Comment Text:
Dear CFTC,
I am writing to draw attention to a matter of considerable significance. Engaging in a conversation with your counterpart at the SEC could provide valuable insights into the substantial number of rule submissions and the heightened public interest in rendering markets more transparent, thus ensuring fairness for individuals across the globe.
The multitude of references to other regulations within the discourse is perplexing, and it requires a discerning legal eye with a background in stock market proceedings to decipher the arguments that can potentially facilitate nefarious intent while camouflaging them from regulatory scrutiny.
The aspect of Self-Regulatory Organizations (SROs) and the lessons drawn from historical contexts deserve reflection. A candid examination of the global stance of SROs in curbing illicit activities among their members leads to a sobering realization. These bodies often fall short, driving a significant number of household investors to seek SEC's intervention for establishing transparency regulations. The concern arises from the leniency exhibited by some SROs, like FINRA, in penalizing large-scale fraudulent activities with disproportionately mild sanctions, hardly a fraction of the profits illegitimately acquired by the "Too Big to Fail" entities.
A thorough review of FINRA's history of fines over the past 25 years, coupled with a rational consideration of the correlation between these fines and the scale of fraudulent gains from these recurrent criminal activities, raises pertinent questions about the continued existence of SROs. This situation prompts an evaluation of why these private entities are allowed to persist while enabling their members to operate unchecked in a potentially criminal manner.
Referring specifically to SEC rule S7-32-10, it's noteworthy that certain members are resisting mandatory disclosure of swap positions through EDGAR. The insistence on exempted market participants to join FINRA membership and consequently accept broader regulatory constraints has evoked strong reactions. This opposition from FINRA underscores a point of interest - if FINRA itself apprehends extensive criminal behavior among its impending members, making them liable for the transgressions, it raises valid questions about its own efficacy.
The proposition for vertical integration, despite historical precedence and lessons learnt, raises substantial apprehensions. From the crash in 1929 to the present day, the risk posed by conglomerates, institutions, SROs, or any non-government "agency" is undeniable. The potential implications on the global financial realm, given the immense volumes traversing through the United States, are grave. Allowing entities with multiple roles within a vertically integrated system could prove disastrous given the past and ongoing instances of fraud and manipulation aided by compromised regulators and politicians.
Market participants advocating vertical integration may need thorough scrutiny, especially considering the potential of masking criminal activities and magnifying fraudulent market manipulation. The FTX event serves as a stark reminder of the challenges in oversight. Cooperation between the CFTC and the SEC is paramount in enhancing market transparency. However, the focus should also extend to dismantling monopoly-sized criminal entities, fostering subsidiary regulation with less scope for obscuring fraudulent behavior.
CFTC should take a proactive stance in collaborating with the SEC in promulgating transparent market practices. Simultaneously, it should contemplate creating rules aimed at dismantling SROs' enabling of crime and fraud. Stricter penalties proportional to the severity of offenses are warranted. The CFTC, in conjunction with the SEC, possesses the authority to enforce market rules even on recalcitrant politicians, other regulators, and individuals within the Department of Justice.
I urge you to engage with your counterpart at the SEC and scrutinize both the proposed rules and the vocal resistance against market transparency.
Sincerely, K.
