Does the Dodd-Frank Act Make OTC Gold Trading Illegal?
A memo from FOREX that started it all:
From: FOREX.com
Date: Fri, Jun 17, 2011 at 6:11 PM
Subject: Important Account Notice Re: Metals Trading
To: xxx
Important Account Notice Re: Metals Trading
We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.
In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.
We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.
We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.
Sincerely,
The Team at FOREX.com
If you haven't seen or heard about this communication from FOREX, you may be surprised to learn that OTC (over the counter) will no longer be offered for precious metal trading .... thanks to the Dodd-Frank Act that takes effect on July 16th, 2011.
In particular, Section 742 states:
“any agreement, contract, or transaction in any commodity that is entered into with, or offered to (even if not entered into with), a person that is not an eligible contract participant or eligible commercial entity; and entered into, or offered (even if not entered into), on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis”
While there are some exemptions to this Dodd-Frank Act:
Any contract that will be physically delivered in 28-days or is otherwise an enforceable obligation to deliver will not be touched (This tends to calm some of the web hysteria that OTC refers to actually buying physical coins over a dealer's physical counter.)
Eligible contract participants may also continue to trade spot contracts off-exchange.
However, for those that want to continue to trade precious metals contracts, they must find an exchange or run the risk of government action.
