Did You Know It’s Against The Law For US Citizens To Open Accounts With Non-US Regulated Options Brokers?

Alicia Badilla By Alicia Badilla, 3rd Apr 2012 | Follow this author | RSS Feed | Short URL http://nut.bz/l-uitbtk/
Posted in Wikinut>Business>Investment

Why is the US trying to over-regulate? Some say it is the democrats fault and others say it is happening because of lobbying funded by US Based Forex Brokers. Read Below to examine how international firms are conducting business and why more and more investors are diversifying internationally.

Taxes Taxes Taxes

The quick answer is taxes. The government will do anything it can to get money in the country and everything imaginable to keep it from going internationally or beyond the reach of tax tentacles. It’s no secret that a number of non-US Options brokers have regulations that restrict US traders. Most international Options brokers operating internationally do not accept US residents as clients. A good number of these brokers are great to work with. The reason for the above becomes understandable as we challenge the reasoning behind it. There are strict guidelines that create boundaries for doing business with US citizens. All of these rules originate from the US government. Fortunately, these regulations cannot legally completely stop international brokers from accepting us citizens as clients. There are still a few brave non-US international Options brokers that accept US citizens. Below is the primary reason why the vast majority of international Options brokers do not accept US citizens.

Dodd-Frank Act

The act known as ”Dodd-Frank Act” is the most recent federal statute that Obama signed into law. It came into effect July 21, 2010. It’s a transformation agenda which was only developed to control the financial market. The act brought forth new rules that were designed to regulate all US financial brokers who deal in stocks, futures, and derrivatives.

The Dodd-Frank Act requires all Options brokerage companies who do business with US citizens register with both the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).

Many international Options brokers find this very expensive and time consuming with all the legal and filing fees involved in maintaining and renewing memberships and licenses. Recent statistics show most international brokers are still not registered with these regulatory bodies. These are legal ethical international brokers who to avoid the costs of a paper mess simply stop accepting US citizens from opening accounts with them. It’s easier for them to decline the US Citizens than incur the unforeseen expenses.

The primary reason that has practically obligated international Options brokers to decline US citizens is the implementation of this Dodd-Frank Act. There are also other reforms and changes in the financial market services that US government have provided barring their citizens from opening account with international brokerage companies. Several of these regulations have direct link to CFTC activities. The US Government has directly implemented some of them. Besides this, the Dodd-Frank Act has many other disadvantages. Due to this regulation, many foreign banks are not able to continue to accept US residents as clients. Secondly, most US regulated Options brokerage services have significantly changed the minimum account requirements to higher levels and must offer less leverage, and unfavorable spread levels.

The Answer

Despite the restrictions imposed by the Dodd-Frank Act, some international Options brokers still accept us citizens. If you are a US citizen, you can still open an account with such international brokers not registered by US regulatory bodies – NFA and CFTC. However, this is done under certain different conditions. Such international brokers are only allowed to accept US clients under US -based affiliates.

In Closing

The regulation of international Options brokerage companies requiring them to be registered with the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) before accepting us citizens has both its advantages and disadvantages. The primary advantage is that the regulation ensures the safety of US residents’ funds. Non US residents/citizens have no recourse when complaining to the NFA or CFTC as these are US agencies paid for with US tax dollars hired to protect the United States public. Tax revenue is the goal of the regulation. It’s also expected that the US State Treasury will enhance regulation to keep invested funds from leaving US borders.

Note that this regulation has several disadvantages to both the US citizens and the government. Number one: the services of most international brokers cannot be enjoyed by US citizens since the majority of such brokers are not regulated by the US government. Two: brokers who currently accept us citizens have substantially raised their minimum capital requirement and have to charge significantly higher fees. As a result of this regulation, US citizens are now subjected to unfavorable trading conditions compared to other economies like Australia, Japan & Singapore. These unfavorable trading conditions include higher fees, costly spreads and reduced leverage.

**In the United States, financial brokers must pass the Series 3 National Commodity Futures Examination administered by the Financial Industry Regulatory Authority (FINRA). With few exceptions, most individuals who act as a FCM, IB, CTA, and CPO, as well as their RCR/APs, are required to register with the Commodity Futures Trading Commission (CFTC), and be members of the National Futures Association (NFA).
International brokers/traders who do not accept US clients generally do not need to be members of the NFA, but are subject to the trading regulations set by the individual exchanges they trade on.


Dodd Frank Act, International Options Brokers

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author avatar Alicia Badilla
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I'm a Traveler/Writer/Investor At times I interview interesting professionals. Thank you for reading.

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author avatar Retired
9th Feb 2013 (#)

This is an excellent piece of writing and information indeed . It value added in big terms. Thanks fro digging it all out.

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