Yup! For the first time in the history of that famed city of the south, residents there got the thrill of their lives when a band of known international fame and caliber, the highly popular Earth, Wind and Fire did a live performance at the sprawling parking lot of SM Davao City.
The city celebrates its famous annual thanksgiving festival called "Kadayawan Festival" at about this time of the year. It is a yearly festival to celebrate and showcase the bountiful harvests and other blessings that the almighty has bestowed on the residents. Aside from the regular colorful street dancing competitions, this year's celebrations will be the most remembered because the undying and truly adored group that has entertained the world for decades now, the Earth, Wind and Fire, joined the festivities and performed live in the city.
But hey, I have an even better scoop for you. There were fans who could not afford the stiff Php2,500 ticket per head for the concert, so they settled (and at least they were allowed) to watch at the back of the walled venue. Since the stage was elevated, the ecstatic fans were still able to get glimpses of the night's highly anticipated concert. And you know what, the band members took notice of the poor fans at the back portion of stage who were yelling, and dancing, and singing along as the group performed on stage. So, they would occasionally turn towards them all throughout the night's performance, to the satisfaction and delight of this backstage crowd. My whole family and some of our neighbors were there with that crowd to try to get a free view of the concert. They got more than what they expected!
What must have been a planned picture taking session with the fans after the concert was botched...but not after a concert staff made a call for some of the backstage fans to come in for some pics... and hey, not after my youngest daughter, Carlota, on hearing the call, made an immediate bee line to where the band members where standing. It was too late for anyone to stop her 'coz she was already hugging no less than Philip Bailey, one of the lead singers of Earth, Wind, and Fire. And guess what? She got her picture taken with the guy! Out of the thousands of fans who were there that night, Carlota was the only fan lucky enough to get a picture taken with Philip, also the only photo session of the group that night at the concert venue. This is one memory thread that my daughter will be so proud to recall for the rest of her life. On coming home, she got into the computer and excitedly sent me these pictures via ym photoshare.
I am posting herewith excerpts from a Public Notice issued by the US Commodity Futures Trading Commission entitled "Proposed Changes to Net Capital Requirements for Forex Dealer Members" , datelined July 23, 2008 which I lifted from the web site of the National Futures Association of the US (http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2165).
July 23, 2008
Proposed Changes to Net Capital Requirements for Forex Dealer Members
The CFTC Reauthorization Act of 2008 (Reauthorization Act) increases the adjusted net capital requirement for certain forex counter party Futures Commission Merchants and Retail Foreign Exchange Dealers to $20 million. This increase is phased in, with the first increase scheduled for 120 days after enactment or at such later date as the Commodity Futures Trading Commission (CFTC or Commission) proposes and finalizes rules regarding retail forex transactions. If implemented under the 120 day schedule in the Reauthorization Act, NFA's Forex Dealer Members would be required to have $10 million as of September 19, 2008, $15 million by January 17, 2009, and $20 million by May 16, 2009.
RAISE THE NET CAPITAL REQUIREMENT! A simple solution to this plaguing problem!
This requirement filters out the scam operators from the ranks of the legitimate brokers. A surefire measure adapted earlier by the Hong kong Securities and Futures Commission in the early '90s.
Hong kong was where most of these scrupulous operators started a long time ago. So, when these fly-by-night scam artists could no longer operate there (HK)because of the stringent capital requirement, they farmed out to the neighboring countries to include the Philippines, Singapore, Malaysia, Thailand, India, and even Australia. But these countries except the Philippines, followed Hong Kong's example immediately and raised the net capital requirements of forex brokers in their own countries forcing these scam artists to migrate once more elsewhere. A lot of them tried to operate in the U.S. and for a while they were sprouting like mushrooms in the West Coast. Everywhere they went in the "land of milk and honey", they were leaving behind a trail of lawsuits and a heap of shattered dreams. Now, US authorities are seriously after them and are constantly making it harder and harder for them to operate there. This new regulatory requirement and the US authorities' vigilance on the issue are indeed a welcome break for all forex investors.
In the meantime, back in the Philippines where they feel secured behind the protection of corrupt officials, blanketed by a platoon of known top legal personalities, and fronted by known business figures, these scam artists continue to stalk Philippine investors, lurking like hungry vultures waiting for an opportune time to strike again. Some are still operating in the open seemingly taunting the helpless authorities. In the meantime, authorities and legislators have remained complacent to the issue and will only show up in the media only to grandstand when another scam puts the issue once more in the limelight.
