Traders: NFA makes fun of you. And of itself
NFA’s efforts to ridicule the mandate it has been given by the CFTC have finally reached the point where it
NFA’s efforts to ridicule the mandate it has been given by the CFTC have finally reached the point where it simply becomes absurd. It appears that the agency has no idea what it should be doing or what the results of its actions are.
If I wasn’t sure that the NFA could care less about whether its requirements are what the market really needs or whether it harms the traders more than it benefits them, now I’ve become confident that the NFA has completely lost it. They have absolutely no idea what forex is or what its role as a regulator should be.
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In another chapter that will surely be written in a book about one absurd US regulatory agency, it will say that not only the NFA imposed a completely nonsensical requirement (FIFO) but that it also had no idea how to make sure it was implemented correctly, moreover it had no idea that basic knowledge of forex is required in order to regulate forex.
NFA has sent out a raging email to US brokers complaining that they have disseminated ‘false’ and ‘misleading’ information about its recent requirements. DOH! What did you expect would happen? The only thing the NFA did to make sure brokers knew what the hell they wanted was to send a laconic document explaining the reasons for the decision. This ridiculous document had absolutely no explanation of how this should be implemented and had absolutely no understanding that demanding FIFO compliance would result in Stop and Limit Orders being severely affected as well?
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Wouldn’t it have been much easier to gather all the brokers and explain to them that you would like to stop the hedging practices and ask them what would be the smartest way to do that? Or maybe you should have sent an email telling the brokers to stop accepting hedging orders instead of inventing the first in first out requirement which seems nice on paper but in fact caused a software fiasco?
This is the email the NFA sent to US brokers. Read it yourself and cry or laugh or whatever you think is appropriate:
Communication with the Public Relating to NFA Compliance Rule 2-43
NFA has become aware of false or misleading blog entries and e-mails to customers stating or implying that NFA has banned stop orders and limit orders. As you know, Compliance Rule 2-43(b) does not prohibit either type of order but simply requires that executed stops and offsetting limit orders be applied to the oldest open position or, at the customer’s direction, to the oldest open same-size position.
Please ensure that neither your employees nor any firms or individuals that introduce forex business to or manage forex accounts carried by your firm are spreading misleading information about the effect of Compliance Rule 2-43. As you are aware, under NFA Compliance Rule 2-36(d), an FDM is subject to discipline for the activities of persons who solicit, introduce, or manage customer accounts. Therefore, NFA will not hesitate to file an enforcement action against any FDM with an introducer or account manager that initiates, spreads, or condones statements that convey false information.
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Hi Michael, I agree it was a PR disaster. As both a trader, educator and someone from an MPA background familiar with the machinery of bureaucracy, what it screamed loudest was the absence of proper mechanisms for consultation, both with brokers and retail traders themselves. If you have any capacity to influence public policy or industry policy to ensure there is some kind of representative equity at public policy level in particular, that would be a good thing. When public policy decisions go astray, it’s an opportunity to get the drawing board out and look at how it can be… Read more »
Hi Michael, I agree it was a PR disaster. As both a trader, educator and someone from an MPA background familiar with the machinery of bureaucracy, what it screamed loudest was the absence of proper mechanisms for consultation, both with brokers and retail traders themselves. If you have any capacity to influence public policy or industry policy to ensure there is some kind of representative equity at public policy level in particular, that would be a good thing. When public policy decisions go astray, it’s an opportunity to get the drawing board out and look at how it can be… Read more »
Hi Jade, Thank you for your kind words. I’m trying to be the traders’ and brokers’ voice ever since this FIFO disaster was announced. Unfortunately I’m the only one right now. Even brokers themselves are quiet (at least on a public level) which makes me raise an eyebrow as the situation is similar to what happens in 3rd world countries where governmental policy can not be criticized… I also agree that the US regulation requires proper consultants as its regulators’ lack of basic Forex knowledge is evident. However I’m not aware of any consultant it employs or if it even… Read more »
