Comment Text:
January 10, 2011
RE: CFTC Proposed Rule Regarding Conflicts of Interest Policies and Procedures by FCMs and IBs
David A. Stawick
Secretary of the Commossion
Commodity Futures Trading Commission
Dear Mr. Stawick:
I understand the responsibility the CFTC and the National Futures Association has to regulate our industry, to protect our markets and to protect the public interests.
In the past I have been called to testify before both Congress and the CFTC hearings on previous issues. As a long time arbitrator, hearing panelist and Chairman on the NFA IB Advisory Committee, I am very well aware of the importance of the rules and regulations in our industry.
In all my years of involvement in the industry, the proposed Conflicts of Interest Policies and Procedures rises to the top as a concern and a threat to free enterprise, the retail introducing brokerage community and the farmer producers who depend upon introducing brokers for risk management.
While I'm sure that the path that this has taken is well-intentioned, it is very misdirected. Nearly every introducing broker in the country who charges retail commissions (not a discounter) is selling their advice and recommendations. A very large percentage of introducers write opening comments, closing market summaries, daily or weekly newsletters and regularly published research reports. Some of these are done by one-man offices and some are done by 30 or 50 person offices. We make our living by giving advice and recommendations to the farmer producers. That's why customers pay us $50, $60, $70 per transaction rather than paying discount commissions or trading direct online for a few a dollars. For nearly every one of these offices, it would be almost impossible to separate research from trading. If legislation is put in place in line with this proposal, you would be passing a law that potentially could be putting well over a thousand introducing brokerage offices out of business, and leaving the farmer producers with no one to turn to for risk management. In a time when our government is pressing hard to create jobs and reduce debt, you would be adding to the unemployment rolls.
The ramifications of this are wide. The retail introducing brokers across this country, to a great extent, are the ones who are bringing hands-on risk management to farmer producers. A well managed farm marketing program can eliminate a farmer's dependency on the government price support programs. Furthermore, in these times of high volatility and high prices, farm program support prices are ineffective in helping producers stay in business. Producers are completely and totally dependent on managing market volatility to lock in prices above their cost of production. In many cases, those costs of production are nearly double what government price support programs are. Therefore, it is absolutely essential that farmer producers across our country have dedicated professionals available to them to help them implement these hedging strategies. This only gets done by introducing brokers working with the producers one-on-one through our writing, our publishing and our advice.
This proposed legislation of Conflicts of Interest would cripple the introducing brokers' ability to communicate and work effectively with customers.
It is also worth pointing out that in the commodity markets there really is no inside information. The markets have become so globalized and so large that no private crop forecasting firm or any other opinion or announcement is able to move the market (except government USDA reports).
Much of what this legislation proposes to limit is either already protected or could easily be protected by the code of conduct that is already written into the NFA and CFTC rules. Rules concerning an ability to place your own trades ahead of customers' trades, rules related to ethics and standards of moral practice are adequate to bring to justice or reign in any individuals who abuse the rules and regulations or have a potential conflict of interest.
I understand that there is much effort being placed in trying to bring commodity futures laws more in line with securities laws. In this instance though, the effort to do so is mis-guided. In the futures industry, we do not have private information such as earnings reports that insiders can trade on. The industries are different and need to be regulated differently.
It is also important to point out that, while it is important to protect the public, the public also has the right to have access to the markets, market information and opinions. If this Conflict of Interest legislation moves forward, hundreds of thousands of farmers and other futures trading individuals will be severely restricted from access to market information. This would make the commodity markets more like the stock markets, a game that favors the big players and Wall Street insiders.
The futures markets are in place to allow shifting of risk for large and small users. They work extremely efficiently. Do not deny access to the information that is so vital to this industry. Do not put in place laws that punish everyone in the effort to stop a few unethical individuals.
If I can be of any assistance in any way, I will gladly make myself available.
Sincerely,
Scott W. Stewart
Stewart-Peterson Group
137 S. Main Street
West Bend, WI 53095
262-334-9779
[email protected]