(PHILIPPINE BASED PERFORMANCE FOREIGN EXCHANGE CORPORATION IN REVIEW)
Speaking of on-line forex brokers, who can be called “fakes” or “scammers” , and who are not?
Many people would want to invest in the foreign exchange market anonymously for various reasons of their own. They are those who’d prefer to open accounts incognito (known only to the servicing company they deal with). There are also those who invest through the “hard sell” tactics of some forex brokers who utilize the services of marketing representatives with well- heeled family and social connections. More often than not, in their haste to establish foreign currency trading accounts, and in their effort to keep their identities concealed, they forget about doing a due diligence on the company at the onset ( a must-do prerequisite for all prospective investors).
Who then can we call fake forex brokers?
Trust, more than anything else, is the most important, yet the most abused word in all business transactions (specially so with on line investing). It is imperative that trust and confidence is present in any transaction between the investor and his broker. And, in online foreign currency trading, it is imperative for the forex broker to go out of his way to prove the legitimacy of his business through the published pages of his web site. ( I have always maintained that the burden of proof always lie in the hands of the soliciting bro
ker.) To gain the trust and confidence of its prospective investors, an on line broker must therefore make a full disclosure of all the relevant facts pertaining to their company and the conduct thereof. All these must be clearly stipulated and can be easily found in their websites. Pertinent data such as bank references, accreditations and affiliations with respectable and acceptable financial institutions must be published prominently in their web sites. Failure to do so, to me, is intentional concealment of pertinent facts needed by a prospective investor to make a fair and square assessment of the company. In my opinion, non publication of these pertinent data on a website is equivalent to misleading the public and is no different from the malpractice of providing false information to their clients.
If a broker deals directly with a bank (meaning if it courses all its forex transactions directly to a bank), then the broker must publish verifiable information about his account (and about the bank as well) in his website. (For all you know, the particular bank may not even have a foreign currency trading window, or, the account opened is not a trading account but merely a standard depository account.) Should issues of confidentiality be raised, the least that the broker must do is to publish a statement in the web site stipulating that such documents are available on request. Given this, prospective investors will have the chance to fairly decide whether to take the risk or not with the broker.
Brokers, by definition are intermediaries. They act as agents of certain financial institutions such as banks, currency exchanges, large financial investment houses. Also, they often are required to submit to the jurisdiction and supervision of regulatory agencies in such established countries like in the U.S., Australia, Great Britain, Germany, Singapore, Malaysia, and Hongkong. Legitimate on line brokers must surely have at least one such verifiable affiliation, membership, or accreditation. Those without should be suspects and immediately discarded from your list. Those who make false claims can now be more
easily exposed and avoided.
IN FOCUS:PERFORMANCE FOREIGN EXCHANGE CORPORATION-A critical review of the website http://www.eforex-asia.com/
If I were to invest money on online foreign currency trading and PFEC happens to be one of the many brokers I am considering, this is how I shall assess their website http://www.eforex-asia.com/:
- Has an attractive, professional looking web-site (makes you stay longer and do a deeper snooping of the site)
- Offers practically all the necessary tools and services an investor needs to be able to manage his own account.
- easy to navigate website with a fast download link to its user friendly trading platform interface
- misleading claim #1: “PERFORMANCE FOREIGN EXCHANGE CORPORATION (PFEC) was registered with the SEC on 23 June, 1998 primarily to operate as an agent between market participants in transactions involving but not limited to foreign exchange, deposit,..” Due diligence would easily ferret out the truth that this company is registered as as information, service and facilities provider only and not as a broker.(I still don’t know how they got away from with these with the SEC when the website clearly states they are engaged in brokering services (a business activity requiring a different licensing requirement)
- misleading claim #2:Testimonials“The following are testimonials of clients of Performance Foreign Exchange Corporation or any of its country affiliates/subsidiaries. As a rule these testimonials are unsolicited gratis from people we do business with.” Easily, one will sense a deliberate ploy to mislead readers here with the inclusion of its “affiliates and subsidiaries. The testimonials may be from other sources and not theirs but the inclusion of such rejoinder is a ploy to be able to publish favorable testimonials from other sources and make it appear as their own.
