From: Brad Georges
Sent: Thursday, February 28, 2013 10:41 PM
To: Benham, Stephen
Cc: Moore, Catherine; Zuver, Shaheen Haji; Zhu, Christel
Subject: RE: Rule 15b-12;

Dear Stephen

Following our brief telephone discussion earlier this week, here are a few simple suggestions I would humbly put forward:

  1. The SEC should allow active trading/hedging of spot FX under the same guidelines as active trading of stocks and options.
  2. Brokers should be able to set their own margins taking into account the currency, the client and the market conditions. (Note there is no need to put margin limits on FX to avoid a bubble (as with Glass Steagall) because this global market is too large to be significantly influenced by retail trade, trading $5 trillion per day.) Alternatively margin guidelines could be set by FINRA* but this is probably unnecessary as broker dealers are likely to set them at levels suitable to their customer and the broker’s own assessment of risk.
  3. If there is a $25,000 minimum account requirement to day trade stocks, then the same minimum could be applied to trade FX actively.
  4. Brokers should not be taking the other side of customer trades. Nor should the trade be outsourced to any single third party who can skew the price according to their own trading book. If the counterparty makes its own price then the broker should seek a best price from a reasonable array of wholesale market makers.
  5. At a minimum rules should affirm that brokers can execute customer deals with a single counterparty that uses a price feed that is independent of that counterparty, i.e. this counterparty cannot skew the price according to its own trading book. So the client gets a fair price and the broker only needs to trade with one counterparty.
  6. By implementing these rules the SEC will enable their broker dealers to avoid onerous dual regulation by the SEC and the CFTC/NFA.  Yet clients will be equally cared for whether actively trading/hedging stocks, options or spot FX.
  7. In so doing the SEC will enable brokers dealers to keep their valued clients in their own stables rather than see them bolt for the specialist brokers, usually not regulated by the SEC who exclusively promote speculative, leveraged trading. The corollary is that for the SEC not to set some simple guidelines nor to extend the rule 15-B would be to force all retail clients of broker dealers who wish to trade FX, directly into the hands of specialist FX brokers regulated by the CFTC.

* Or as suggested in the ISDA submission, “The Reg. T provision would be supplemented by the provisions in FINRA Rule 4210(e).”

Kind regards,
Brad Georges
Managing Director