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i0-001
COMMENT
CL-03486
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Sunday, January 24, 2010 9:16 AM
secretary
Re: "Regulation of Retail Forex" - Identification number R1N 3038-AC61
CFTC Ltr_01-22-10.pdf
David A. Stawick
Secretary
Commodity Futures Trading Commission
1155 21st Street, N.W.
Washington, D.C. 20581
Dear Mr. Stawick,
I have attached a letter regarding the above subject.
Respectfully,
Rance WinklerJanuary 23, 2010
Via Electronic Mail: [email protected]
David A. Stawick
Secretary
Commodity Futures Trading Commission
1155 21st Street, N.W.
Washington, D.C. 20581
Re: "Regulation of Retail Forex" - Identification number RIN 3038-AC61
Dear Mr. Stawick:
I am writing to you (CFTC) to record my protest over the referenced rule proposal. I
believe that the traders' community, as a whole is joining hands to show our concerns
and request that you vote down this vicious rule proposal by CFTC.
Summary
Basically, if implemented, the proposed changes could have the opposite effect from
what the CFTC is trying to achieve. All you do is drive legitimate traders like me off
shore, and what you still have left in the U.S. are the fraudulent dealers who don't
operate within the law anyway. It will cost US jobs, US tax revenue, and more traders
will get ripped off by brokers outside of US jurisdiction where there is less regulation,
so it does more harm than good!
In my opinion, the cure is EDUCATION, not restricting what people can and cannot do
with their investment decisions. As with any investment strategy, you are responsible
for what you do with your money and that includes investigating those you will have to
ultimately partner with and trust in the process. Government was invented to protect
people and their property, not to limit their potential! This is a classic example of
government over regulation. The United States of America is the land of the free, where
each forex trader should be able to make their own EDUCATED decisions about their
Background
I believe it is important to give some context to the situation we are currently in here,
but the history of regulation in the U.S. foreign exchange market is a long and complex
one, so I will be brief. In 2004 the federal court in the U.S. ruled that the CFTC
(Commodity Trading Futures Commission) could not target fraud cases in the OTC
forex markets because they were outside its remit. Then in 2008 the U.S. Congress
Page i of 3passed legislation that returned regulatory authority of the forex markets back to the
CFTC after a flood of cases involving fraudulent foreign exchange dealers targeting
retail investors.
That's when the NFA (National Futures Association) came into being. Andrei Pehar,
Chief Currency Strategist at fxKnight.com says "What happens is the NFA suggests
these rules, and the CFTC accepts and enacts them (the CFTC fully admits forex is not
their area of expertise, which is why they originally empowered the NFA to take this
area over). The problem is that the NFA is NOT a consumer protection agency. They are
a trade organization made up of, funded by, and created to further the interests of...
futures brokers - National Futures Association. And there's no denying that retail forex
competes directly with their members' business interests... It gets worse! Starting April
1st, the NFA intends to try and start legislating across borders, by forcing offshore
brokers and IBs to register with them as well.
Discussion
To achieve regulation and crack down on the tremendous amount of scams, the CFTC
wants to include the ruling passed by the NFA last year that all foreign exchange
dealers are registered with a regulator. This has been welcomed by dealers, so too has
the proposal to impose a minimum capital requirement of $20 million dollars in order
to be a registered broker in the U.S. which acts as a capital cushion to protect consumers
and is an important step towards regulating the industry. Also in November of last year
the NFA already reduced the leverage ratio for foreign exchange trades from 400:1 to
100:1. But now the proposal to slash the amount of leverage from 100:1 to 10:1 has
unleashed an outcr~ from brokers and dealers alike.
This new CFTC ruling, if enacted, would mean that a client would need to increase the
amount of money they post in a security deposit account held with their dealer to 10
percent of the value of each trade from the current level of about one percent. This
would mean that for every $10 you want to trade on foreign exchange you have to post
$1 as a security. This move was unexpected because leverage limits were dramatically
reduced six months ago by the NFA, the CFTC's voice to the forex industry in the U.S..
On January 20th, an FXCM client wrote: FXCM sent a letter out to all their clients
actually stating they oppose this and asking them to write to the CTFC. I'm amazed...
I've heard individual people who work there grumble about the rules (off the record),
but I have never seen a big company like this take such a public stance on an issue.
I'm still waiting on FXDD to do the same, especially since just 2 months ago they
received their licensing with the NFA. Must be great to get a license with the same
group that's going to put you out of business in just a few more months!
Page 2 of 3Conclusion
The Foreign Exchange Dealers Coalition (FXDC), which is made up of nine major firms,
is working on a unified response to the CFTC's proposals. The coalition is trying to
ensure a balance between protecting the consumer whilst not stifling business. The
FXDC affirms on its statement that the U.S. $1 billion industry
is in danger if CFTC
proposal passes. "This revenue is money generated from a product that is in many
ways an export. Furthermore, as capital markets open in the BRIC countries the number
of new accounts that will flow out of places like China and India will lead to huge job
and revenue gains in the United States."
The Foreign Exchange Dealers Coalition says -
"Trillions of dollars of trade volume are at stake. This is money that could (and
should) be booked in the United States as taxable revenue. But if this rule passes the
United States could well be costing itself billions of dollars in taxes down the road."
Excerpt from an FXDC letter last week:
"The case against the 10 to i leverage rule is clear. The rule will be a boon to foreign
forex dealers (both regulated and unregulated) who will grow entirely at the expense of
retail forex dealers in the United States. Thousands of high paying jobs will be lost and
the potential for tens of thousands of more jobs will forever vanish as well. Consumers
will be hurt and more vulnerable to fraud. And the United States will toss away one of
the most promising export industries that it has, all in the midst of 10% unemployment.
There is no good reason that this should be so."
Respectfully submitted,
/s/Rance A. Winkler
Rance A. Winkler
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