Hi Jade, Thank you for your kind words. I’m trying to be the traders’ and brokers’ voice ever since this FIFO disaster was announced. Unfortunately I’m the only one right now. Even brokers themselves are quiet (at least on a public level) which makes me raise an eyebrow as the situation is similar to what happens in 3rd world countries where governmental policy can not be criticized… I also agree that the US regulation requires proper consultants as its regulators’ lack of basic Forex knowledge is evident. However I’m not aware of any consultant it employs or if it even… Read more »
It’s Public Management 101 to have a budget item that says “Consultation with Clients”. If they don’t presently have this, they need to allocate funds ASAP and put a liaison/consultation group together (sooner rather than later). It’s just basic good management practice to consult regularly with the client group. Surely there must be at least a handful (4-5 retail traders who represent a variety of trader profiles, including you of course) in the US who have the confidence of other retail traders to represent trader views to industry, the CFTC and NFA? It doesn’t have to become a song ‘n… Read more »
It’s Public Management 101 to have a budget item that says “Consultation with Clients”. If they don’t presently have this, they need to allocate funds ASAP and put a liaison/consultation group together (sooner rather than later). It’s just basic good management practice to consult regularly with the client group. Surely there must be at least a handful (4-5 retail traders who represent a variety of trader profiles, including you of course) in the US who have the confidence of other retail traders to represent trader views to industry, the CFTC and NFA? It doesn’t have to become a song ‘n… Read more »
I’m no fan of the FIFO farce, and I apologize for blowing my own trumpet here, but the NFA are doing some lobbying of their own with regard to the FRR “drawing board”:
http://trading-gurus.com/nfa-respectfully-criticizes-sec-capital-requirements/
Possibly that gives a flavour of what they’re up against from the top down, in addition to all of us complaining from the bottom up.
Anyone know Tim Geithner’s cell number?
Jim
I’m no fan of the FIFO farce, and I apologize for blowing my own trumpet here, but the NFA are doing some lobbying of their own with regard to the FRR “drawing board”:
http://trading-gurus.com/nfa-respectfully-criticizes-sec-capital-requirements/
Possibly that gives a flavour of what they’re up against from the top down, in addition to all of us complaining from the bottom up.
Anyone know Tim Geithner’s cell number?
Jim
Hi Jim, For sure, there are a lot of commercial interests and political sensitivities to navigate around for the NFA. For what it’s worth, I think the NFA is making a serious attempt to do the right thing, as is the CFTC. There has indeed been some mischief making and advertising mileage extracted out of the changes (competition between brokers being exceedingly fierce as it is) – the NFA have a right to be somewhat cranky about it. But that doesn’t excuse a lack of consultation, decisions that could have been more accurately targetted or poor implementation of decisions. The… Read more »
Hi Jim, For sure, there are a lot of commercial interests and political sensitivities to navigate around for the NFA. For what it’s worth, I think the NFA is making a serious attempt to do the right thing, as is the CFTC. There has indeed been some mischief making and advertising mileage extracted out of the changes (competition between brokers being exceedingly fierce as it is) – the NFA have a right to be somewhat cranky about it. But that doesn’t excuse a lack of consultation, decisions that could have been more accurately targetted or poor implementation of decisions. The… Read more »
I totally agree. The NFA rule causes a huge amount of confusion. Many traders will be shocked by the new restraints imposed on them and might start a search for a new broker. I expect turmoil next week…
I totally agree. The NFA rule causes a huge amount of confusion. Many traders will be shocked by the new restraints imposed on them and might start a search for a new broker. I expect turmoil next week…
Well, now that NFA/CFTC has fully implemented the Anti-Hedging law, why is it that the same brokers have UK and other offshore accounts that their traders could move their account to? US brokers outsmarted NFA/CFTC which makes the whole idea a stupid one in the first place.
Folks you can still hedge and use “point and shoot” (anti-FIFO) technique if your broker operates UK brokerage accounts. fxcm.com and forex.com both have uk accounts you could still use, if interested.
Well, now that NFA/CFTC has fully implemented the Anti-Hedging law, why is it that the same brokers have UK and other offshore accounts that their traders could move their account to? US brokers outsmarted NFA/CFTC which makes the whole idea a stupid one in the first place.
Folks you can still hedge and use “point and shoot” (anti-FIFO) technique if your broker operates UK brokerage accounts. fxcm.com and forex.com both have uk accounts you could still use, if interested.