as counterparty and exercising discretion prohibited. If 
a national bank can cause retail forex transactions to be effected for 
a retail forex customer without the retail forex customer's specific 
authorization, then neither the national bank nor its affiliates may 
act as the counterparty for any retail forex transaction with that 
retail forex customer.


Sec.  48.4  Supervisory non-objection.

    (a) Supervisory non-objection required. Before commencing a retail 
forex business, a national bank shall provide the OCC with prior notice 
and obtain from the OCC a written supervisory non-objection.
    (b) Requirements for obtaining supervisory non-objection. (1) In 
order to obtain a written supervisory non-objection, a national bank 
shall:
    (i) Establish to the satisfaction of the OCC that the national bank 
has established and implemented written policies, procedures, and risk 
measurement and management systems and controls for the purpose of 
ensuring that it conducts retail forex transactions in a safe and sound 
manner and in compliance with this part; and
    (ii) Provide such other information as the OCC may require.
    (2) The information provided under paragraph (b)(1) of this section 
shall include, without limitation, information regarding:
    (i) Customer due diligence, including without limitation credit 
evaluations, customer appropriateness, and ``know your customer'' 
documentation;
    (ii) New product approvals;
    (iii) The haircuts that the national bank will apply to noncash 
margin as provided in Sec.  48.9(b)(2); and
    (iv) Conflicts of interest.
    (c) Treatment of existing retail forex businesses. A national bank 
that is engaged in a retail forex business on [EFFECTIVE DATE OF FINAL 
RULE] may continue to do so for up to six months, subject to an 
extension of time by the OCC, if it requests the supervisory non-
objection required by paragraph (a) of this section within 30 days of 
[EFFECTIVE DATE OF FINAL RULE] and submits the information required to 
be submitted under paragraph (b) of this section.
    (d) Compliance with the Commodity Exchange Act. A national bank 
that is engaged in a retail forex business on [EFFECTIVE DATE OF FINAL 
RULE] and complies with paragraph (c) of this section shall be deemed, 
during the six-month or extended period described in paragraph (c) of 
this section, to be acting pursuant to a rule or regulation described 
in section 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C. 
2(c)(2)(E)(ii)(I)).


Sec.  48.5  Application and closing out of offsetting long and short 
positions.

    (a) Application of purchases and sales. Any national bank that--
    (1) Engages in a retail forex transaction involving the purchase of 
any currency for the account of any retail forex customer when the 
account

[[Page 22642]]

of such retail forex customer at the time of such purchase has an open 
retail forex transaction for the sale of the same currency;
    (2) Engages in a retail forex transaction involving the sale of any 
currency for the account of any retail forex customer when the account 
of such retail forex customer at the time of such sale has an open 
retail forex transaction for the purchase of the same currency;
    (3) Purchases a put or call option involving foreign currency for 
the account of any retail forex customer when the account of such 
retail forex customer at the time of such purchase has a short put or 
call option position with the same underlying currency, strike price, 
and expiration date as that purchased; or
    (4) Sells a put or call option involving foreign currency for the 
account of any retail forex customer when the account of such retail 
forex customer at the time of such sale has a long put or call option 
position with the same underlying currency, strike price, and 
expiration date as that sold shall:
    (i) Immediately apply such purchase or sale against such previously 
held opposite transaction; and
    (ii) Promptly furnish such retail forex customer with a statement 
showing the financial result of the transactions involved and the name 
of any introducing broker to the account.
    (b) Close-out against oldest open position. In all instances where 
the short or long position in a customer's retail forex account 
immediately prior to an offsetting purchase or sale is greater than the 
quantity purchased or sold, the national bank shall apply such 
offsetting purchase or sale to the oldest portion of the previously 
held short or long position.
    (c) Transactions to be applied as directed by customer. 
Notwithstanding paragraph (b) of this section, the offsetting 
transaction shall be applied as directed by a retail forex customer's 
specific written instructions. These instructions may not be made by 
the national bank or an IAP.


Sec.  48.6  Disclosure.

    (a) Risk disclosure statement required. No national bank may open 
or maintain open an account that will engage in retail forex 
transactions for a retail forex customer unless the national bank has 
furnished the retail forex customer with a separate written disclosure 
statement containing only the language set forth in paragraph (d) of 
this section and the disclosures required by paragraphs (e) and (f) of 
this section.
    (b) Acknowledgement of risk disclosure statement required. The 
national bank must receive from the retail forex customer a written 
acknowledgement signed and dated by the customer that the customer 
received and understood the written disclosure statement required by 
paragraph (a) of this section.
    (c) Placement of risk disclosure statement. The disclosure 
statement may be attached to other documents as the initial page(s) of 
such documents and as the only material on such page(s).
    (d) Content of risk disclosure statement. The language set forth in 
the written disclosure statement required by paragraph (a) of this 
section shall be as follows:

