All you need to know about China & APAC from the top executives in the entire industry. Live discussion recap from iFXEXPO in Hong Kong
Recently, Australian authorities have begun investigating the way in which margin is handled by electronic trading companies as part of its ever-increasing drive toward stringent regulations for FX and CFD companies under its jurisdiction. This week at the iFXEXPO Asia 2016 in Hong Kong, which was hosted by ConversionPros and Finance Magnates, a discussion was […]
Recently, Australian authorities have begun investigating the way in which margin is handled by electronic trading companies as part of its ever-increasing drive toward stringent regulations for FX and CFD companies under its jurisdiction.
This week at the iFXEXPO Asia 2016 in Hong Kong, which was hosted by ConversionPros and Finance Magnates, a discussion was held between a series of senior FX industry figures from large, prominent companies across the globe, each of which has substantial experience in operating on a large scale in the Antipodes and Asia Pacific region.
Moderated by Ron Finberg, the discussion took a very welcome detour from many panels in which pre-determined and otherwise anodyne answers are provided about generic subjects with regard to regulation.
This was a very energetic panel within which the executives focused on a point which is currently a very hot topic, and engaged in lively debate, and Andrew Saks-McLeod was present in order to pick up on a matter which FinanceFeeds has been following in great detail to see the perspective live from within the industry.
Shane Braunstein, Regional Director, Asia-Pacific at Gain Capital Holdings Inc (NYSE:GCAP), Sophie Gerber, Director at Sophie Grace Legal Pty Ltd, Francis Lee, FX Regional Head Asia Pacific at ADS Securities, Rajesh Yohannan, CEO, OANDA Asia Pacific, Adam Reynolds, CEO APAC at Saxo Bank, and Arthur Le, Founder & CEO, Juno Markets interacted to debate this poignant subject.
Margins and hedging – what will actually happen?
Mr. Braunstein began by explaining “What we have seen since the Swiss Bank shock in January last year is a real demand for credible regulation from regulators such as the FCA and ASIC so that clients can be sure that their principle is protected.”
Picking up on this very quickly, Mr. Finberg interjected in order to focus on how margin regulations may change. “Regulators have placed a strong focus on the use of margin. How does this work in Asia?” he asked
Ms. Gerber had a very forthright opinion on this, replying: “I Cannot see that margin will be capped any time soon because any ruling to that effect would have go go through the Corporations Act.”
With regard to brokers which currently use client money for the purpose of hedging, it is probably a foregone conclusion that it wont be able to be used. However I cannot see that in New Zealand or Australia there will be any restrictions on margin” – Sophie Gerber, Director at Sophie Grace Legal Pty Ltd
OANDA Corporation’s urbane APAC CEO Mr. Yohannan then provided his perspective: “ASIC is very likely to make changes” he said.
“Interestingly we took a look back at when the margins were changed in Japan and it is fair to say that the volumes today are higher than they were 5 years ago, before the margin restrictions were implemented.”
“If you are in it for the long term, all the regulator is doing is setting a new set of rules which are usually straight forward, and as long as you follow the rules, all business methodology is sustainable” – Rajesh Yohannan, CEO APAC at OANDA Corporation.
Mr. Le then raised a point regarding the potential inhibition of growth potential if margin requirements are raised significantly. “Investors from countries with higher margin requiremements in this region tend to like Hong Kong. In countries with higher margin requirements than 1%, I do not see much more growth potential. If you have a margin requirement more than that, it makes you less competitive. 1% is really the ceiling” he said.
Mr. Finberg concurred that the industry has witnessed specific regional stringency, such as in the US and South Korea over recent years.
Mr. Yohannan agreed, adding “South Korea is more extreme. The US also clamped down on other aspects such as payments (the NFA banned credit card deposits) whereas in Japan volumes have grown because only the margin was changed, and all other aspects of the trading ecosystem remain as they were before.”
Mr. Lee explained “Only Korea, Hong Kong, Singapore, Japan and Australia have FX licenses, the rest are all compeltely unregulated so if you want to go to those markets you have to do so very carefully.”
