Government regulation often is an all-or-nothing effort. For the first 10 years of retail FOREX the CFTC and NFA did little. To be sure, part of the reason was that it took time to get a handle on this loose, freewheeling, and widely disseminated business.
In 2008 and 2009 these agencies poured out new regulations at a ferocious pace—usually without requesting much in the way of feedback from market participants. When I discussed the proposed Compliance Rule 2-43 with an NFA representative at a FOREX trade show in August 2008, I was assured it would be slow in coming and there would be a substantial comment period. Not so. To some extent the economic meltdown of 2008 encouraged this fast-track mode.
The new NFA Compliance Rule 2-43 has wrought havoc on brokers as well as traders. The latest regulations concerning hedging, order placement (First In First Out; FIFO), and money manager registration has sent U.S.-based brokers scurrying to find overseas affiliates that are beyond the reach of the NFA and CFTC. One incentive for brokers: Traders do not like the new regulations either and many are moving their accounts and their money overseas. To that extent, the regulation’s purpose of protecting U.S. citizens who trade FOREX may be partially counterproductive.
In late 2009 brokers found that they had to quickly make major changes to their trading platforms to accommodate the new FIFO and hedging regulations. The sense in the industry was that regulations were made without regard to what was involved in making them work. For example, one of the major independent trading platforms planning to release an updated version in the summer of 2009 was sent “back to the drawing board” at the last minute to implement the necessary code into their software. The situation for most of the summer and fall of 2009 could only be considered as chaotic.
The government often carries a hatchet and meat cleaver when a scalpel and carving knife would have done the job. Nonetheless, those who complain that regulations are typically reactive cannot fault the proactive work of these agencies recently.
TIP: No government, no agency, no regulation can prevent fraud completely. The best protection for traders is knowledge, education, and a firm understanding of what caveat emptor means and implies.
In 2008 and 2009 these agencies poured out new regulations at a ferocious pace—usually without requesting much in the way of feedback from market participants. When I discussed the proposed Compliance Rule 2-43 with an NFA representative at a FOREX trade show in August 2008, I was assured it would be slow in coming and there would be a substantial comment period. Not so. To some extent the economic meltdown of 2008 encouraged this fast-track mode.
The new NFA Compliance Rule 2-43 has wrought havoc on brokers as well as traders. The latest regulations concerning hedging, order placement (First In First Out; FIFO), and money manager registration has sent U.S.-based brokers scurrying to find overseas affiliates that are beyond the reach of the NFA and CFTC. One incentive for brokers: Traders do not like the new regulations either and many are moving their accounts and their money overseas. To that extent, the regulation’s purpose of protecting U.S. citizens who trade FOREX may be partially counterproductive.
In late 2009 brokers found that they had to quickly make major changes to their trading platforms to accommodate the new FIFO and hedging regulations. The sense in the industry was that regulations were made without regard to what was involved in making them work. For example, one of the major independent trading platforms planning to release an updated version in the summer of 2009 was sent “back to the drawing board” at the last minute to implement the necessary code into their software. The situation for most of the summer and fall of 2009 could only be considered as chaotic.
The government often carries a hatchet and meat cleaver when a scalpel and carving knife would have done the job. Nonetheless, those who complain that regulations are typically reactive cannot fault the proactive work of these agencies recently.
TIP: No government, no agency, no regulation can prevent fraud completely. The best protection for traders is knowledge, education, and a firm understanding of what caveat emptor means and implies.