Risk Disclosure Statement

    Retail forex transactions involve the leveraged trading of 
contracts denominated in foreign currency with a national bank as 
your counterparty. Because of the leverage and the other risks 
disclosed here, you can rapidly lose all of the funds you give the 
national bank as margin for such trading and you may lose more than 
you pledge as margin.
    Furthermore, you may lose funds in other accounts that you 
maintain at the national bank or its affiliates if you pledge those 
funds or other assets as collateral for your retail forex 
obligations. Your national bank is prohibited from applying losses 
that you experience on retail forex transactions on any funds or 
property of yours other than funds or property that you have given 
or pledged as margin for retail forex transactions.
    You should be aware of and carefully consider the following 
points before determining whether such trading is appropriate for 
you.
    (1) Trading is a not on a regulated market or exchange--your 
national bank is your trading counterparty and has conflicting 
interests. The retail forex transaction you are entering into is not 
conducted on an interbank market, nor is it conducted on a futures 
exchange subject to regulation as a designated contract market by 
the Commodity Futures Trading Commission. The foreign currency 
trades you transact are trades with your national bank as the 
counterparty. When you sell, the national bank is the buyer. When 
you buy, the national bank is the seller. As a result, when you lose 
money trading, your national bank is making money on such trades, in 
addition to any fees, commissions, or spreads the national bank may 
charge.
    (2) An electronic trading platform for retail foreign currency 
transactions is not an exchange. It is an electronic connection for 
accessing your national bank. The terms of availability of such a 
platform are governed only by your contract with your national bank. 
Any trading platform that you may use to enter into off-exchange 
foreign currency transactions is only connected to your national 
bank. You are accessing that trading platform only to transact with 
your national bank. You are not trading with any other entities or 
customers of the national bank by accessing such platform. The 
availability and operation of any such platform, including the 
consequences of the unavailability of the trading platform for any 
reason, is governed only by the terms of your account agreement with 
the national bank.
    (3) You may be able to offset or liquidate any trading positions 
only through your banking entity because the transactions are not 
made on an exchange or regulated contract market, and your national 
bank may set its own prices. Your ability to close your transactions 
or offset positions is limited to what your national bank will offer 
to you, as there is no other market for these transactions. Your 
national bank may offer any prices it wishes, including prices 
derived from outside sources or not in its discretion. Your national 
bank may establish its prices by offering spreads from third party 
prices, but it is under no obligation to do so or to continue to do 
so. Your national bank may offer different prices to different 
customers at any point in time on its own terms. The terms of your 
account agreement alone govern the obligations your national bank 
has to you to offer prices and offer offset or liquidating 
transactions in your account and make any payments to you. The 
prices offered by your national bank may or may not reflect prices 
available elsewhere at any exchange, interbank, or other market for 
foreign currency.
    (4) Paid solicitors may have undisclosed conflicts. The national 
bank may compensate introducing brokers for introducing your account 
in ways that are not disclosed to you. Such paid solicitors are not 
required to have, and may not have, any special expertise in 
trading, and may have conflicts of interest based on the method by 
which they are compensated. You should thoroughly investigate the 
manner in which all such solicitors are compensated and be very 
cautious in granting any person or entity authority to trade on your 
behalf. You should always consider obtaining dated written 
confirmation of any information you are relying on from your 
national bank in making any trading or account decisions.
    (5) This transaction is not insured by the Federal Deposit 
Insurance Corporation.
    (6) This transaction is not a deposit in, or guaranteed by, a 
national bank.
    (7) This transaction is subject to investment risks, including 
possible loss of all amounts invested.
    Finally, you should thoroughly investigate any statements by any 
national bank that minimize the importance of, or contradict, any of 
the terms of this risk disclosure. Such statements may indicate 
sales fraud.
    This brief statement cannot, of course, disclose all the risks 
and other aspects of trading off-exchange foreign currency with a 
national bank.
    I hereby acknowledge that I have received and understood this 
risk disclosure statement.
-----------------------------------------------------------------------

Date
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Signature of Customer


[[Page 22643]]