- misleading claim #3: PFEC has claimed affiliation with this company “SolidGold Financial Services, Inc. (U.S.A.) , Registerered: Futures Commision Merchant, Commodity Trading Pool Operator, Commodity Trading Advisor.” The claim is false! No record of this company exists with the CFTC or with NFA. Anyone can easily get this information from the websites of both agencies.
I still have much more to discuss, but again because of limited space, I need to end this blog for now. Besides, if I were the investor, what I have so far discussed is enough for me to decide not to deal with a company that deliberately mislead its prospective clients and make false claims about its accreditation.
(This is my opinion. What is yours? Please feel free to post your comment below.)
Ahhh! How fast time flies! Because of my preoccupation to give my family a good life, I simply did not notice the time go by so quickly. It’s so shocking to suddenly wake up to the reality that what used to be my four adorable babies are now four grown up “ghoulies’ (what I fondly called my kids) who’d leave me anytime to seek their own destinies in this world. This poem by Wallace Waldo Williams captures the swirling thoughts rising within the depths of my inner self as I try to grapple with the thought that I have now grown old and have wasted so much precious time which otherwise I should have spent enjoying the days of their growing up years.
When they are a baby, can’t wait for them to grow up
From diapers and a bottle, to drinking from a cup
First they say some words, and then they start to talk
Take the first few steps, and then they start to walk
They were just a baby, it seems just like last year
Where has time gone to, rolling down a tear
Pictures tell their story, each one a different age
You can’t get time back, their memories on every page
Every time you turn around, they’re into something new
And suddenly you realize, how fast they really grew
There was kindergarten, helped overcome their fear
Where has time gone to, rolling down a tear
Still get into trouble, they may get out on a limb
Every time you see them, you see yourself in them
Can’t help but love them, to you they are the best
Made you proud, when they got an A on any given test
You wanted to slow down, they shift it up a gear
Where has time gone to, rolling down a tear
The time in the school play, when they were the star
Taught them to ride a bike, now they drive a car
Each day they grow older, now you become older too
You want your babies back, but there’s nothing you can do
Used to want to play, now they’re planning a career
Where has time gone to, it’s rolling down a tear
Wallace Waldo Williams
If you try to do a google or a yahoo search for “forex trading” you’d be swamped with a search result spanning several pages and containing hundreds (perhaps even thousands) of companies offering on line forex trading services, all purporting to be legitimate forex brokers. But how would you really determine who is legit and who is not?
Retail spot foreign currency trading (as it is officially termed in the U.S.) or forex as it is commonly known here and about, started from the need of some major participating financial institutions to spread out the entailing risks of rapid and wide foreign currency exchange fluctuations among a wider base of participating investors. (It should be noted that foreign currency trading used to be the exclusive turf of huge banks and large financial institutions since transactions here are in volumes impossible for the ordinary investor to manage.) The introduction of the leveraged trading system (or margin trading) to the interbank spot foreign currency market opened the doors of the once exclusive foreign currency trading to ordinary individual investors. With the use of modern, internet based technology, linkages between the individual investors and participants of the interbank currency market were established using duly designated financial intermediaries such as brokers and investment houses.
However, taking advantage of the same, readily available technology and operating incognito through well designed and user-friendly web sites, boiler room operators continued to ply their trade facelessly, bleeding unsuspecting investors dry. These “scammers” uses trading platforms that simulates actual interbank trading linkages which were even designed by known software developers. The ordinary users of these trading platforms will really have no way of knowing whether or not their orders were actually executed with a participating bank or institution in the interbank currency market. For all you know, the orders may have ended up in a secretly guarded link in Macau while the invested funds remained in the hands of these scrupulous sweat shop operators. (As early as1990, the HK based company I used to work for and the other scam operators like the Solidlink Group - now SolidGold - to which the Infamous Michael Liew belonged, had set up a computerized trading network (which simulates the interbank currency market) based in some fancy office in the Portuguese Colony.
So what if it is not bank based as long as the reference rate of exchange on which a particular trade is “executed” is based on the spot market rates? True. True enough. However, the risk of investing money with a scam operator is not with the seemingly real trading being done using their platform but with the fact that they can always ran away with your money anytime and you will be left holding an empty bag with no clue as to how and where you can seek redress, as in the case of PIPC in the Philippines.
How then can we avoid these? How would we know who is a legitimate forex broker and who is not when the only information we have is what we get from their web pages? Precisely, never trade through a broker who does not provide you with the necessary information about their company.
