Comment Text:
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COMMENT
CL-05520
From:
Sent:
To:
Subject:
[email protected]
Monday, February 22, 2010 6:42 PM
secretary
Public Comment Form
Below is the result of your feedback form. It was submitted by
([email protected]) on Monday, February 22, 2010 at 18:42:08
commenter_subject: Regulation of Retail Forex
commenter_frdate: January 20, 2010
commenter_frpage: Page 3281-3330
commenter_comments: Subject: Regulation of Retail Forex
(RE: FR Doc 2010-456[Federal Register: January 20,
2010 (Volume 75, Number 12)])
To Whom It May Concern:
I am writing to express my disagreement with the
proposed change in available leverage from 100:1 to
10:1.
As a trader my trading capital would actually be at
much greater risk if this proposal were to be
adopted. That increased risk would be combined in
two forms: an increase in risk from the larger
security deposit required, and an increase in risk
from FCM bankruptcy. Please allow me to explain.
The proposed rule would require the FCM (aka
broker) to collect from me (the retail forex
customer) a much larger security deposit than is
currently required in order for me to trade the
same lot size as I do presently. In other words,
it would be necessary for me to increase the amount
on deposit with the FCM in order to maintain my
present amount of trading income.
I am keenly aware that my security deposit (held by
the FCM) is at risk, and should my broker go
bankrupt, I risk losing the entire security
deposit. Knowing this fact, my current trading
strategy calls for me to keep the majority of my
trading capital in a money market account or U.S.
treasuries, and to keep only the minimally required
amount on deposit with my broker. Should my broker
go out of business and should my security deposit
be lost as a result, then the majority of my
capital is still safe from that loss.
An important point is that this (above) strategy to
safeguard my trading capital is possible only
because the current leverage availability allows me
to adopt this strategy.
This proposed change, requiring an increasedi0-001
COMMENT
CL-05520
security deposit, would cause me to have to move
capital from the safer position to the riskier
position (and this point is key) with no
increase in potential reward, but just to maintain
the same potential for reward. So, to summarize,
the effect of this proposal for me would be: higher
risk; equal reward.
Furthermore, the text of the CFTC proposed rule
includes this statement:
~ In an FCM bankruptcy, customers share the
segregated property pro rata in proportion to their
claims, without any support from a compensation
fund.
That statement helps to make my second point.
The commonly held belief is that should the
proposal be adopted some number of FCMs will
indeed go out of business. (Some FCMs may merge or
consolidate with others, some may cease operations
in an orderly way, and some will probably
almost certainly just abruptly close their
doors.) So, (again the key point) the proposed
rule itself would increase risk simply because of
an increased likelihood of FCM bankruptcy (carrying
the potential loss of security deposit) resulting
from the rule simplementation.
So now, the result is an even larger degree of risk
~ from both a) the risk resulting from the
increased size security deposit required, and, b)
the risk resulting from a higher potential for FCM
bankruptcy and along with the bankruptcy the loss
of that larger security deposit just in order
to maintain the same potential for reward that
exists already. So again: much higher risk; no
change in potential reward.
I feel it my obligation to be aware of the
riskiness of my trading decisions and practices.
As you can tell, I ve taken steps to help protect
me and my family from the risk of trading the forex
market. My efforts to mitigate risk would be
eliminated by this rule change.
While some of the rule changes included in this
proposal are very good and beneficial to
individuals and to groups and the industry as a
whole, I strongly feel the change in available
leverage would not be a benefit, but rather would
be a cause for increased risk, and therefore would
be a mistake to implement.
Thank you for the opportunity to express my
thoughts and feelings.
Sincerely,
Jim Cooki0-001
COMMENT
CL-05520
commenter_name: Jim Cook
commenter_withhold_address_on: ON
commenter_addressl: PO Box 3173
commenter_city: Skowhegan
commenter_state: Maine
commenter_zip: 04976
commenter_phone: 318-347-6295
