Comment Text:
i0-001
COMMENT
CL-06325
From:
Sent:
To:
Subject:
John Jensen
Friday, March
5, 2010 9:22 PM
secretary
Regulation of Retail Forex
Dear Mr. Stawick,
I applaud the CFTC's vigilance in regulating retail Forex to protect
investors against fraud, and many of the proposed rules are beneficial
in this regard. Risk management is -- and should continue to be -- a
rewarding experience in self discovery, challenging and rewarding for
reasons beyond the expectation of profit, and the retail customer
should expect to undertake these risks in a well defined container of
security.
However, there are two items in the proposal I object to:
1). I am deeply disturbed by the proposal to limit the maximum leverage at 10:1.
a). Imposing this limitation will unreasonably neuter domestic
trading accounts, notably mine, and a lot of people will take their
Forex trading offshore. This immediately results in loss of jobs
(domestic forex brokers closing), fosters a decline in US Financial
Services, and nullifies the rest of the provisions of your regulation,
because foreign forex brokers won't be regulated any more than
domestic ones are now.
b). 100:1 leverage is an industry standard, changing this does nothing
to protect people against fraud. While it may protect some new(?)
investors from making serious mistakes, it also protects all investors
from making serious profits. Winning and losing are part of the game;
there are already risk disclosure requirements, demo accounts, and
plenty of other "warning signs" that potential danger lies ahead. It's
a bit like imposing speed limits of 6mph on the freeway: just because
that protects people entering the freeway doesn't make it an effective
use of the roadway. While one could credibly argue that the difference
is moot during rush hour, rush hour itself is defined by congestion,
not fraud. A 10:1 leverage limit would create congestion in the
doestic forex landscape as nearly everyone involved takes a mass
exodus for the nearest offshore broker.
c). Leverage doesn't change the risk, it just changes how many times
you have to take similar risks to get similar results. An unskilled
trader is going to lose 1/2 or 2/3 or all of his account regardless of
whether it happens in one trade or 100. While you can hope that
forcing the many trades option causes him to take stock and learn
sooner, it's not applicable in enough cases to justify the burden it
puts on those of us who have already learned a successful trading
style which takes advantage of 100:1 leverage. Most skilled traders
rarely use the full amount of leverage available to them, and this is
due to good trading discipline and good risk management, bothi0-001
COMMENT
CL-06325
fundamental qualities of a good investor before the market even opens.
d). If deleting this clause altogether is not feasible, I propose
some alternatives: mandate that an account be **opened** ~vith a max
of 10:1, and then changed after the fact either by user request or
after a ~vaiting period (~vhich could be ~vaived if the ~vaiting period is
longer than 6 trading days and the trader can sho~v previous
experience) ~vith no regulation on ~vhat leverages are offered (or
certainly allo~ving at least 100:1). Kind of like a ~vaiting period
before o~vning a gun, but really, do ~ve need this for forex? I mean,
~vaiting periods make sense for guns, as short-term gun related crimes
of passion can be averted by forcing someone to cool off. What about
cars? ~vhat about stocks? commodities? do these have ~vaiting periods?
ho~v much regulatory responsibility is too much and therefore
inappropriate? I contend that max 10:1 leverage is too restrictive and
inappropriate.
e). I feel the CFTC's role should be focused on preventing fraud from
predators, not protecting people from themselves. Leverage is a po~ver
tool, and po~ver tools should be used ~vith appropriate respect. I've
made technical mistakes ~vith both table sa~vs and forex, and I still
have all my fingers and a successful trading account. Life is full of
adventure, and 100:1 forex is a valuable.adventure in its o~vn right.
2). capital requirements: the sipulation to require $20 million flat
in reserve capital, irrespective of the size of the firm.
Opening a brokerage and managing accounts for people is on my 5-year
plan, so this is important to me. The people I ~vould most enjoy making
profits for are my family and friends, and all of them combined aren't
even close to having a net ~vorth (let alone a responsibly diversified
portfolio) to generate a substantial stake in a $20m operation.
a). This is very steep for a ne~v small brokerage, especially in the
current financial environment. This helps the big companies by
discouraging or removing competition from small start ups, ~vhich in
turn stifles job creation, competitiveness, and punishes
entrepreneurship. I expect to become competitive, and a $20m reserve
requirement means I'd probably have to ~vin that kind of money trading.
At 10:1, my grand-kids ~vill already be paying off school loans before
I get that kind of money together!
b). existing small brokerages that other~vise meet regulatory
requirements ~vould likely relocate offshore, again reducing
competition, dissolving jobs, and sending good companies out of the
country. Not an ideal solution.
c). I ~vould agree to scaling the capital requirements to the size of
the business AND increasing regulatory scrutiny for those companies
~vith reserves under a certain limit. I don't have a problem ~vith
jumping though hoops as long as I can still get to ~vhere I'm going in
a reasonable amount of time. And if it hinders the Bernie Madoff
~vannabees, so much the better.i0-001
COMMENT
CL-06325
Thank you, Mr. Sta~vick, for your time and hearing my concerns. I
~velcome the creation of sound retail forex regulations that serve to
eliminate fraud ~vithout unnecessarily hindering the small investor,
honest entrepreneur, or messing ~vith my rate of return.
thanks again,
John Jensen.
Seattle, WA