    (e)(1) Disclosure of profitable accounts ratio. Immediately 
following the language set forth in paragraph (d) of this section, the 
statement required by paragraph (a) of this section shall include, for 
each of the most recent four calendar quarters during which the 
national bank maintained retail forex customer accounts:
    (i) The total number of retail forex customer accounts maintained 
by the national bank over which the national bank does not exercise 
investment discretion;
    (ii) The percentage of such accounts that were profitable for 
retail forex customer accounts during the quarter; and
    (iii) The percentage of such accounts that were not profitable for 
retail forex customer accounts during the quarter.
    (2) The national bank's statement of profitable trades shall 
include the following legend: ``Past performance is not necessarily 
indicative of future results.'' Each national bank shall provide, upon 
request, to any retail forex customer or prospective retail forex 
customer the total number of retail forex accounts maintained by the 
national bank for which the national bank does not exercise investment 
discretion, the percentage of such accounts that were profitable, and 
the percentage of such accounts that were not profitable for each 
calendar quarter during the most recent five-year period during which 
the national bank maintained such accounts.
    (f) Disclosure of fees and other charges. Immediately following the 
language required by paragraph (e) of this section, the statement 
required by paragraph (a) of this section shall include:
    (i) The amount of any fee, charge, or commission that the national 
bank may impose on the retail forex customer in connection with a 
retail forex account or retail forex transaction;
    (ii) An explanation of how the national bank will determine the 
amount of such fees, charges, or commissions; and
    (iii) The circumstances under which the national bank may impose 
such fees, charges, or commissions.
    (g) Future disclosure requirements. If, with regard to a retail 
forex customer, the national bank changes any fee, charge, or 
commission required to be disclosed under paragraph (f) of this 
section, then the national bank shall mail or deliver to the retail 
forex customer a notice of the changes at least 15 days prior to the 
effective date of the change.
    (h) Form of disclosure requirements. The disclosures required by 
this section shall be clear and conspicuous and designed to call 
attention to the nature and significance of the information provided.
    (i) Other disclosure requirements unaffected. This section does not 
relieve a national bank from any other disclosure obligation it may 
have under applicable law.


Sec.  48.7  Recordkeeping.

    (a) General rule. A national bank engaging in retail forex 
transactions shall keep full, complete and systematic records, together 
with all pertinent data and memoranda, of all transactions relating to 
its retail forex business, including:
    (1) Retail forex account records for each customer reflecting:
    (i) The name and address of the person for who such retail forex 
account is carried or introduced and the principal occupation or 
business of such person;
    (ii) The name of any other person guaranteeing such retail forex 
account or exercising trading control with respect to such account;
    (iii) The establishment or termination of each retail forex 
account; and
    (iv) For each retail forex account the records must also show the 
name of the person who has solicited and is responsible for the account 
or assign account numbers in such a manner as to identify that person.
    (2) Financial ledger records that show separately for each retail 
forex customer all charges against and credits to such retail forex 
customer's account, including but not limited to retail forex customer 
funds deposited, withdrawn, or transferred, and charges or credits 
resulting from losses or gains on closed transactions.
    (3) Transaction records that show separately for each retail forex 
account and each retail forex proprietary account:
    (i) All retail forex transactions that are futures transactions 
executed for such account, including the date, price, quantity, market, 
currency pair, and delivery date;
    (ii) All retail forex transactions that are option transactions 
executed for such account, including the date, whether the transaction 
involved a put or call, expiration date, quantity, underlying contract 
for future delivery or underlying physical, strike price, and details 
of the purchase price of the option, including premium, mark-up, 
commission, and fees; and
    (iii) All other retail forex transactions that are executed for 
such account, including the date, price, quantity, and currency pair.
    (4) Daily records which show for each business day complete details 
of:
    (i) All retail forex transactions that are futures transactions 
executed on that day, including the date, price, quantity, market, 
currency pair, delivery date, and the person for whom such transaction 
was made;
    (ii) All retail forex transactions that are option transactions 
executed on that day, including the date, whether the transaction 
involved a put or call, the expiration date, quantity, currency pair, 
delivery date, strike price, details of the purchase price of the 
option, including premium, mark-up, commission and fees, and the person 
for whom the transaction was made; and
    (iii) All other retail forex transactions executed on that day for 
such account, including the date, price, quantity, currency and the 
person for whom such transaction was made.
    (5) Memorandum order (order ticket). Except as provided in 
paragraph (a)(6) of this section, immediately upon the written or 
verbal receipt of a retail forex transaction order, a national bank 
shall prepare a separate written memorandum order (order ticket) for 
the order (whether unfulfilled, executed or canceled), including:
    (i) Account identification (account or customer name with which the 
retail forex transaction was effected);
    (ii) Order number;
    (iii) Type of order (market order, limit order, or subject to 
special instructions);
    (iv) Date and time, to the nearest minute, the retail forex 
transaction order was received (as evidenced by timestamp or other 
timing device);
    (v) Time, to the nearest minute, the retail forex transaction order 
was executed; and
    (vi) Price at which the retail forex transaction was executed.
    (6) Post-execution allocation of bunched orders. Specific customer 
account identifiers for accounts included in bunched orders need not be 
recorded at time of order placement or upon report of execution as 
required under paragraph (a)(5) of this section if the following 
requirements are met:
    (i) The national bank placing and directing the allocation of an 
order eligible for post-execution allocation has been granted written 
investment discretion with regard to participating customer accounts 
and makes the following information available to customers upon 
request:
    (A) The general nature of the allocation methodology the national 
bank will use;
    (B) Whether the national bank has any interest in accounts which 
may be included with customer accounts in