But what information about the broker must I have to know if my money would be safe to invest through them? Among other things (like length of existence as a broker, licenses and certifications collected from legitimate financial institutions and known clients) you must also demand to know if the company or the company it is affiliated with is a member of the US National Futures Association and is registered with the US Commodity Futures Trading Commission. If they are not US based, they must instead provide you information and proof of their trading linkages with a prestigious bank or financial investment house. Make it a general rule not to deal with internet based forex broker who does not provide these information on their web pages.
But they can always falsify these information? you can easily check them out with NFA. Accredited members of NFA proudly display their membership id in their web sites. Whether they provide you with the id or not, you can always check on them easily at the NFA website (http://www.nfa.futures.org/basicnet/welcome.aspx). Again, if they or their affiliate is not US based, they must provide you with verifiable documentation of their bank or financial institution’s linkages.
In the old days, “boiler rooms” referred to the back room operations of scrupulous brokers. So called “boiler rooms” because they are usually found in the cramp, secluded, steaming hot back rooms of small offices to keep their illegitimate operations away from the prying eyes of authorities. In Hongkong, they were called sweat shops. Through the years the term boiler room became synonymous with scams and swindling operations. However, they now operate in style from well furnished offices situated in prime business districts. The boiler rooms of the old were usually situated in some obscure addresses.
Today, as if flaunting their ill gotten capital from extended years of scamming operations, they set up fully equipped plush offices, and this was for good measure - to hoodwink clients into believing their businesses are legit. Where did these people come from? And how are they able to operate almost anywhere with impunity?
In the old days, “boiler rooms” referred to the back room operations of scrupulous brokers. So called “boiler rooms” because they are usually found in the cramp, secluded, steaming hot back rooms of small offices to
Hong Kong and Macau were the centers of their scam operations before. Starting out with commodity futures trading they soon shifted to the much bigger foreign exchange market after the world embraced the open trade policy in early-1990’s.
During that time international foreign currency cash transactions were done only through big banks, and between and among the central banks of different countries, huge multi national corporations and giant insurance companies whose global operations were liven up by the open market policies embraced by almost all nations at that time. The transactions were usually in large volumes hardly imaginable by individual investors. Forwards or currency futures contracts were then traded through established exchanges like the International Monetary Market (IMM) of the Chicago Board of Trade and the London International Financial Futures Exchange. As global trade increased, so did the volume of foreign currency transactions which also brought about rapid and frequent swings in the rates of exchange of the different currencies. Entities involved in cash transactions found it necessary to hedge their risks with currency futures. Currency futures brokers on the other hand found it necessary to source their requirements for maturing obligations from the cash market. And that developed the linkages between the two markets - one , an informal network consisting of banks, multinational companies, and insurance giants linked electronically with each other, the other the established financial futures exchanges around the globe.
The increasing risks from exchange rate fluctuations forced some of the smaller banks dealing in spot cash transactions to find a way to spread out the risks. They needed volume. They needed more participants to partake the risks. So they adopted the leveraged trading system (margin trading) of the financial futures exchanges. Retail, off exchange foreign currency trading was thus born,
The boiler room operators were quick to identify this evolving opportunity for them in the rapidly changing financial market place. Leveraged trading was their forte and by experience, they knew that the unlearned investors would easily fall prey to another get-rich-quick scam specially so if they can easily pass it off as being bank-based! But are they?
One clear cut difference between a legitimate broker dealing in retail foreign currency trading (leveraged forex trading) and the forex boiler room operator is the fact that legitimate brokers are accredited investment intermediaries of either a bank or a member broker of an established currency futures exchange, while the boiler room operator operates on his own, faking off the linkages to the legitimate currency market participants with the use of sophisticated trading software and subscription to live market data feeds from legitimate sources.
A system to stream live the actual spot foreign currency transactions of various major participating banks, financial institutions and currency futures exchanges worldwide was developed by both Dow Jones and Telerate years before they merged. Anyone may subscribe to these services for a fee. And true enough, these services were used to the hilt by boiler room operators world wide using their own trading platforms which simulates actual trading in the interbank spot currency market. However, the funds invested through them were never really coursed to the inter-bank spot currency network, much less to a bank or an exchange. the money was simply bucketed!
