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The following is an essay I wrote for my daily newsletter about the NFA election, for which I am a candidate for the Board of Directors as a representative of Guaranteed Introducing Brokers:
Today the ballots for what I believe is the most important election in the history of the National Futures Association will be mailed out to the member firms. I don't say this with a sense of hyperbole, or because my name is on the ballot. Rather I state this with an understanding of the significance of the switch from a 45-member board to a smaller 25-person board and the challenges ahead for the board and the futures industry. And this is a true election with definite choices.
The board moves from a "lets have everyone represented at the table" to a "lets elect the best people to represent particular business sectors." The election will decide how much representation the Introducing Broker sector will have on the board. With contested elections in both sections of the Futures Commission Merchants representatives, it is possible that we could see all investment bank representation in the FCM category. If the representatives from Refco, Rosenthal Collins and Cargill Investor Services are not elected, the entire FCM representation will consist of investment banking firms. In fact, the three firms I mentioned are the only FCMs on the
ballot who I believe can trace their entrance in the financial services industry to the futures markets. And each of these firms has significant Introducing Broker business relationships.
Do not get me wrong; I have nothing against investment banks. However, their representation on the board is assured. Not that all investment banks are alike, or even lemming like, but rather the investment bank representatives will be representing more than just their firms on the new 25-person NFA board, they will be representing all FCMs and the futures industry. The election will determine how broad of representation there is for FCMs by type and nature of their business.
There are two key issues I continually hear about from the Introducing Broker community responding to my candidacy for the NFA board; the doubling of NFA registration fees and difficulty of dealing with the "Disciplined Firm" Associated Person rules. I would like to see the new NFA board commission a study of the effects of these two actions on the industry and suggest some remedial actions, if proved necessary. I would particularly like to see the disciplined firm AP rules studied to discover the unintended effects this rule is having on the industry, its member firms and its employees.
Given the consolidation of the retail FCM sector, this rule could have an impact on many good people it was never intended to affect. I know lots of people who have made mistakes when taking their first job in the industry and working for the wrong firm. A recipient of this newsletter is one of the best brokers in the industry I know, and former colleague, but he worked for a disciplined firm years ago. His initial training came from this disciplined firm and he would be a prime candidate for the purpose of the
rule. However, that training did not forever taint his brokering skills and sales practices. In fact, he quit right away as the true nature of the firm was exposed.
My own history could have included working for a disciplined firm had I made a different choice at one juncture in my career. I was leaving the MidAmerica Commodity Exchange trading floor and going back into the brokerage business. I had offers from two different firms. The firm I didn't choose was later disciplined. Should I have worked for this firm for even a day, my employment prospects would be different today. Some firms might not hire someone who has worked for a disciplined firm because it could put them over the threshold and force them towards higher sales practice regulatory practices.
The new 25-person NFA board will be more streamlined and responsive to the industry. It will reflect the competitive marketplace the futures industry faces, including the NFA itself.
One of the reasons I ran for the NFA board is to bring attention to the board of directors and the importance of this particular group of people in forging the future regulatory environment. With new products like single stock futures, exchange traded fund futures and new exchanges and alternative execution facilities coming to the marketplace, there are more challenges and changes for all of us registrants than ever before. Key decisions made by the NFA board of directors could have tremendous consequences on the Introducing Broker community and their business prospects.
That is why I believe we need greater communication about the issues facing the NFA and its board and what it means to the futures industry, its member firms and individual registrants. It is more important than ever that the industry be informed about the challenges ahead so they may help shape the changes necessary to move the industry forward.
The newsletter I write daily is intended to help with just that; helping all professionals and participants in the futures industry manage the unremitting changes. My hope is that between my presence on the NFA board and an informed Introducing Broker community, because of the newsletter, that the concerns and perspectives of Introducing Brokers and their customers will get greater consideration.
It is my hope that the Introducing Broker community will turn out in record numbers in the election and have their voices heard through their votes. I want those votes to be for me, but I want more for those votes to be cast. I want Introducing Brokers to participate in this important election. I am told that normal participation is 30 to 35 percent. In years of contested elections the participation may creep above 40 percent. Any turnout above that would be a victory for Introducing Brokers and regardless
of whether I was elected, I would have won. The idea, the importance of the decision, would have been the victor.
If I had one message for each of you, it would be to email any Introducing Brokers you know, particularly the upper management which will do the voting, and encourage them to vote when they receive their ballots next week. If you know FCMs with Introducing Broker business, I encourage you to take a proactive stance and email them about encouraging their Introducing Brokers to vote in the election. Don't assume someone else will do it. Do it yourself. The time for responsible and engaged participation is present.
Regards,
John J. Lothian
President
Electronic Trading Division
The Price Futures Group, Inc.
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