[[Page 22644]]

bunched orders eligible for post-execution allocation; and
    (C) Summary or composite data sufficient for that customer to 
compare its results with those of other comparable customers and, if 
applicable, any account in which the national bank has an interest.
    (ii) A national bank must allocate orders eligible for post-
execution allocation in accordance with the following:
    (A) Allocations must be made as soon as practicable after the 
entire transaction is executed;
    (B) Allocations must be fair and equitable; no account or group of 
accounts may receive consistently favorable or unfavorable treatment; 
and
    (C) The allocation methodology must be sufficiently objective and 
specific to permit independent verification of the fairness of the 
allocations using that methodology by the OCC.
    (7) Other records. Other records covered by this section include 
written acknowledgements of receipt of the risk disclosure statement 
required by Sec.  48.6(b), trading cards, signature cards, street 
books, journals, ledgers, payment records, copies of statements of 
purchase, and all other records, data and memoranda that have been 
prepared in the course of the national bank's retail forex business.
    (b) Ratio of profitable accounts. (1) With respect to its active 
retail forex customer accounts over which it did not exercise 
investment discretion and that are not retail forex proprietary 
accounts open for any period of time during the quarter, a national 
bank shall prepare and maintain on a quarterly basis (calendar 
quarter):
    (i) A calculation of the percentage of such accounts that were 
profitable;
    (ii) A calculation of the percentage of such accounts that were not 
profitable; and
    (iii) Data supporting the calculations described in paragraphs 
(b)(1)(i) and (ii) of this section.
    (2) In calculating whether a retail forex account was profitable or 
not profitable during the quarter, the national bank shall compute the 
realized and unrealized gains or losses on all retail forex 
transactions carried in the retail forex account at any time during the 
quarter, and subtract all fees, commissions, and any other charges 
posted to the retail forex account during the quarter, and add any 
interest income and other income or rebates credited to the retail 
forex account during the quarter. All deposits and withdrawals of funds 
made by the retail forex customer during the quarter must be excluded 
from the computation of whether the retail forex account was profitable 
or not profitable during the quarter. Computations that result in a 
zero or negative number shall be considered a retail forex account that 
was not profitable. Computations that result in a positive number shall 
be considered a retail forex account that was profitable.
    (3) A retail forex account shall be considered ``active'' for 
purposes of paragraph (b)(1) of this section if and only if, for the 
relevant calendar quarter, a retail forex transaction was executed in 
that account or the retail forex account contained an open position 
resulting from a retail forex transaction.
    (c) Records related to possible violations of law. A national bank 
engaging in retail forex transactions shall make a record of all 
communications received by the national bank or its IAPs concerning 
facts giving rise to possible violations of law related to the national 
bank's retail forex business. The record shall contain: The name of the 
complainant, if provided; the date of the communication; the relevant 
agreement, contract, or transaction; the substance of the 
communication; and the name of the person who received the 
communication.
    (d) Records for noncash margin. A national bank shall maintain a 
record of all noncash margin collected pursuant to Sec.  48.9. The 
record shall show separately for each retail forex customer:
    (1) A description of the securities or property received;
    (2) The name and address of such retail forex customer;
    (3) The dates when the securities or property were received;
    (4) The identity of the depositories or other places where such 
securities or property are segregated or held, if applicable;
    (5) The dates in which the national bank placed or removed such 
securities or property into or from such depositories; and
    (6) The dates of return of such securities or property to such 
retail forex customer, or other disposition thereof, together with the 
facts and circumstances of such other disposition.
    (e) Record of monthly statements and confirmations. A national bank 
shall retain a copy of each monthly statement and confirmation required 
by Sec.  48.10.
    (f) Manner of maintenance. The records required by this section 
must clearly and accurately reflect the information required and 
provide an adequate basis for the audit of the information. Record 
maintenance may include the use of automated or electronic records 
provided that the records are easily retrievable, readily available for 
inspection, and capable of being reproduced in hard copy.
    (g) Length of maintenance. A national bank shall keep each record 
required by this section for at least five years from the date the 
record is created.


Sec.  48.8  Capital requirements.

    A national bank offering or entering into retail forex transactions 
must be well capitalized as defined by 12 CFR part 6, unless 
specifically exempted by the OCC in writing.


Sec.  48.9  Margin requirements.