“This, however does not mean that you cannot do business. I was traveling last week and there was a trading room with 50 staff in Malaysia, but they dont have any license so it is a risk. Most of the brokerages in such regions do Multi-Level Marketing (MLM).”
Following on from that, Mr. Finberg addressed Saxo Bank’s Adam Reynolds, recalling a conversation from earlier during the day. “When we spoke earlier, you mentioned that Bank has had some discussions wtih regard to this matter in China” he said.
Mr. Reynolds replied “Our Chinese focus is more on outbound investment into the international asset markets in order to provide a balanced business environment” he said.
“We are all for margin increases as we think it protects clients and the longer that a client survives to make money, the better it is for us. If there is a regulated market, clients will move towards it” Adam Reynolds, CEO APAC, Saxo Bank.
Location, location, location
Mr. Finberg then moved to the subject of strategic location. “I have noticed that some of the larger firms represented by the panelists here are split in terms of where to have a head office, for example whether it should be located in Singapore or Hong Kong. What is so special about Singapore that it has become a destination?” he asked.
What is so special about Singapore that it has become a destination?”- Ron Finberg
Mr. Yohannan replied “Until a few years ago, Singapore used to be cheaper than Tokyo and it certainly is cheaper than Hong Kong as a place to do business.”
“The SFC is a bit more stringent than the MAS, and historically I think Singapore was always treated as a gateway into Asia and some of the operations started off in Singapore before they did in Hong Kong. However if China really blossoms, then there could well be a shift toward HK being the destination” – Rajesh Yohannan, CEO APAC, OANDA Corporation.
Mr. Le considers population distribution to be a factor when considering which region in which to gain a license. “Actually a lot of companies operate in Hong Kong, but the market for these companies is actually outside of the location. There are only 6 million people here, therefore how many clients can you get under this license? The specific license in a good location only really gives reputation. If you go to China and they ask how many licenses you have, the more you have the more trust you get” he said.
Mr. Braunstein believes that Shanghai will have something to say about this in the longer term. “I think Shanghai will emerge as a financial center. Singapore I don’t see long term as a hub, but it will remain a hub for hedge funds” he said.
“I would say that the Singaporean regulator, the Monetary Authority of Singapore (MAS) is very good for starting hedge funds, or receiving funds from firms that rank low on the transparency index but from the brokerage industry perspective I don’t expect it to be the long term home” said Mr. Braunstein.
Mr. Reynolds then added “We are in Shanghai, Singapore and Hong Kong. Singapore has a strong FX culture. It is home to a huge number of people who have been in the FX market or a long time. Hong Kong dominates for equity markets, and many banks have thick businesses in Singapore and equities in Hong Kong so you have to be in both places if you want to offer a real multi asset solution.”
Mr. Finberg then asked “Do you see this continuing?”
“Yes I do, said Mr. Reynolds
“As the capital opens, Shanghai will become the main financial center in Asia and the talent pool will likely move” Adam Reynolds, CEO APAC, Saxo Bank.
Mr. Finberg then asked “What about the rest of South East Asia. Will other regions in the continent become more active in the next 24 months?”
Mr. Le answered “Since we are purely Asia-focused, you do have China which is the star of Asia, but we are definitely looing at Indonesia, Malaysia, Vietnam and the Philippines. The challeenges in some of those countries include difficulties such as capital controls, and certain segments make it difficult to take money out of the country but we are definitely seeing a growth in emerging markets.”
Mr. Finberg then asked Mr. Le “Would you set up something locally to hold cash in those countries in order to retain clients?”
Mr. Le said “That is a big risk for companies as it requires a lot more than just setting up a local company and bank account. It depends on the risk strategy of the firm if they want to set up in a nation with capital controls.”
Mr. Yohannan continued on this point “In the hinterland, Malaysia and Indonesia are interesting but there are issues with capital controls and language. I do not see many companies setting up companies and bank accounts. I think Australia still offers a great potential outside China. I would say that the current parts of Asia that are popular and Australia will continue be the focus for Asia at large.”
Ms. Gerber then came in with a a somewhat controversial perspective “In Asia, outside China, not at all” she said.
