Comment Text:
January 18, 2011
RE: CFTC Proposed Rule Regarding Conflicts of Interest Policies and Procedures by FCMs and IBs
David A. Stawick
Secretary of the Commission
Commodity Futures Trading Commission
Dear Mr. Stawick:
We at John Stewart and Associates, Inc., (JSA) are well aware of the importance of the rules and regulations in our industry in order to protect our markets and to protect the public interests. However, we strongly feel that, if adopted, the results of the proposed Conflicts of Interest Policies and Procedures would be a threat to: (1) customers who rely upon introducing brokers for their risk management, (2) the retail introducing brokerage community of which JSA is a participant and (3) the free enterprise market system as practiced under the current CFTC/NFA rules.
Most introducing brokers (no matter the size of the office) are selling their advice and recommendations through opening comments, closing market summaries, daily or weekly newsletters and regularly published research reports. That's why customers use IBs and pay us per transaction rather than paying discount commissions. It would be almost impossible for us to separate research from trading. If legislation is put in place in line with this proposal, it would threaten our ability to function as an IB and would cripple our ability to communicate and work effectively with customers. Our clients would have no one to turn to for management of their risk
Retail introducing brokers (working one-on-one through writing, publishing and advice) are the ones who are bringing hands-on risk management to their clients. With risk management our clients can manage their business models to work toward the lowest possible cost as producers of food, feed and fuel. Today’s high volatility and high prices make effective risk management programs even more vital. The bulk of JSA’s and of most IB’s clients are smaller to mid size participants and good risk management helps then remain viable. Our clients must have dedicated professionals for assisting them in their hedging strategies.
It appears to us at JSA that this legislation does not introduce any needed new industry regulation. It is our opinion that due to increased globalization that no single entity or firm can offer inside information. It has been our experience that the USDA market reports have the most dramatic market effects—not any one individual firm’s projections.
In addition, it is our opinion that everything proposed in the legislation is either already protected or could easily be protected by the codes of conduct already in existence. The NFA and CFTC rules concerning trading, ethics and standards of moral practices already address possible conflict of interest issues. Also, much of the proposal appears to us to be in line with security market procedures. Commodity futures markets are different from securities markets. 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.
The futures markets as they exist today efficiently allow the shifting of risk for both large and small users. We feel this legislation would deny the public access to the information that is so vital to this industry in an effort to stop a few unethical individuals. It appears to us that implementing this rule penalizes everyone because of the actions of a few.
If you desire further information or comments, please call me.
Sincerely,
Doug Schultz, Senior Vice President and COO
John Stewart & Associates
7984 Southeast 32nd Road
St. Joseph, MO 64507
816-671-1570
[email protected]
