One Reader Writes In -- and persuasively.

June 2, 2008

The following comments were sent in to BrokeAndBroker by a poster asking to remain anonymous.  The thoughts are so compelling that I have honored the request for anonymity and offer the comments for your consideration. I have added clarifying notes in brackets.

Am I with you?  Well, I'm certainly not against you.  The question is how much am I or others are willing to stick their necks out without getting their heads chopped off.  Apparently, that might have happened to Richard [Goble].  Calling for Mary's [Schapiro] resignation in the past certainly wouldn't have endeared him to her. 

I am not a shrinking violet.  On the other hand, as I have mentioned or at least implied in the past, the term dissident has quite a pejorative context.  I do admit to being a reformer, however. 

I am for reasonable rules and reasonable application of those rules.  I believe that FINRA should be an advocate for its members and not their adversary.  I believe that an entrenched bureaucracy at FINRA can lead to treachery, especially if it is supported by a similarly entrenched bureaucracy at SEC, NASAA or Congress.  I am concerned with their lack of accountability. 

I have found that some of the bureaucrats are actually fine people and treat members fairly.  I have found others that are awful human beings who seem to believe that the only or major goal of every member is to comply with rules.   

I am tired of industry organizations popping up every few years, all trying to do the same thing. 

Maybe, we need a different approach.  It's an uphill battle but wouldn't it be nice to recognize the majority of FINRA members by having them regulated by a new national securities association.  A friendly association with nice people modeled after the NFA or PHLX perhaps,  one whose members would consist only of broker-dealers that never hold customer funds or securities.  Maybe such an association would also exclude broker-dealers that make markets.  Such an association would cover about 80% of the current members of FINRA, who could then terminate their FINRA memberships. 

The new association would have a simple rulebook without requirements for written supervisory procedures for tiny firms or heightened supervisory procedures applicable to sole owners or any other silliness.  Mandatory continuing education for someone who has been in the business more than ten years, nonsense.  Requiring an experienced person to requalify by examination after not being registered for over two years, of course not.  Enduring a 180 day application period before engaging in business, what for?  The new association would work for its members, not against them. 

Alas, I was dreaming.  I should go back to sleep and realize that there are some key elements missing.  While there may be sufficient people to staff such an organization, a major stumbling block would be funding.  If only a few wealthy charitable individuals or entities would step up to the plate and provide a few million dollars of seed capital that would enable the organization to get started.  Where are those people when we need them? 

A few million dollars would allow the organization to be formed, counsel to be hired, a small infrastructure to be established and an application to the SEC to be submitted for a new national securities association whose membership would consist of firms that are tired of the nonsense, e.g. firms that sell private placements, that raise money for hedge funds, that receive transaction based compensation but which are nothing more than technology providers, that act as mutual fund distributors, that are nothing more than glorified registered representatives that introduce customers and their transactions to the larger clearing firms or that engage only in non-market making proprietary trading. 

Such a mission is not anti-FINRA.  It is simply a recognition that the majority of broker-dealers, those that do not resemble Merrill, Lehman, Goldman, UBS, Bear & Co., shouldn't be under the same regulatory regimen as those giants.  FINRA would probably be delighted to lose most of its members since the assessments that they pay FINRA can't possibly cover the cost of regulating them anyway.  Certainly, FINRA must lose a small fortune every year as it spends time to provide solutions to problems that don't necessarily exist in the smaller firms. 

Yes Bill, I too am frustrated.  Meanwhile, I will try to make a difference.  I can assure that I will speak up vigorously though at times I recognize that some of my efforts are futile.   In that respect, I am just like you. 

I'm going back to sleep.  Maybe my dream will come true.