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Wasendorf Editorial in Wall Street Journal: Congress Hits Smaller Forex Traders

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October 24, 2008

In the wake of the massive bailout of investment banks it is astounding to me that Sen. Tom Harkin recently supported, and Congress passed, legislation to eliminate the participation of medium–sized and smaller financial firms in a very competitive and potentially profitable sector of the global markets: foreign exchange trading.

I refer to the Farm Bill from the Senate Committee on Agriculture, Nutrition and Forestry that Sen. Harkin chairs, which includes a provision to increase capital requirements of Futures Commission Merchants (FCMs) registered for foreign currency trading. The capital requirements were hiked from $5 million of invested net capital to $20 million. This increase was lobbied by the very investment banks bailed out by the recent panic legislation that will cost American taxpayers hundreds of billions of dollars.

The effect will be elimination of 65% of FCMs from participating in an investment sector that investment banks virtually monopolize — investment banks so large and complex that it has taken months to determine their exposure to subprime loan bundles. But it penalizes smaller firms that are accessible, which open their books to inspections, and which represent American innovation to keep markets fair and transparent.

While I believe that the spirit of this legislation is to strengthen regulation, in effect, it weakens markets by limiting access to them, and it weakens the regulators' ability to oversee them. Smaller firms business activities are consistently transparent and are easily audited by regulators. Eliminating participation of smaller firms in any financial market puts all investors at risk of being forced to do business with ones that are opaque (once thought to be too big to fail.) I urge Sen. Harkin to review and reconsider this increase in capital requirements and to attempt to see to it that the spirit and letter of this legislation is held true.

Russell R. Wasendorf Sr.
Chairman and CEO