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  1. #1

    Exclamation VOLATILITY DAYS AHEAD: FOREX, 7/15: No more PrecMetals OTC-> INDIVIDUALS

    New Metals Trading Restrictions
    Posted by Lew Rockwell on June 17, 2011 04:36 PM
    Writes Jason:
    Just got a notice in the mail from my Forex broker. Apparently it is illegal to trade currencies against precious metals now. What a good way to show how safe the dollar is.
    We wanted to make you aware of some upcoming changes to’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, 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.
    When I got the notice I immediately thought of your blog, so I decided to share the news.

    Some background information on that from seekingalpha:

    ... The impact of the Act on commodity futures, over-the-counter retail foreign currency (“OTC forex”), and over-the-counter retail precious metals (“OTC metals”) transactions has been largely ignored by the media to date. Although the Dodd-Frank Act has been championed as a victory for consumer protection and rigid Wall Street reform, there is little actual clarity with respect to its practical implications ...

    Elimination of OTC Metals
    As for OTC precious metals such as gold or silver, Section 742(a) of the Act prohibits any person [which again includes companies]from entering into, or offering to enter into, a transaction in any commodity with a person that is not an eligible contract participant or an eligible commercial entity, on a leveraged or margined basis. This provision intends to expand the narrow so called “Zelener fix” in the Farm Bill previously ratified by congress in 2008.

    The Farm Bill empowered the CFTC to pursue anti-fraud actions involving rolling spot transactions and/or other leveraged forex transactions without the need to prove that they are futures contracts. The Dodd-Frank Act now expands this authority to include virtually all retail cash commodity market products that involve leverage or margin – in other words OTC precious metals.

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

    Small Pool Exemption Eliminated
    Pursuant to Section 403 of Act, the “private adviser” exemption, namelySection 203(b)(3) of the Investment Advisers Act of 1940 (“Advisers Act”), will be eliminated within one year of the Act’s effective date (July 21, 2011). Historically, many unregistered U.S. fund managers had relied on this exemption to avoid registration where they:
    (1) had fewer than 15 clients in the past 12 months;

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

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

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

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

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

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

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

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

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

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

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


    The portion being enforced w/r/t "small pool exemption elimination"...seems to this poster to have potential for relevance in the current action AGAINST KITCO....

    In essence, it seems to be an attempt to force small investors out of the OTC metals market.

    This should make life interesting for the "retail gamers" on FOREX, yes?

    Not many speculators/investors know how to access the "curbs" a.k.a., the OTC market, so negative impact upon Gold/Silver/PGMs using FOREX I'm thinking should be minimal. The money will just move to another "game"...maybe even back to the CME/CBOT mini PM contracts or similar ilk? ? ? ?


  2. #2
    Banproof. General of Darkness's Avatar
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    I think the guberment is actually looking for a few things.

    1 - Taxes
    2 - The buyers location so they know where to steel it from.

    I wonder how this impacts other forms of metal purchases?
    Voltaire: "To find out who rules over you, simply find out who you are not allowed to criticize

  3. #3
    Dangerous Donald Neuro's Avatar
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    Quote Originally Posted by sunnyandseventy View Post
    So this news is regarding people "trading" digitally and doesn't effect physical buyers and sellers?
    Yes that is my interpretation too. However, as I read it, it means that small speculators will be excluded from trading leveraged products (iow futures or options contracts) in PM's, those players are often the longs, so it may have a very negative short term effect on PM spot price. Combine this with the pulling of liquidity from the market due to Fed not continuing QE, and a higher debt ceiling approved by congress, with the treasury issuing a big lump of new bonds, and we could see a huge drop in spot PM prices in July...Keep your powder dry!

    And yes they intended and created this situation!

    However medium to long term this creates the environment for a hyper bullish PM market, small speculators that previously played the OTC market, on the long side facilitating the bankers price suppression schemes will be forced to play the physical market, thus sucking up physical supply = physical shortages like never before, combined with the inevitable QE3, that is coming this autumn. Seriously $100 silver by next spring is in the books, but prior to that we will probably see silver in low 20's within next 2 months. And that is the buying opportunity of a life time, if you can find any!

  4. #4
    After more reflections, perhaps the excluded classes will be turned toward more active trading in the precious metals indices or ETFs.

  5. #5
    Iridium mamboni's Avatar
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    Early commentary from Jesse:

    He first suggests that it may cause a PM price dip; then he suggests that it may be much to do over nothing.
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

  6. #6
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    This looks like it is aimed at FOREX , this is very risky trading,
    it is pure gambling, fees are usually zero from my understanding,
    you just trade, they make a cut within your trades, you can do it
    with very little in your account, it is very easy to get stopped
    out and lose money on every trade, that is what happens with high margin
    low capitalization. This is riskier than day trading stocks, the companies
    most likely know most will be burned in a big way, they feed on greed.
    LARGE SARGE LEFT. Dogman4Socks, regarding Hoarder and LargeSarge accounts. " Edit: Bet it was no accident, maybe a point being made ?" " and for the one that did it , kudos for doing it. tho ye will remain unnamed... do not doubt this was an accident. "
    "This is a cult forum, that restricts open freedom and open opinions to be posted" "I've said before, if I get a chance to meet MAGNES in person, I'd be happy to knock his lights out" Mr 6 Sock Puppet Jew Troll
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