    (a) Margin required. A national bank engaging, or offering to 
engage, in retail forex transactions must collect from each retail 
forex customer an amount of margin not less than:
    (1) Two percent of the notional value of the retail forex 
transaction for major currency pairs and 5 percent of the notional 
value of the retail forex transaction for all other currency pairs;
    (2) For short options, 2 percent for major currency pairs and 5 
percent for all other currency pairs of the notional value of the 
retail forex transaction, plus the premium received by the retail forex 
customer; or
    (3) For long options, the full premium charged and received by the 
national bank.
    (b)(1) Form of margin. Margin collected under paragraph (a) of this 
section or pledged by a retail forex customer in excess of the 
requirements of paragraph (a) of this section must be in the form of 
cash or the following financial instruments:
    (i) Obligations of the United States and obligations fully 
guaranteed as to principal and interest by the United States;
    (ii) General obligations of any State or of any political 
subdivision thereof;
    (iii) General obligations issued or guaranteed by any enterprise, 
as defined in 12 U.S.C. 4502(10);
    (iv) Certificates of deposit issued by an insured depository 
institution, as defined in section 3(c)(2) of the Federal Deposit 
Insurance Act (12 U.S.C. 1813(c)(2));
    (v) Commercial paper;
    (vi) Corporate notes or bonds;
    (vii) General obligations of a sovereign nation;
    (viii) Interests in money market mutual funds; and
    (ix) Such other financial instruments as the OCC deems appropriate.
    (2) Haircuts. A national bank shall establish written policies and 
procedures that include:
    (i) Haircuts for noncash margin collected under this section; and

[[Page 22645]]

    (ii) Annual evaluation, and, if appropriate, modification of the 
haircuts.
    (c) Separate margin account. Margin collected by the national bank 
from a retail forex customer for retail forex transactions or pledged 
by a retail forex customer for retail forex transactions shall be 
placed into a separate account containing only such margin.
    (d) Margin calls; liquidation of position. For each retail forex 
customer, at least once per day, a national bank shall:
    (1) Mark the value of the retail forex customer's open retail forex 
positions to market;
    (2) Mark the value of the margin collected under this section from 
the retail forex customer to market;
    (3) Determine if, based on the marks in paragraphs (c)(1) and (2) 
of this section, the national bank has collected margin from the retail 
forex customer sufficient to satisfy the requirements of this section; 
and
    (4) Collect such margin from the retail forex customer as the 
national bank may require to satisfy the requirements of this section, 
or liquidate the retail forex customer's retail forex transactions.
    (e) Set-off prohibited. A national bank may not:
    (1) Apply a retail forex customer's losses on retail forex 
transactions against any funds or other asset of the retail forex 
customer other than margin in the retail forex customer's separate 
margin account described in paragraph (c) of this section;
    (2) Apply a retail forex customer's losses on retail forex 
transactions to increase the amount owed by the retail forex customer 
to the national bank under any loan; or
    (3) Collect the margin required under this section by use of any 
right of set-off.


Sec.  48.10  Required reporting to customers.

    (a) Monthly statements. Each national bank must promptly furnish to 
each retail forex customer, as of the close of the last business day of 
each month or as of any regular monthly date selected, except for 
accounts in which there are neither open positions at the end of the 
statement period nor any changes to the account balance since the prior 
statement period, but in any event not less frequently than once every 
three months, a statement that clearly shows:
    (1) For each retail forex customer:
    (i) The open retail forex transactions with prices at which 
acquired;
    (ii) The net unrealized profits or losses in all open retail forex 
transactions marked to the market;
    (iii) Any money, securities or other property in the separate 
margin account required by Sec.  48.9(c); and
    (iv) A detailed accounting of all financial charges and credits to 
the retail forex customer's retail forex accounts during the monthly 
reporting period, including: money, securities, or property received 
from or disbursed to such customer; realized profits and losses; and 
fees, charges, and commissions.
    (2) For each retail forex customer engaging in retail forex 
transactions that are options:
    (i) All such options purchased, sold, exercised, or expired during 
the monthly reporting period, identified by underlying retail forex 
transaction or underlying currency, strike price, transaction date, and 
expiration date;
    (ii) The open option positions carried for such customer and 
arising as of the end of the monthly reporting period, identified by 
underlying retail forex transaction or underlying currency, strike 
price, transaction date, and expiration date;
    (iii) All such option positions marked to the market and the amount 
each position is in the money, if any;
    (iv) Any money, securities or other property in the separate margin 
account required by Sec.  48.9(c); and
    (v) A detailed accounting of all financial charges and credits to 
the retail forex customer's retail forex accounts during the monthly 
reporting period, including: money, securities, or property received 
from or disbursed to such customer; realized profits and losses; and 
fees, charges, and commissions.
    (b) Confirmation statement. Each national bank must, not later than 
the next business day after any retail forex transaction, send:
    (1) To each retail forex customer, a written confirmation of each 
retail forex transaction caused to be executed by it for the customer, 
including offsetting transactions executed during the same business day 
and the rollover of an open retail forex transaction to the next 
business day;
    (2) To each retail forex customer engaging in forex option 
transactions, a written confirmation of each forex option transaction, 
containing at least the following information:
    (i) The retail forex customer's account identification number;
    (ii) A separate listing of the actual amount of the premium, as 
well as each mark-up thereon, if applicable, and all other commissions, 
costs, fees and other charges incurred in connection with the forex 
option transaction;
    (iii) The strike price;
    (iv) The underlying retail forex transaction or underlying 
currency;
    (v) The final exercise date of the forex option purchased or sold; 
and
    (vi) The date the forex option transaction was executed.
    (3) To each retail forex customer engaging in forex option 
transactions, upon the expiration or exercise of any option, a written 
confirmation statement thereof, which statement shall include the date 
of such occurrence, a description of the option involved, and, in the 
case of exercise, the details of the retail forex or physical currency 
position which resulted therefrom including, if applicable, the final 
trading date of the retail forex transaction underlying the option.
    (c) Notwithstanding the provisions of paragraphs (b)(1) through (3) 
of this section, a retail forex transaction that is caused to be 
executed for a pooled investment vehicle that engages in retail forex 
transactions need be confirmed only to the operator of such pooled 
investment vehicle.
    (d) Controlled accounts. With respect to any account controlled by 
any person other than the retail forex customer for whom such account 
is carried, each national bank shall promptly furnish in writing to 
such other person the information required by paragraphs (a) and (b) of 
this section.
    (e) Introduced accounts. Each statement provided pursuant to the 
provisions of this section must, if applicable, show that the account 
for which the national bank was introduced by an introducing broker and 
the name of the introducing broker.


