The other day I came across a comment from a trader on a forum who stated in no uncertain terms that traders should avoid Forex brokers who aren’t registered with the National Futures Association (NFA) and it got me to thinking. What has the NFA done for traders lately? So I spent the better part of a working day examining the complaints they filed against various Futures Commission Merchants (FCMs) since its inception in 1982.Frankly, I wasn’t impressed. They do an adequate job of making sure FCMs are following proper accounting procedures, file their reports on time, and don’t go overboard with their advertising programs or engage in high pressure, telemarketing sales tactics. Aside from that, they haven’t done a thing to protect traders from unscrupulous trade practices, at least from what I can discern from their own records.
A little background is in order here.
In the NFA’s description of its role in “regulating” it members it states:
NFA provides a variety of regulatory services and programs to electronic exchanges to ensure the fair treatment of customers and to maintain orderly markets.
This is the NFA’s specific statement regarding trade practices and surveillance.
In our view, the key to an effective trade practice and market surveillance program is to:
1. Identify the abusive practices which the exchange wishes to deter;
2. Define factors which could indicate the presence of the problem;
3. Design programs to sift through trading data and generate certain core exception reports when the factors are found and which have flexibility to tailor additional reports to particular circumstances; and
4. Have experienced and capable staff in place to monitor trading activity, to review data from exception reports, to conduct any necessary inquiries, and to report any findings to the appropriate exchange committee.
NFA's current trade practice programs include creating exception reports to identify the following: trading ahead of customers, direct crossing, prearranged trading, wash trading, money passing, counterparty trade percentages, stop order fishing, marking the close, error account and transfer trade activity and off exchange transactions. NFA also utilizes profiling of markets and individual traders to dynamically assess market participants trading patterns for unusual activity. In addition, the market surveillance process includes the monitoring of market activity in terms of price and volume and the monitoring of concentrations of ownership through large trader reports.
Sounds good doesn’t it?
Well, having just spent the better part of six hours pouring over the disciplinary records of 88 FCMs and reviewing the pathetically small number of complaints (17 in all) filed by the NFA against them, not one of them included anything that would remotely suggest that NFA takes its responsibilities for monitoring trade practices seriously. In fact, over the past 24 years, not a single broker was cited, let alone fined for even one of the unscrupulous practices the NFA itself identified in the final paragraph of the aforementioned statement of objectives.
The association claims it is and has been assembling exception reports which, presumably are being used to identify these unseemly practices. Yet, no such report (if one was ever created) has ever been made public in over two decades.
So what has the NFA done for the trader lately? Apparently, nothing. The quasi governmental association is little more than a trade organization that nods its head when the CFTC finds wrong doing, chastises its members for failing to take care of housing cleaning, but could care less whether traders are getting ripped off on a daily basis.
Read the complaints yourself. Either the association’s membership is comprised of boy scouts or the NFA is in bed with them. We’ll never know, of course, until traders start clamoring for change and a good way to do that would be to contact both the CFTC and NFA and ask they they are not taking a greater interest in ensuring FMCs live up to the NFA’s promise of fair trading practices. If you want to get started, you can register your concerns with both right using the following contact information.
Commodity Futures Trade Commission
Richard Shilts, Division of Market Oversight
dmo@cftc.gov
National Futures Association
NFA Feedback
Postscript
When I visited the CFTC’s website yesterday and clicked on the “Broker Registration and Background Information” hyperlink on its index page, I arrived at a page that redirects visitors to the NFA’s website. The redirect page contains the following disclaimer in a font size about three times larger than that used elsewhere on CFTC’s site. “The CFTC does not endorse this website, its sponsor, or any policies, activities, products or services offered on the site or by any advertiser on this site.”
Speaks volumes, doesn’t it.
Additional Reading
Think You've Been Trading the Forex? Think Again
Advantages and Disadvantages of Non-Dealing Desk Trading
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