From: Brad Georges
Sent: Wednesday, December 19, 2012 5:30 PM
To: Rutkowski, Joanne; Gauch, Bonnie L.
Cc: Murphy, Elizabeth
Subject: RE: Rule 15b-12;

Dear Joanne, Bonnie and Leila

On Betsy Murphy’s suggestion I am reaching out to you regarding Rule 15b-12. Primarily I would like to plead with the SEC to preserve its current position of oversight for Broker Dealers offering foreign exchange (FX) trading and hedging to their clients, including retail.

Following are a few points to discuss:

• Brokers are progressively offering their clients trade in foreign stocks, a most positive development for portfolio diversification. This trade creates both trading and hedging opportunities, not only in regards to foreign securities but also in terms of treating foreign currencies as part of a portfolio diversification option. Also it is not possible to differentiate between transactions that are trades and hedges or interim trades against hedges. Though it might be possible to earmark FX transactions to settle purchase or sale of foreign transactions, it would not be practical to distinguish hedges of such transactions from trades. So brokers should be able to offer both hedges and trades.
• In the futures and retail FX industry onerous new regulations have been introduced after the MFGlobal and PFG debacles. The capital and administrative demands of these new regulations are so onerous that many of the best firms the US have ceased doing business in the US, such as GFI. The irony is that the problem is not capital requirements or more regulation that is needed. It is fraud that brought down both PFG and MFGlobal.  The fact is that brokers offering leveraged trading in futures and FX have the industry’s best real time P&L margining and risk management systems so that they can protect their capital.  Have you ever heard of a margined broker going bust because it has lost all its capital because of customer positions? The real problem is prevention of fraud, where adequate laws that have been in place for centuries.
• Broker Dealers already have risk management and customer suitability practices in place to monitor their offerings not only in stocks and bonds but also in options. Many also offer leveraged trading in stocks. It would seem unnecessary and onerous to make these brokers subject to a separate regulatory regime in order to offer FX. However if a few new guidelines for the industry would be suitable, then the broker dealers would be best served by these guidelines coming from you rather than a new entity.

In conclusion FX is just another asset class like stocks, bonds and money market deposits.  If brokers offer margined accounts as they do in stocks, there is no difference. And brokers are not going to offer margin levels that cannot be supported by their risk management systems nor their customer suitability standards, just as they would not offer options or leveraged stock trading to their clients in an unsuitable manner.

In my opinion the most compelling reason to keep FX within your oversight is to help your Broker Dealers keep their clients in their own stables before clients bolt for the specialist online trading/gaming types of operations that are taking market share rapidly from the online stock broking industry across the globe.  Let’s help the big blue chip firms serving the larger retail client base to keep their clients in an environment where they offer the full suite of prudential investment products for a well balanced portfolio that is less likely to be over traded.

Would it be possible to arrange a telephone call with one of you one afternoon? (I currently reside in Melbourne Australia where the time is 8 hours earlier.)

Kind regards

Brad Georges
Managing Director
Greeneye