Sec.  48.11  Unlawful representations.

    (a) No implication or representation of limiting losses. No 
national bank engaged in retail foreign exchange transactions or its 
IAPs may imply or represent that it will, with respect to any retail 
customer forex account, for or on behalf of any person:
    (1) Guarantee such person or account against loss;
    (2) Limit the loss of such person or account; or
    (3) Not call for or attempt to collect margin as established for 
retail forex customers.
    (b) No implication of representation of engaging in prohibited 
acts. No national bank or its IAPs may in any way imply or represent 
that it will engage in any of the acts or practices described in 
paragraph (a) of this section.
    (c) No Federal government endorsement. No national bank or its IAPs 
may represent or imply in any manner whatsoever that any retail forex 
transaction or retail forex product has

[[Page 22646]]

been sponsored, recommended, or approved by the OCC, the Federal 
government, or any agency thereof.
    (d) Assuming or sharing of liability from bank error. This section 
shall not be construed to prevent a national bank from assuming or 
sharing in the losses resulting from the national bank's error or 
mishandling of a retail forex transaction.
    (e) Certain guaranties unaffected. This section shall not affect 
any guarantee entered into prior to the effective date of this part, 
but this section shall apply to any extension, modification or renewal 
thereof entered into after such date.


Sec.  48.12  Authorization to trade.

    (a) Specific authorization required. No national bank may directly 
or indirectly effect a retail forex transaction for the account of any 
retail forex customer unless, before the transaction occurs, the retail 
forex customer specifically authorized the national bank, in writing, 
to effect the retail forex transaction.
    (b) Requirements for specific authorization A retail forex 
transaction is ``specifically authorized'' for purposes of this section 
if the retail forex customer specifies:
    (1) The precise retail forex transaction to be effected;
    (2) The exact amount of the foreign currency to be purchased or 
sold; and
    (3) In the case of an option, the identity of the foreign currency 
or contract that underlies the option.


Sec.  48.13  Trading and operational standards.

