The Financial Commission (FC) – a self-regulating body for the retail trading market – announced the launch of a new accreditation scheme this Friday.
According to a document released by the FC, the new scheme will certify the percent allocation management modules (PAMMs) offered by different brokers.
More popular amongst offshore brokers, PAMMs allow traders to allocate a certain amount of cash to investment managers.
Managers then invest those funds and, if they make a profit, they take a commission and payout – in proportion to the amount that they put in – to the investors that gave them money.
The purpose of such a system is to allow inexperienced traders to invest funds without trading their money themselves.
Of course, such systems are subject to manipulation and a lack of transparency, particularly on the part of offshore brokers, makes them open to scammers.
A new PAMM rating system
That’s where the FC likely hopes to step in.
The regulatory body says that it has been receiving requests from retail traders, who want a better understanding of how brokers’ PAMMs operate.
Thus, the FC will review the technical setup of a broker’s PAMM accounts.
Alongside that, the regulatory organization will examine how funds are allocated to traders and investment managers and how the latter’s trading results are reported.
Finally, there will also be a review of a broker’s PAMM security and know-your-customer procedures and any rating systems that have been put in place to govern the investment manager’s performances.
If, after the FC has reviewed these things, it believes a broker’s PAMM setup is valid, then it will issue a certificate to a broker who will last for one year.
Such a system should help to alleviate the fears of some retail traders and give them an idea of what firms are legitimate and which are not.