Comment Text:
i0-001
COMMENT
CL-03504
From:
Sent:
To:
Subject:
William Lloyd
Sunday, January 24, 2010 11:36 AM
secretary
Regulation of Retail Forex
CFTC,
I am a retail forex trader and have been for about five years now. I trade with OANDA, which allows a
maximum leverage of 50:1. That is the leverage that I use to trade. I have never had a margin call as I
manage my positions and exposure. Please do not lump OANDA in with the bad examples of forex
brokers. I have been a customer at OANDA for five years and have never had an instance where I
thought OANDA was operating against my interests.
I consider 10:1 leverage as proposed to be too restrictive. At the same time, I believe brokerages that
encourage customers to engage in trading at a leverage of 400:1 are doing a disservice to the trading
community. I also note that there is apparently no corresponding proposal to limit forex trading for
institutions, despite the many examples we have had in the past of institutions blowing up due to
leverage (Barings PLC and LTCM being two prominent examples).
I find it difficult to not consider it hypocritical that regulatory agencies want to restrict retail forex
trading to 10:1 while other institutions and types of trading that involve significantly more money do not
face these kinds of restrictions. My current understanding is that banks such as Goldman Sachs and JP
Morgan still have a leverage of between 25:1 and 30:1 as institutions and that other organizations such
as GMAC and AIG have leverages as high or higher. Fannie Mae and Freddie Mac are currently trading
at leverages of 100:1 or even 400:1 depending on how one calculates. The FDIC uses a leverage of well
over 100:1 today. I do not know what the FHA leverage is, but given the recent growth in their retained
portfolio, it must at least be over 10:1 and is probably approaching 100:1. The OTC derivatives market
also uses large amounts of leverage and has a notional worldwide value of between 600 Trillion and
1,000 Trillion US dollars, depending on who is doing the counting. Former chairperson of the CFTC,
Brooksley Born, fought unsuccessfully for regulation on OTC derivatives in the late 1990s. The
massively negative impact of OTC derivatives can be clearly seen (perhaps most egregiously in
examples such as Iceland and CDS activity (including AIG)). I am of the opinion that CFTCs time
would be much better spent dealing with the OTC derivatives issue rather than this.
Surely, the threat to the financial system from any one of these aforementioned examples is multiples of
any threat posed by retail forex traders. I am of the opinion that regulatory capital and energy would be
better spent on dealing with institutional traders and government controlled entities, who, despite their
supposed sophistication, continue to represent a very real and large threat to the financial system.
In short, I am opposed to resticting leverage in the retail forex market to 10:1, especially as institutions
will apparently not be under any such similar restrictions. This unfortunately smells very much like the
powers ganging up on the little guy to restict market access and force retail traders to use other vehicles
(or stop trading) to one, provide money to investment houses, and, two, to reduce competition through
regulation rather than through providing a better service to the customer. I do not believe that such a
restiction, without a corresponding restriction on institutions, provides for an orderly market or enhances
the financial position of the United States. On the contrary, I believe that such a restiction represents an
erosion of economic and financial power for the individual, which, in time, will translate to a reduction
in the economic and financial positioin of the nation. Throughout history this has always held true and it
always will.i0-001
COMMENT
CL-03504
My contact information is
[email protected]
872 Flagler Dr
Gaithersburg, MD
20878
240.477.7413
Thank you,
William Lloyd
