NFA... ARE WE GETTING WHAT WE PAY FOR?|
I am, in general, a great supporter of the National Futures Association. I believe they have helped clean up the futures industry, and have helped make futures trading a cleaner business than the securities business.
There is a definite problem though. With a $31,000,000 budget this year, I have to question whether or not we, the customers and the industry people, are getting what we pay for.
One of the things, and probably the main thing a Self Regulatory Organization (SRO) should do is make decisions and rulings, and stand by them. From personal experience as a compliance officer of a stock firm, I can tell you that the NASD in the Securities industry does this quite well. Events that I have seen and others that have been brought to my attention seem to reflect the opposite about the NFA.
It even appears at times that the NFA is attempting to put themselves out of business by putting the Introducing Brokers out of business. Instead of turning a minor deficiency of an honest IB into a major investigation, it's time to look for the major problems and close those companies down. The honest IBs and reps out in the field would applaud loudly if the NFA really went after the "bad guys", and stopped trying to destroy the business by harassing the basically honest firms. The feedback I get when I audit is one of frustration on the part of the small firms. They are intimidated so much by the NFA that they won't even advertise because they don't want to get into trouble. They also believe the NFA goes after the small to medium size firms because those firms don't have the money to fight a case like the large "high commission", "high profile" IBs. Every place I go in the Midwest, IB owners ask me why the NFA is unable to stop the high pressure radio ads they hear every day.
An example: Under certain circumstances, the NFA can require an IB to send all advertising to them for "acceptance" prior to allowing the IB to use the material. On several occasions, an IB has sent material as directed. The compliance department has called the IB owner and told him what they wanted changed. He made the changes and requested written acceptance of the ad. The response from the compliance department of our SRO was that he wouldn't give the acceptance in writing since a time may come when the IB is audited by the NFA and the auditor may decide that the material was not in compliance and would therefore "cite" the IB for using material that was not in compliance... WHAT?!
Another: A small farmer IB in Minnesota had a Branch Office about 40 miles away. The branch was run by a man that had his own IB several years ago, and he operates in one corner of his wife's gift shop. While being audited, the phone rang and he answered with the name of his long-closed firm instead of the Branch Office name. The NFA auditors wrote him up for the error (which they should have), then proceeded to cite the main IB for doing business with an unregistered entity (meaning the registered Branch Office). All of the registration papers were in order proving that the other fella was a branch, but the IB was still (wrongly) cited with a quite serious violation. I spoke with the owner of the IB after the audit and his wife told me that in the 54 years that the man owned the firm, this was the first time that she felt he may actually have suffered physically from the event. In her words, he felt terrorized. The firm had NEVER had a complaint, NEVER had a violation, and NEVER had any actions by anyone in the past. He left the business shortly after that audit.
I won't bore you with more examples although there are several.
I am one of the strongest believers that the customer must be treated with care and respect, but I also believe that the large majority of IBs and APs are doing their level best to attain that goal, and they too deserve respect. A proper SRO will do the job they were commissioned to do, and that is to HELP the industry that lines it's pockets with green, by locating problems and helping the firm correct them, not by seeing who they can "get" next. Maybe part of the problem is that the NFA is governed primarily by those who do not come under their jurisdiction. With roughly 46 directors and representatives, only about 8 of them actually fall under the jurisdiction of the SRO they control.
If you are an IB owner, I know you are concerned, but as a customer of a brokerage firm, you too should be concerned. Just as there are bad representatives out there giving the industry a bad name, there are also bad customers out there causing hundreds of complaints simply because they are sore losers and shouldn't have traded at all. These bad customers give the good ones a bad name and could actually cause an honest brokerage to get into trouble with the NFA over a complaint that should never been filed.
According to many I have spoken with, it is time to "rethink" the NFA, and as several have said to me; maybe it's time to consider the AFA (American Futures Association)... Who knows?
Anonymous, 20+ Year Principal
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If you have knowledge of the CFTC or NFA abusing their power we would like to know.
Were you considered guilty first and then you had to prove your innocence?
Did you have to throw in the towel and settle with the CFTC because you could not afford the enormous costs of defending yourself against the government's deep pockets? These are just some examples of what we are looking for in experiences you may have had.
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