Performance Foreign Exchange Corporation uses the eForex Asia trading platform the parent company of which Michael Liew also helped establish. Why didn’t the authorities then push on the investigation all the way to eForex Asia. This would have shown that neither PFEC nor eForex Asia have legitimate linkages to the forex market place. This would have proven PFEC is indeed selling the investing public short. This would have proven that online forex trading through PFEC is no different from the online casinos you see sprouting everywhere.
The SEC had been ineffective in going after Performance Foreign Exchange Corporation which has remained operational up to now despite the numerous complaints filed against the company by many of its disgruntled investors, and inspite of successive raids made by the National Bureau of Investigation (the local counterpart of the US’ FBI) into their offices. PFEC even challenged the cease and desist order issued by SEC against it all the way up to the Supreme Court and won.
How can this happen? How can the SEC be rendered useless by a forex boiler room operator?
In my opinion, SEC’s helplessness in the issue of PFEC was its own making.
- First, it failed to keep up with the many changes happening in the financial markets specifically in the foreign exchange markets towards the turn of the century. It failed to notice that with the advent of advanced computer technology, a parallel market to the established interbank foreign currency trading network was fast evolving.
- Second, the Philippine’s SEC was playing to the hilt its assumed role of being a copy cat of its US counterparts. Online foreign currency trading in the US is considered as commodity futures trading and falls under the jurisdiction and oversight functions of CFTC (Commodity Futures Trading Commission), an independent entity established through an act of the US Congress to regulate commodity futures trading in that country. Why under the CFTC? Well, in the US there are commodity exchanges like the Chicago Mercantile Exchange which deals on financial instruments such as currency futures. Spot currency trading then used to refer to and was limited to the buying and selling of the spot month (current month) currency contracts in these exchanges. Control and oversight functions for spot foreign currency trading were therefore under the jurisdiction of CFTC. However, US authorities were also quick enough to notice the advent of and the proliferation of online, off exchange, spot currency currency trading done electronically through banks with networks that spans every corner of the globe. And so the US congress,on the recommendation of CFTC passed “The Commodity Futures Modernization Act of 2000 (CFMA) which made clear that the CFTC has jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public. ( Please refer to my earlier blog entitled Foreign Currency Trading Update, August 15, 2008.)
The Philippines SEC was lifting off and adopting policies and opinions from its US counterparts without studying its own local scenario falling into the age old colonial mentality of embracing the belief that “whatever it is that holds true in the US must hold true also in the Philippines. And so when SEC went up against PFEC in the courts of law, it was rebuffed by the highest court in the land (the Supreme Court) because it tried to pin down PFEC with the charge that it was illegally engaging in commodity futures transaction. (See my blog on this HANGING BY A THREAD (PART2 ) - (SEC BLUNDERED AND PFEC GOES SCOT FREE)•August 13, 2008 and HANGING BY A THREAD (PART1 ) - (OR HOW PFEC MANAGE TO REMAIN AFLOAT)•August 12, 200
The funny thing is from the advent of commodity futures trading in the Philippines in 1985 to its closure in 1997 which was followed by the influx of forex boiler room operators, the SEC was swamped with mounting complaints from forex investors. And take note, the revised Securities Regulatory Act of the Philippines was enacted in the year 2000, the SEC could have recommended revisions to the securities code as early as then but they didn’t.
Now, two years after the PIPC scam, it has not made any move at all to recommend revisions in the code which must incorporate clarificatory provisions that will define SEC’s jurisdiction and oversight functions over unregulated firms dealing with the buying and selling of spot currency contracts to include firms offering subsidiary forex services such as consultancy services, research, and forex trading platforms.
The US made its move in the year 2000 to regulate on line, off exchange spot currency trading. What has the Philipines’ SEC done?
I tried to review the recent events of my life.
I couldn’t recall but a few.
I was saddened to think that the few
memories I’ve had during recent days,
Would all soon just fade away to nothing.
Today, I have no unusual plans to think of.
How sad it is to think that this moment right now,
Will never be thought of again.
Today, very soon, today will be forever lost.
It is as if life has been just a series of significant memories
and all the time passed in between has never even existed at all.
Years of life held in a handful of dust.
Maybe today I’ll do something great that I will NEVER forget.
I feel better now. Today will not be forgotten!
Two years after the PIPC scam and still no concrete steps have been taken by
the SEC and the members of the Philippine Congress. Are they still waiting for another scam to blow up in their faces before they take some really good measures to stop them? See what the US-CFTC is doing with forex scams in their country.