    (a) Internal rules, procedures, and controls required. A national 
bank engaging in retail forex transactions shall establish and 
implement internal rules, procedures, and controls designed, at a 
minimum, to:
    (1) Ensure, to the extent reasonable, that each order received from 
a retail forex customer that is executable at or near the price that 
the national bank has quoted to the customer is entered for execution 
before any order in any retail forex transaction for any proprietary 
account, any other account in which a related person has an interest, 
or any account for which such a related person may originate orders 
without the prior specific consent of the account owner (if such 
related person has gained knowledge of the retail forex customer's 
order prior to the transmission of an order for a proprietary account), 
an account in which such a related person has an interest, or an 
account in which such a related person may originate orders without the 
prior specific consent of the account owner;
    (2) Prevent national bank related persons from placing orders, 
directly or indirectly, with another person in a manner designed to 
circumvent the provisions of paragraph (a)(1) of this section;
    (3) Fairly and objectively establish settlement prices for retail 
forex transactions; and
    (4) Record and maintain essential information regarding customer 
orders and account activity, and to provide such information to 
customers upon request. Such information shall include:
    (i) Transaction records for the customer's account, including:
    (A) The date and time each order is received by the national bank;
    (B) The price at which each order is placed, or, in the case of an 
option, the premium paid;
    (C) If the transaction was entered into by means of a trading 
platform, the price quoted on the trading platform when the order was 
placed, or, in the case of an option, the premium quoted;
    (D) The customer account identification information;
    (E) The currency pair;
    (F) The size of the transaction;
    (G) Whether the order was a buy or sell order;
    (H) The type of order, if the order was not a market order;
    (I) If a trading platform is used, the date and time the order is 
transmitted to the trading platform;
    (J) If a trading platform is used, the date and time the order is 
executed;
    (K) The size and price at which the order is executed, or in the 
case of an option, the amount of the premium paid for each option 
purchased, or the amount credited for each option sold; and
    (L) For options, whether the option is a put or call, the strike 
price, and expiration date.
    (ii) Account records that contain the following information:
    (A) The funds in the account, net of any commissions and fees;
    (B) The net profits and losses on open trades; and
    (C) The funds in the account plus or minus the net profits and 
losses on open trades. (In the case of open option positions, the 
account balance should be adjusted for the net option value);
    (iii) If a trading platform is used, daily logs showing each price 
change on the platform, the time of the change to the nearest second, 
and the trading volume at that time and price; and
    (iv) Any method or algorithm used to determine the bid or asked 
price for any retail forex transaction or the prices at which customer 
orders are executed, including, but not limited to, any markups, fees, 
commissions or other items which affect the profitability or risk of 
loss of a retail forex customer's transaction.
    (b) Disclosure of retail forex transactions. No national bank 
engaging in retail forex transactions may disclose that an order of 
another person is being held by the national bank, unless the 
disclosure is necessary to the effective execution of such order or the 
disclosure is made at the request of the OCC.
    (c) Handling of retail forex accounts of related persons of retail 
forex counterparties. No national bank engaging in retail forex 
transactions shall knowingly handle the retail forex account of any 
related person of another retail forex counterparty unless it:
    (1) Receives written authorization from a person designated by such 
other retail forex counterparty with responsibility for the 
surveillance over such account pursuant to paragraph (a)(2) of this 
section;
    (2) Prepares immediately upon receipt of an order for such account 
a written record of such order, including the account identification 
and order number, and records thereon to the nearest minute, by time-
stamp or other timing device, the date and time the order is received; 
and
    (3) Transmits on a regular basis to such other retail forex 
counterparty copies of all statements for such account and of all 
written records prepared upon the receipt of orders for such account 
pursuant to paragraph (a)(2) of this section.
    (d) Related person of national bank establishing account at another 
retail forex counterparty. No related person of a national bank 
engaging in retail forex transactions may have an account, directly or 
indirectly, with another retail forex counterparty unless:
    (1) It receives written authorization to maintain such an account 
from a person designated by the national bank of which it is a related 
person with responsibility for the surveillance over such account 
pursuant to paragraph (a)(2) of this section; and
    (2) Copies of all statements for such account and of all written 
records prepared by such other retail forex counterparty upon receipt 
of orders for such account pursuant to paragraph (c)(2) of this section 
are transmitted on a regular basis to the retail forex counterparty of 
which it is a related person.
    (e) Prohibited trading practices. No national bank engaging in 
retail forex transactions may:
    (1) Enter into a retail forex transaction, to be executed pursuant 
to

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a market or limit order at a price that is not at or near the price at 
which other retail forex customers, during that same time period, have 
executed retail forex transactions with the national bank;
    (2) Adjust or alter prices for a retail forex transaction after the 
transaction has been confirmed to the retail forex customer;
    (3) Provide a retail forex customer a new bid price for a retail 
forex transaction that is higher than its previous bid without 
providing a new asked price that is also higher than its previous asked 
price by a similar amount;
    (4) Provide a retail forex customer a new bid price for a retail 
forex transaction that is lower than its previous bid without providing 
a new asked price that is also lower than its previous asked price by a 
similar amount; or
    (5) Establish a new position for a retail forex customer (except 
one that offsets an existing position for that retail forex customer) 
where the national bank holds outstanding orders of other retail forex 
customers for the same currency pair at a comparable price.


Sec.  48.14  Supervision.

    (a) Supervision by the national bank. A national bank engaging in 
retail forex transactions shall diligently supervise the handling by 
its officers, employees, and agents (or persons occupying a similar 
status or performing a similar function) of all retail forex accounts 
carried, operated, or advised by at the national bank and all 
activities of its officers, employees, and agents (or persons occupying 
a similar status or performing a similar function) relating to its 
retail forex business.
    (b) Supervision by officers, employees, or agents. An officer, 
employee, or agent of a national bank must diligently supervise his or 
her subordinates' handling of all retail forex accounts at the national 
bank and all the subordinates' activities relating to the national 
bank's retail forex business.


Sec.  48.15  Notice of transfers.

