Comment Text:
i0-001
COMMENT
CL-04104
From:
Sent:
To:
Subject:
nathan@nathanbyb ee. com
Tuesday, January 26, 2010 4:09 PM
secretary
Public Comment Form
Below is the result of your feedback form. It was submitted by
([email protected]) on Tuesday, January 26, 2010 at 16:09:23
commenter_subject: Regulation of Retail Forex
commenter frdate: Jan 20, 2010
commenter frpage: 75 FR 3281
commenter comments: As an American, and a retail forex trader for over
three years, let me first say that I wholeheartedly
appreciate and support the CFTC's proposal to
require registration of all U.S.-based currency
dealers and brokers as a way to tame fraud in this
burgeoning, but critical, industry.
Despite having many off-shore broker options
available, and though I must comply with far more
restrictive anti-hedging rules promulgated by the
National Futures Association by doing so, I have
always preferred to keep my currency trading
accounts with U.S.-based, NFA-registered brokers. I
do so on the (perhaps misguided) assumption that
even though current rules and laws provide little
guarantee of protection against fraud, I would at
least be able to file legitimate complaints with
the U.S. government and access the U.S. judicial
system if legal action were ever required to pursue
and prosecute fraudulent brokers.
Thankfully that has never been the case for me and
I have found the U.S.-based dealers I've worked
with to be generally fair and reputable. In essence
though, my concern for fraud protection has always
outweighed my desire for more open trading rules,
which makes the CFTC's proposed registration
requirements and clarification of jurisdiction very
welcome.
I view the CFTC's proposed new minimum capital
requirements for FCMs and RFEDs in much the same
light, as a trade-off between smart fraudi0-001
COMMENT
CL-04104
protection at the retail level out~veighing the
obvious barrier it imposes at the corporate level
to legitimate ne~v and smaller brokerage firms
increasing competition to the ultimate betterment
of the industry as a ~vhole.
Ho~vever, I fear these great steps for~vard in
investor protection ~vill be completely obviated if
the CFTC then follo~vs through ~vith the additional
proposal limiting retail forex investor leverage to
10:1.
At a time ~ve're repairing economic damage caused by
massive corporate and consumer over-leverage, the
10:1 limit appears logical and reasonable on face.
Ho~vever, there is a clear distinction bet~veen too
much corporate debt ~vhich presents a systemic risk
to the economy and too much consumer debt ~vhich is
driven by consumption on one hand, as opposed to
the legitimate use of leverage to fund
gro~vth-producing investment activity by retail
investors on the other.
While a retail investor exposes himself to personal
risk by over-leveraging his positions, he does not
impose a systemic risk to the economy by doing so.
Nor does he even present a systemic risk to his
broker assuming the NFA's current and CFTC's
proposed minimum capital requirements are enforced.
As ~vith all investing activity, it should be left
to the investor to decide ~vhat is the appropriate
amount of risk to take, and suffer the consequences
of those decisions ~vhether good or ill.
More importantly, the practical effect of the 10:1
restriction is that it ~vill raise the cost of
currency investing too high for average retail
investors like myself to continue participating.
Under 10:1, it ~vould take an individual investor
just over $10,000 to open one trade for 1 single
lot of a USDxxx pair. If the trade ~vent just a few
pips against the investor, even that sizable
$10,000 ~vouldn't be enough to prevent a margin
call. If the trade ~vent immediately in the
investor's favor, it ~vould still need to generate
another $10,000 in equity just to allo~v for opening
a second 1 -lot trade, making it impossible to scale
into a good position. Even at the mini-lot level
the 10:1 rule ~vould require $1,000 cash and equity
on-hand to open each individual trade.i0-001
COMMENT
CL-04104
This may be an adequate cost structure for very
large investors or corporate accounts, but it would
be impossible for me and many other retail
investors to continue trading with U.S.-based
brokers under these circumstances. My desire, and I
believe my right, to access international currency
markets would now outweigh my concern for fraud
protection.
I would not only be forced to move my money and
accounts outside the U.S. to off-shore brokers who
would then reap the economic benefits of my trading
activity, I would also be forced to subject myself
to the very risks of fraud the CFTC's other very
worthy proposals seek to remedy. And, by dealing
with non-registered off-shore brokers, my risk of
being a victim of fraud would actually be even
higher than it is today without the proposed rules.
I simply cannot believe this is what the CFTC is
seeking in terms of protecting American investors
and I urge the Commission to reconsider the 10:1
maximum leverage proposal.
commenter_name: Nathan Bybee
commenter withhold address on: ON
commenter_address 1 : 2204 L angford Cove
commenter_city: Austin
commenter state: TX
commenter_zip: 78723
commenter fax: 512-927-7990
commenter~ohone: 512-927-7990