Currency Fraud Enforcement Task Force
Washington, DC— The Commodity Futures Trading Commission (CFTC) has formed a special task force charged with investigating and litigating fraud in the off-exchange retail foreign currency (forex) market.
The creation of the task force within the Division of Enforcement comes in the wake of Congress’ passage in June 2008 of “The Food, Conservation, and Energy Act of 2008” that clarified and strengthened the CFTC’s jurisdiction over this market. The task force will focus on fraud in the retail forex market and will work cooperatively with other federal and state regulatory and criminal authorities.
“The formation of the CFTC’s new Forex Enforcement Task Force reaffirms our agency’s commitment to stopping unscrupulous individuals working in this space. Not only do forex fraudsters prey upon unsuspecting citizens, but their illegal activities taint the reputations of those working honestly in the futures industry,” said CFTC Commissioner Michael Dunn, head of the agency’s Forex Education and Outreach Task Force. “This announcement sends a clear signal that the CFTC is on the beat, and that our continued and increased cooperation with law enforcement authorities will help put these forex dealers where they belong – in jail.”
“Forex fraud impacts investors of all stripes,” CFTC Acting Director of Enforcement Stephen J. Obie said. “With the creation of the retail forex task force, the CFTC has committed the resources necessary to expand its efforts to identify and prosecute those who commit fraud in the retail forex market.”
Since enactment of the Commodity Futures Modernization Act in 2000, the CFTC has filed nearly 100 enforcement actions against firms and individuals selling illegal forex futures and option contracts. To date, the CFTC has obtained judgments in these enforcement actions for civil monetary penalties of approximately $560 million and restitution of investor losses totaling $450 million.
I picked up this all important update from the website of the U.S. Commodity Futures Trading Commission (http://www.cftc.gov/customerprotection/fraudawarenessandprevention/forex/index.htm).
The Philippine’s Securities Exchange Commission and the Philippine Congress must take the cue from this if they want to put a stop to the likes of Michael Liew in the country: Learn from the past and learn your lessons well.
UPDATE: On May 22, 2008, the Congress passed H.R. 6124, the Food, Conservation, and Energy Act of 2008 (also known as “the Farm Bill”) which contains several amendments to the Commodity Exchange Act (“CEA”). In particular, Title XIII of the Farm Bill (1) clarifies that the CFTC’s anti-fraud authority applies to certain retail off-exchange foreign currency transactions, (2) creates a new registration category for retail foreign exchange dealers, (3) requires registration for those who solicit orders, exercise discretionary trading authority and operate pools with respect to retail off-exchange foreign currency transactions, and (4) imposes minimum capital requirements for futures commission merchants and retail foreign exchange dealers that act as counterparties to such transactions. Parts of the legislation, particularly those confirming the Commission’s anti-fraud authority, were effective upon passage. Other parts of the legislation, such as those requiring the registration of parties engaged in these transactions and minimum capital requirements, will only be effective upon the Commission’s issuance of final regulations. Any such changes to the information below will be accomplished through notice and comment rulemaking and will be made available in the Federal Register section of CFTC.gov.
A complete description of the amendments to the CEA effected by Title XIII of the Farm Bill can be found in the Joint Statement of Managers, pp. 291-299, which can be accessed through the House Agriculture Committee’s Farm Bill Homepage. Interested parties should monitor the Commission’s website as well as the National Futures Association’s website, for developments.
The CFTC has witnessed increasing numbers, and a growing complexity, of financial investment opportunities in recent years, including a sharp rise in foreign currency (forex) trading scams.
The Commodity Futures Modernization Act of 2000 (CFMA) made clear that the CFTC has jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public. The CFTC also has jurisdiction to investigate and prosecute foreign currency fraud occuring in its registered firms and their affiliates. The CFTC issued an advisory in 2001 that discussed these CFMA amendments to the Commodity Exchange Act (CEA), 7 USC 1, et seq.
The Division of Trading and Markets (now Division of Clearing and Intermediary Oversight, or DCIO) issued an advisory in 2002 concerning foreign currency trading by retail customers (PDF). The advisory affirms that off-exchange trading of foreign currency futures and options contracts with retail customers by a counterparty that is not a regulated financial entity as set forth in the CFMA is unlawful. The advisory further states that, if there is a lawful counterparty to the transaction, such as a person registered as a futures commission merchant, the persons acting as intermediaries to such a transaction, that is, in the manner of an introducing broker, commodity trading advisor or commodity pool operator, would not need to register under the CEA if that is their only involvement in futures or option transactions.
