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?