Targeted Examination Letter

November 2009

 

Re: Retail Forex Trading

 

FINRA's Enforcement Department is conducting an inquiry with respect to forex trading.

 

1. Please advise us if your firm, either directly or through an affiliate or subsidiary, has in any way participated in forex transactions since January 1, 2006. If so, we request the following information pertaining to all forex transactions since January 1, 2006:

 

  1. Describe the capacity in which you participated in each forex transaction, e.g. as a counterparty to the transaction.
  2. Identify the parties to each forex transaction, i.e. the parties who solicited the forex transactions, the customers, and the institutions to and from which the funds were wired. Please provide this response in a sortable format, such as a Microsoft Excel spreadsheet.
  3. Provide whatever documentation you have concerning each forex transaction.
  4. Provide a copy of any documents given to the forex customers that disclosed the firm's capacity in the transactions. Please tell us when, relative to the particular forex transaction, the documents were provided to the forex customer.
  5. Provide a copy of any documents given to the forex customers that disclosed the risks associated with forex trading. Please tell us when, relative to the particular forex transaction, the documents were provided to the forex customer.
  6. Provide a copy of any examples, illustrations, or demonstration accounts provided to customers related to forex trading.
  7. Provide a copy of all advertising and sales literature sent to forex customers or potential forex customers.

 

2. Please advise if your firm solicited business for, or introduced customers to, a forex dealer. If so, please describe the due diligence your firm undertook to learn about the forex dealer.

 

3. Please advise if your firm retained anyone to solicit forex customers for the firm and, if so, what due diligence your firm undertook to learn about whoever was soliciting the forex customers for your firm. Please provide any documentation obtained as a result of the due diligence.

 

4 Please provide a description of the supervisory system(s), and a copy of all written supervisory procedures (WSPs), addressing forex trading at your firm, affiliate or subsidiary. If not identified in the WSPs, please identify the representatives who engage in forex trading, and the person(s) who is/are responsible for supervising the forex trading.

 

5. If your firm utilizes exception reports to supervise forex trading, please identify the reports, including the parameters that are used and who generates the reports. Please describe how the reports are used to supervise forex trading, and identify the person(s) responsible for utilizing the reports.

 

6. Please provide a copy of the portions of your firm's Anti-Money Laundering (AML) Program that addresses the risks associated with forex trading, and that addresses monitoring, detecting, and reporting suspicious activities associated with the forex transactions. Provide copies of such portions of all previous AML procedures that have been in use since 2006.

 

7. Please advise if your firm filed a request pursuant to FINRA Rule 1017 (previously NASD Rule 1017) for FINRA's approval of your firm engaging in forex trading, and if such request was filed prior to the firm engaging in any forex trading, in any capacity. Please provide a copy of any such request, and a copy of FINRA's response to the request.

 

8. Please describe how, if at all, the firm accounted for forex transactions in its calculations of net capital and reserve formula since first engaging in forex trading. If the firm did not account for forex transactions in its calculation of net capital and reserve formula, please explain why the firm did not do so.

 

9. Has your firm received any customer complaints or arbitration claims concerning the forex activities? If so, provide a copy of the complaint(s) (if written) or a report of the complaint(s) (if oral, state when made and to whom). Provide copies of account documentation and account statements. Provide documentation regarding the firm's investigation into the matter(s), the firm's answer or response (with exhibits), and copies of any adjustment, settlement, court order, or award resulting from the complaint(s) (if resolved).

 

10. Provide any other information or documentation you believe might be appropriate for a full understanding of the forex trading by your firm.