Mr. Finberg then asked why this would be the case, to which Ms. Gerber replied “Chinese people like to follow fashions and this is the latest fashionable thing. We have now been through the Cyprus stage, the UK stage, we are now going through the Chinese stage.”
Rounding up the debate on location, Mr. Finberg smiled and asked “Where in the Asian continent would you not set up business?
To a round of cacophonous laughter, Mr. Reynolds said “Bhutan!”
When the roaring mirth subsided, Mr. Braunstein recalled a very amusing situation that he had encountered in, of all places, Mongolia’s capital city of Ulan Bataar.
“Going back a while, in a dusty old communist era building in Ulan Bataar, someone brought out an FX magazine that had been translated into Mongolian! This is the great thing about this industry, it is as broad as the globe” – Shane Braunstein, GAIN Capital.
On that note, Mr. Finberg then asked the panel “What is the industry doing incorrectly or correctly. Whats the worst thing you could do in Asia?”
Saxo Bank’s Mr. Reynolds said “It is very hard to just translate something and think that this will generate business. Local presence and knowledge from the inside is fundamental. There is a balancing act between having the exact same model globally, and the other side is making it too local so your expenses go up too much as the processes and tech have to be developed accoridngly. You have to have people on the ground to manage that balancing act.”
Mr. Braunstein said “The risk in coming to Asia is not doing the right amount of localization.”
Mr. Yohannan then added “Apart from the localization of the communication, people are really important. One of the big mistakes that we made and most companies do is with regard to providing the right methods for clients to fund their accounts. It is such a critical part of the business. Many people think that the funding options that work in the West will work in Asia and this is simply not right.”
Ms. Gerber said “With regard to translations, I would point out that it is important to look at this from an inverse perspective. With companies which translate from Chinese to English in Australia, we are seeing really poor translation going back to the AFSL site. We have to say to our clients that if ASIC looks at a website that has been poorly translated they will think that the company is run by a bunch of clowns who cannot even write English so they will wonder about other operational aspects such as risk maangement and compliance adherence.”
Mr. Lee said that it is imperative to show Chinese customers that companies have a correct and proper English language website in order to show that it is a truly international company.
What about the marketing conundrum?
Mr. Finberg then asked “What is the main strategy in terms of marketing?”
Mr. Le picked this up and said “Just going back, I completely agree with Adam Reynolds that localization is more important than just translation.”
“Clients demand local presence. You cannot just have reps abroad which speak Chinese and a translated website. This also means you need to dedicate yourself to this market which includes marketing & sales. You cannot take global marketing strategies and implement them in Asia and expect it to translate into business overnight” said Mr. Le.
“The whole industry has created an ecoysstem around brokers, ranging from technology services to networking conferences but if you don’t know the local market, you’ll be taken advantage of. Most expos in China are completely empty and a waste of money but a lot of organizers prey on Western firms that are trying to enter china and promise a big dream – Arthur Le, Founder & CEO, Juno Markets.
Mr. Reynolds detailed Saxo Bank’s approach to marketing in Asia. “We have become alot more focused on local banks and securities companies, and in particular fintech in China since we have had our Shanghai office. Fintech in china is very innovative especially about multi asset outbound business” he said.
Mr. Finberg then asked Mr. Reynolds “So your focus is more relationship based?” to which Mr. Reynolds answered a firm and resounding “Yes.”
Mr. Yohannan said “We genuinely believe that we want to invest in education and relationship management and understand that it is very valuable to partner with those who know this market well.”
Mr. Braunstein concluded “GAIN Capital has a very strong brand in China, however in the absence of a strong brand, for example if your brokerage is a start up , partnerships are vital. Even at the scale of GAIN Capital you never get away from that” he said.
“Last week I had dinner with large institutional partner in the mainland, which is totally necessary as business continues. You can never fully get away from the importance of maintaining real relationships so I echo what Rajesh Yohannan has to say about building relationships.”
Photograph: Ron Finberg hosts (left to right) Adam Reynolds, Saxo Bank. Arthur Le, Juno Markets. Rajesh Yohannan, OANDA Corporation. Shane Braunstein, GAIN Capital. Francis Lee, ADS Securities. Sophie Gerber, Sophie Grace Legal Pty. Copyright Andrew Saks-McLeod