Breaking News

Time to Close the Asset Class Ban Loophole

Corzine and his ilk Should be Banned Across All Asset Classes

Note: A correction to this story has been posted here. The NFA and FINRA to recognize the bans of other regulators.

With the recent news that former MF Global CEO Jon Corzine is attempting to make a comeback at age 70 as a hedge fund manager, it became clear there is a hole in our regulatory system that needs to be fixed. Corzine is banned for life by the CFTC from trading futures, yet he can operate in the securities and FX worlds managing other people’s money.

It is time to clean up the regulatory loophole and banish those whose trading privileges have been revoked in one asset class from trading in other classes.

There is a simple self-regulatory fix for this that does not even involve the government. The NFA and FINRA could jointly recognize each other’s lifetime bans and suspensions and carry that across each organization. If someone is banned from trading futures by the CFTC or NFA, then FINRA can likewise issue a ban on the person from trading securities markets or holding a position at a FINRA-regulated firm.

The other solution would be for the states to recognize a ban from the NFA or FINRA and reject any registrations of said offenders.

Jon Corzine, and those like him who have violated the public trust and rules of our markets, should not have trading privileges in our regulated markets. They should not be controlling customer money. If they have committed a violation in one asset class that gets them banned, then they should be banned across all asset classes.

Trading on our markets is a privilege, not a right. When you violate the rules, you get your privileges taken away.

In Jon Corzine’s case, he negatively impacted not only thousands of futures customers but also stockholders in MF Global. There is also a forgotten class of stockholders/stakeholders who were badly abused – employees of MF Global whose bonuses where paid in MF Global stock.

These employees are not part of a stockholder suit because their stock had not vested yet. But millions of dollars in employee compensation and retirement investment was lost.

I hope some industry leaders can find the courage to do the right thing and end this loophole that sends one sector’s violators into the next.

I have seen this firsthand in my career as securities brokers moved to futures after being banned by the securities regulators. I have seen banned futures brokers move into the more lightly regulated FX markets.

We may not have one regulator across all markets like some countries, but our regulators should have the decency to recognize the lifetime bans and suspensions of their fellow regulators. Common courtesy and common sense. Let’s give it a try.

0.00 avg. rating (0% score) - 0 votes

About Author

Lothian is executive chairman of John J. Lothian & Co. and editor of the John Lothian Newsletter. He publishes MarketsWiki.com, MarketsReformWiki.com, MarketsWikiEducation.com, JohnLothianNews.com and several industry newsletters.