NFA Election: a Response to John Lothian

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If you are registered as a CTA or CPO with the NFA, you may have recently received an opinion piece in your inbox from John Lothian News, even if you are not a subscriber.  I know because I received this note as well, although I am not a subscriber and strangely received it at an email address which is registered almost exclusively with the NFA.  Mr. Lothian has called into question my motives, accomplishments and character, as well as that of fellow CCC co-founder James Koutoulas.  I have reached out to Mr. Lothian and he has been kind enough to agree to allow me to post a rebuttal to his editorial.  If only to correct the record, let’s address his issues one by one.

First, while Mr. Lothian is entitled to his opinion and to endorse whomever he chooses, I believe the substance of his editorial is a distraction from the central issue of this election.  This election is about who is best suited to represent smaller and emerging CTAs and CPOs, who are the vast majority of NFA Member firms.   It is not about who can lay claim to an accomplishment or who someone thinks is worthy of trust.  If Mr. Lothian gets his way, CTAs and CPOs will only be represented by their largest competitors--firms with hundreds of millions and billions of dollars under management.  We think small and emerging firms need representation too.  It’s why I petitioned to be on the ballot for the seat I won last year for a two year term.

It is important to note that over half of all CTAs manage no customer money at all.  If you manage $1, you are in the top 45% of CTAs with funds under management.  If you are a CPO, the bar is a little higher but, in both cases, you need around $500 million in AUM to be guaranteed representation by a peer firm.   CTA/CPO NFA members are a diverse bunch and that spectrum should be represented on NFA’s Board.  Large firms, many of which operate with exemptions from the most onerous NFA rules, are guaranteed representation on NFA’s Board.  Small and emerging firms are not.  If you think that Citadel, AQR, Welton and Efficient Capital experience regulation in the same way you do, I encourage you to vote for our opponents.  However, if you think NFA may benefit from the perspective of small and emerging firms--folks whose legal, compliance and accounting departments are often just hats worn by one person--then I urge you to vote for James and myself.  

I have two ongoing NFA audits at the time of this writing.  I know a thing or two about the productivity drain of the compliance tax.  It is the cost of doing business in this industry.  As you know those costs are rising more and more each year.  Since you elected me to the Board, NFA has issued over 30 CFTC rule submissions, imposing everything from cyber security rules to disciplinary fees.  Some of these are minor, some will change the way you do business and some will even determine whether or not you can be in business.  But you are on the hook for them one way or the other and there’s more on the way.  

Around the corner lurks the CFTC’s proposed rules for ‘automated trading,’ which have been written so broadly that they ensnare every NFA Member using TT’s Autospreader or a Tradestation trailing stop.  Ask yourself if you want the people writing NFA’s version of these rules only to be billion or half billion dollar firms--all of whom hung their shingles in the 20th century.  Personally, I would want to be represented by a firm that is a true peer, which shares similar burdens and challenges.  We have fought that fight for three years and we want to continue that fight on your behalf.

With respect to the question posed of our accomplishments, let’s tick

off just a few.  Because of our service on the Board:

  • You don’t have costly capital requirements to maintain.
  • Your personal data collected and stored by NFA is now encrypted.
  • Your proportional board representation has been expanded.
  • Regular town hall meetings for CTAs and CPOs were held to engage and solicit advice from CTA/CPO members.
  • Issues ranging from cyber security to governance to the segregation of customer funds, the compensation of executives, the transparency of Board activities, the selection of public directors and the arbitration of customer claims in an FCM bankruptcy have all been influenced in favor of Member Firms.  

And yes, just like with our work in the MF Global and Peregrine bankruptcies, many of those accomplishments are shared.  Many involved the collective work of the our Board representatives, our membership and even the NFA staff.   We don’t stand on the shoulders of others or get in front of a crowd and claim we led it to where it stopped.  But to suggest that we have done nothing is as uninformed as it is transparently a smear.

Regarding Mr. Lothian’s questions surrounding our motives and character, I do not respond to ad hominem attacks, nor will I respond in kind.  Those of you who know us know who we are and the tangible accomplishments we have achieved on behalf of customers and the industry.  Those of you who do not, I welcome your inquiries in that regard.  I believe quite deeply in the democratic process.  I welcome due diligence, debate and the other gifts that free association provides.  Let’s get this debate back to what it needs to be about:  whether or not small and emerging CTAs and CPOs will have a like-minded peer to represent their interests to the NFA Board.

To that end, I ask for your vote for myself and James.  We remain at your service and we wish you all a wonderful holiday season.  

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About John Roe 91 Articles
Co-Founder of the CCC and head of BTR Trading and Roe Capital Management.

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