DCIO issued an additional advisory in 2007 concerning foreign currency trading by retail customers (PDF). The DCIO Advisory addresses the following issues: (1) registration requirements for associated persons of firms registered as introducing brokers (IBs), commodity trading advisors, and commodity pool operators that are involved in forex transactions; (2) the permissibility of certain unregistered affiliates of a futures commission merchant (FCM) to act as proper counterparties in forex transactions; (3) claims that forex customer funds are segregated; (4) introducing entities acting as FCMs; (5) the applicability of the IB guarantee agreement to forex transactions and prohibiting guaranteed IBs from introducing forex transactions to an FCM that is not its guarantor FCM; (6) prohibiting forex account statements of an FCM’s unregistered affiliate from being included in the FCM’s account statements to its customers; and (7) prohibiting retail customers from acting as counterparties to each other in forex transactions.
I started out as a commodity futures trader in 1986. I was recruited and trained by the staff of a member-broker of the now defunct Manila International Futures Exchange for two weeks. After which, the company already let me out to solicit clients. I still had a basket full of questions that were left unanswered after the training so I had to content myself to doing a lot of research on my own to fully equip myself. Afterwards, I immediately called on close acquaintances, personal contacts, and family friends as I thought that one or two may dabble into this because of personal cognizance. And true enough, one of our family friends did! In fact, the guy was already trading in Copra futures (dried coconut meat from which coconut oil is extracted). He happened to be trading with another company ( also a member broker of MIFE) and was losing heavily. Knowing me personally, he decided to open up an account with me to try me out. We sold the 6 month forward contract of Copra futures and immediately we got caught up in a losing position. We sold the contracts at Php10 at that time when the current price of Copra was only Php6 in the real market. Both the guy and I were baffled by the way the prices at the exchange were moving…they were going up while the actual market price as well as the price of the end product (coconut oil) in the world market were going down. We went through a series of successive margin calls specially when the contract month of our holdings got nearer. What the people at the headquarters did not know was my guy was “loaded” and can absorb the uncanny rise of prices in the exchange. But the most important bit of information the headquarters did not know about my client was the fact he was one of the biggest copra trader in southern Philippines and supplies copra to large multinational companies in Manila.
When the contracts we were holding for six months became spot month, the price went all the way up to Php18 (while the actual market price was only Php5). My client and I already sensed that something was amiss. It was as if the market was doing all it can to break our resolve and get us out of the market and take our loss. So, the last time I went to my client to collect the required deposit to cover the full amount of the contracts, we both decided we will deliver. And when I served notice to the company that my client will deliver, it practically got everyone in the exchange truly worried. I received successive phone calls from my own manager asking me to discourage my client because of “the many obstacles we needed to hurdle to get our deliveries accepted by the exchange.” However, I made it very clear to my manager that my client was unwavering on his decision to make the deliveries. It didn’t make sense then to decide not to deliver because doing so will mean taking a whooping loss. Besides, the price of copra in the world market dropped to only Php5, and if we deliver to the exchange, we will get paid with the contract price of Php10 ( a reasonable profit for the 6 month ordeal the exchange made us go through, so we thought).
My manager decided to visit my client personally. I didn’t know what they talked about since they had a one-on-one session while I was sipping coffee at the hotel lobby. But after their talks, my client gave me specific instructions not to liquidate our positions without a reasonable profit.
In the next few days after that, I saw an unbelievable reversal in the price of the spot month of copra futures. From Php18 it went down to Php12. My manager started calling me again to liquidate our positions. My client and I stood firm. When the price reached Php8, my manager called me again and was practically begging me to liquidate. Sensing the utter desperation in him, I called up my client and we liquidated all our positions.
What a nerve racking experience it was for a neophyte trader like me. It was quite revealing though. I found out so early in my career as a commodity futures trader that prices in the Manila International Futures Exchange could be manipulated.
I got the chance to find out how extensive their scam operations were when I was transfered to the main office after they decided to close the branch I was working in. I shall share them with you in my next blog.
(Watch out for my succeeding blogs as they will be more revealing.)