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Regretably the problem in the case of Jim Ewing(he is real and has been
become well known story in the regulatory community)was a broker who
misrepresented the risk/reward of the trading involved.
On a risk adjusted basis almost all leveraged trading is more risky that
outright stocks.....now add an investor who is undercapitalized(which is
usually the case with many retail derivatives traders) a broker who is
misrepresenting the balance of the trades the customer is doing.
A product where transaction cost and general friction huge and you have
the makings of a disaster.
Very very frequently when we do a postmortem of a customer complaint and
the resulting compliance action/investigation...you will often find that
the customer VERY FREQUENTLY has actually broken even or made a little
money before friction.
What we need on both the securities and futures sides of this business
is to create a real system of educating the distribution system...real
testing of the system...and a total elimination of obvious conflicts of
interest. Oh by the way..it will never happen.
Just a sidenote.......it is not the regulator's responsibility to govern
the public or the investment community....that lies(in securities)with
the SRO's(the self regulatory organizations...the exchanges). Just as a
point of reference in securities when someone tells you, as I have been
told on numerous occasionss, that the SEC is investigating a broker,
usually they are lying. The SEC's responsibility on a primary basis is
to manage the SROs.....they only become involved when a securities act
is violated(not an exchange rule which is most commonly the case). If
you send a concern to the SEC or in many cases the CFTC(although less so
with the CFTC)they merely forward the case to the SRO. In futures the
CFTC is a little more involved, but in securities the primary cops are
the exchanges. They field the complaints....they write the day to day
rules....administer and update the tests.
The primary enforcement..lately is done by the SRO's and in the 1990's a
primary force in enforcement became the STATE SECURITY COMMISSION which
have broad enough(actually vague enough)authority to regulate most
commerce carried on in their state.
How much enforcement do you really want.......If you took the letter of
most stae laws literally...this forum would be regulated and most likely
illegal. It would certainly be illegal in Florida, Pennsylvania,
Maine,Texas....should I go on?
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