Comment Text:
i0-001
COMMENT
CL-03623
From:
Sent:
To:
Subject:
[email protected]
Sunday, January 24, 2010 8:49 PM
secretary
Regulation of Retail Forex: RIN 3038-AC61
David Stawick, Secretary
Commodity Futures Trading Commission
1155 21 st Street, N.W.,
Washington, DC 20581
Regarding
RIN 3038-AC61
FX is probably one of the least volatile traded assets in the global capital markets, which is why
current regulations allow up to 100:1 leverage, the highest leverage of anything I have seen.
However, proposed 10:1 leverage is overkill, because this could widen bid/ask spreads, and
therefore dry up liquidity. Compare this to current fixed-income futures trading, that leverage is
around 100:4 ... which is 25:1
What Iwantto know is whether this proposed new leverage also applies to institutions, ikeCTAs
or hedge funds.
I strongly support regulations in instruments that are responsible for the 2008 creditcnsis: credit
derivatives, credit structured products, and risky debt instruments such as high-yield loans.
I don't think it's necessary to change/modify any regulations for FX trading, because: 1) FX has
some of the lowest volatilities compared to equities and fixed-income, and .. 2) FX is absolutely
innocent of any boom/bust cycles throughout the 20th century and this century. Crises
involving LTCM (fixed-income arbitrage), Amaranth (commodities), Bear Stearns (subprime
mortgages), AIG (credit derivatives) and Lehman Brothers (mortgages and credit derivatives) have
zero FX footprint or exposure. Black Monday in 1987 was a result of excessive stock speculation,
which caused new regulations such as 2:1 leverage in equities. The Tequila Crisis in 1994 was a
result of too much debt in Latin America, somewhat similar to too much mortgage debts in 2008.
However, I woud be sympathetic if you want to reduce maximum leverage to something like 80:1,
but 10:1 is absolutely counterproductive. I honestly believe that if 10:1 were to become law, it will
creep back up to 30:1 not long after. And eventually it might go even higher.
If the CFTC wants to experiment with new regulations, let's start at 80:1 ... and give it a year to
see how it works compared to other assets, before we do anything further.
Let's not over-react in FX, but instead focus regulations on Glass-Steagall and credit
derivatives/structured products and risky debts.
