Fraud is Killing Retail Futures Business

Posted by Jeff Carter
on July 13th, 2012

If the trade wasn’t tough enough! Independent traders are having a brutal time adjusting to competing with HFT traders that have competitive advantage via co-location and other things exchanges allow them to do.

In the past several years we have seen Refco then MF Global, and now PFG Best treat their customers, how shall I put it politely? Rudely. MF and PFG stole money from them.

My friend Jack Bouroudjian had started an innovative retail business. He had $20 Million with PFG. My online acquaintance Peter L. Brandt had money with PFG. It’s all been “hypothecated”.

Jack wrote a letter to the $CME, but all futures exchanges have a stake in this. Here is some of his letter. Click the link to read the whole thing.

I know there are a lot of solutions being thrown around and, not being privy to the details, realize there are no easy answers. But I beg you and the Board to please do something, anything, to help us on the front lines maintain what little credibility we have left. We had 600 accounts at Refco, 400 accounts at MF and roughly 300 at PFG…At this rate there will be no retail business left. Now is the time to be proactive and shape the new customer protective measures in a way which maintains the SRO and allows the CME to play hero.

Over the past several years, we have sensed that the business was contracting. Fewer players are doing more volume. The breadth of that volume is now concentrated into fewer and fewer hands. Someday, much smaller markets will resemble a circus where they are no spectators and just a few animals in the ring.

That’s one of the reasons we started Seatleaser. One of our goals is to inform the world about ways to get cheaper access to exchanges around the world, cutting costs for businesses so they can use that capital to trade.

No doubt, the National Futures Association(NFA) and the Commodity Trading Futures Commission(CFTC) were asleep at the wheel. I have heard nary a peep from the Futures Industry Association (FIA) either. I’d like every penny back that I paid the NFA please. They do nothing except create bureaucratic jobs that push paper.

We definitely need to do something on a variety of fronts in the futures world. The first thing is protecting the sanctity of customer funds. The second thing is figuring out a new way for electronic trade to interact with the marketplace. Otherwise, the industry will go away.

UPDATE

Russell Wasendorf has been arrested. Why hasn’t anyone…..anyone, namely Jon Corzine the CEO of MF Global been given the same treatment? Click the link, I think you can guess why.

Follow me on Twitter

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.