    (a) Prior notice generally required. Except as provided in 
paragraph (b) of this section, a national bank must provide a retail 
forex customer with 30 days' prior notice of any assignment of any 
position or transfer of any account of the retail forex customer. The 
notice must include a statement that the retail forex customer is not 
required to accept the proposed assignment or transfer and may direct 
the national bank to liquidate the positions of the retail forex 
customer or transfer the account to a retail forex counterparty of the 
retail forex customer's selection.
    (b) Exceptions. The requirements of paragraph (a) of this section 
shall not apply to transfers:
    (1) Requested by the retail forex customer;
    (2) Made by the Federal Deposit Insurance Corporation as receiver 
or conservator under the Federal Deposit Insurance Act; or
    (3) Otherwise authorized by applicable law.
    (c) Obligations of transferee national bank. A national bank to 
which retail forex accounts or positions are assigned or transferred 
under paragraph (a) of this section must provide to the affected retail 
forex customers the risk disclosure statements and forms of 
acknowledgment required by this part and receive the required signed 
acknowledgments within sixty days of such assignments or transfers. 
This requirement shall not apply if the national bank has clear written 
evidence that the retail forex customer has received and acknowledged 
receipt of the required disclosure statements.


Sec.  48.16  Customer dispute resolution.

    (a) Voluntary submission of claims to dispute or settlement 
procedures. No national bank shall enter into any agreement or 
understanding with a retail forex customer in which the customer 
agrees, prior to the time a claim or grievance arises, to submit such 
claim or grievance to any settlement procedure unless the following 
conditions are satisfied:
    (1) Signing the agreement must not be made a condition for the 
customer to use the services offered by the national bank.
    (2) If the agreement is contained as a clause or clauses of a 
broader agreement, the customer must separately endorse the clause or 
clauses.
    (3) The agreement must advise the retail forex customer that, at 
such time as the customer notifies the national bank that the customer 
intends to submit a claim to arbitration, or at such time the national 
bank notifies the customer of its intent to submit a claim to 
arbitration, the customer will have the opportunity to choose a person 
qualified in dispute resolution to conduct the proceeding.
    (4) The agreement must acknowledge that the national bank will pay 
any incremental fees that may be assessed in connection with the 
dispute resolution, unless it is determined in the proceeding that the 
retail forex customer has acted in bad faith in initiating the 
proceeding.
    (5) The agreement must include the following language printed in 
large boldface type:

    The opportunity to settle disputes by arbitration may in some 
cases provide benefits to customers, including the ability to obtain 
an expeditious and final resolution of disputes without incurring 
substantial cost. Each customer must individually examine the 
relative merits of arbitration and consent to this arbitration 
agreement must be voluntary.
    By signing this agreement, you: (1) May be waving your right to 
sue in a court of law; and (2) are agreeing to be bound by 
arbitration of any claims or counterclaims which you or [insert name 
of national bank] may submit to arbitration under this agreement. In 
the event a dispute arises, you will be notified if [insert name of 
national bank] intends to submit the dispute to arbitration.
    You need not sign this agreement to open or maintain a retail 
forex account with [insert name of national bank].

    (b) Election of forum. (1) Within ten business days after receipt 
of notice from the retail forex customer that the customer intends to 
submit a claim to arbitration, the national bank must provide the 
customer with a list of persons qualified in dispute resolution.
    (2) The customer shall, within 45 days after receipt of such list, 
notify the national bank of the person selected. The customer's failure 
to provide such notice shall give the national bank the right to select 
a person from the list.
    (c) Enforceability. A dispute settlement procedure may require 
parties using such procedure to agree, under applicable state law, 
submission agreement or otherwise, to be bound by an award rendered in 
the procedure, provided that the agreement to submit the claim or 
grievance to the voluntary procedure under paragraph (a) of this 
section or that agreement to submit the claim or grievance was made 
after the claim or grievance arose. Any award so rendered shall be 
enforceable in accordance with applicable law.
    (d) Time limits for submission of claims. The dispute settlement 
procedure used by the parties shall not include any unreasonably short 
limitation period foreclosing submission of a customer's claims or 
grievances or counterclaims.
    (e) Counterclaims. A procedure for the settlement of a retail forex 
customer's claims or grievances against a national bank or employee 
thereof may permit the submission of a counterclaim in the procedure by 
a person against whom a claim or grievance is brought. Such a 
counterclaim may be permitted where it arises out of the transaction or 
occurrence that is the subject of the customer's claim or grievance and 
does

[[Page 22648]]

not require for adjudication the presence of essential witnesses, 
parties, or third persons over which the settlement process lacks 
jurisdiction.

    Dated: April 18, 2011.
John Walsh,
Acting Comptroller of the Currency.
[FR Doc. 2011-9821 Filed 4-21-11; 8:45 am]
BILLING CODE 4810-33-P