As Australia hits the OTC brokers, it’s time to go multi-asset

Australian financial markets regulatory authority ASIC has long had a reputation for being one of the only global regulators of electronic trading that genuinely understands the way our industry works.

As long as ten years ago, ASIC had already invested in two real-time surveillance systems which not only replace compliance inspectors but raise the standards of all firms under Australia’s auspices due to the systems continually monitoring all activity in all areas of financial services in order that any anomaly is immediately recognized.

These systems, one of which was developed by Irish financial markets software company First Derivatives, a company well versed in the technological topography of the OTC electronic trading business, have been used extensively by ASIC to bear down on all companies in all fields, however, it has been notable for many years that ASIC has a particular interest in actively curtailing the activities of the OTC derivatives industry – a sector it refers to as ‘OTC Margin Brokers’.

ASIC’s stance could very politely be referred to as draconian and discriminatory, as Australia has some of the very best quality FX and CFD companies in the world, and is absolutely at the leading edge in terms of corporate leadership among the FX business.

FinanceFeeds has held many networking events in Sydney, all of which have been attended by the astute, cautious, technologically forward-thinking and hard-working leaders of Australia’s very successful and laudable FX and CFD sector.

However, despite the constant striving for commercial excellence, ASIC has continued with its bearing down on the retail sector.

Next week, on March 29, 2021, to be specific, ASIC will introduce leverage restrictions and negative balance protection, as well as ending inducements in the sale of CFDs and standardizing margin close-out arrangements, a set of restrictions the regulator says are necessarily based on ASIC reviews in 2017, 2019 and 2020.

This is the formal basis of the long-awaited bombshell that ASIC was preparing to drop on a perfectly well-run industry, and will mandate leverage of 30:1 for CFDs referencing an exchange rate for a major currency pair, 20:1 for CFDs referencing an exchange rate for a minor currency pair, gold or a major stock market index, 10:1 for CFDs referencing a commodity (other than gold) or a minor stock market index 2:1 for CFDs referencing crypto-assets and 5:1 for CFDs referencing shares or other assets.

Brokers will also have to standardize CFD issuers’ margin close-out arrangements that act as a circuit breaker to close-out one or more a retail client’s CFD positions before all or most of the client’s investment is lost. Protection against negative account balances and end all trading credits, rebates, or gifts to customers.

FinanceFeeds has spoken to many FX brokerages during the course of the year in which it has taken ASIC to implement this, and the general conclusion is that it is counterproductive, forcing firms whose bread and butter is retail OTC CFDs to maintain their ASIC license for credibility purposes only, only to move the majority of client onboarding and servicing to unregulated offshore entities where absolutely any trading terms can be offered and very little protection can be afforded to clients.

Therefore, it is time for brokerages to evolve their structure in order that ASIC does not bear down further, and to ensure sustainability and prosperity in one of the world’s best regions for the electronic trading business.

Given Australia’s rock-solid reputation, talented FX brokerage leadership and its longstanding and equally solid core trading activities in commodities, raw materials and equities which has been built up over a series of generations due to Australia’s mining and raw materials export business, it is now important to equip a brokerage or professional trading house with a genuine multi-asset solution which can encompass FX, CFDs and access to global venues and listed derivatives trading.

As this week began, many large spot FX and OTC CFD firms began making their rush to comply with these rules public, yesterday OANDA Corporation, IG Group, and many more large names published their carefully worded corporate perspective, having no choice other than to welcome the rules.

It is rather similar to the public accepting a communist dictator who will spend the forthcoming years removing liberties, freedom and hard-earned capital from the populace who has no choice other than to say ‘we welcome the new rules as they are unable to adapt or challenge them.

In the case of many OTC electronic trading firms, they have all their eggs in one basket and are now subject to having difficulties in doing business due to these rules, will have lower profits, shorter-term clients and some clients will leave them for other asset class types.

To sustain business and grow is vital now more than ever and especially in an environment such as Australia where CFD trading companies are well established and well organized, yet their main core product is being seen as a target by ASIC, and yet Australia is a massive commodities and equities trading centre, therefore the companies there can easily attract those good quality traders and extend white labels to firms wanting to offer multi-asset trading in the domestic Australian market, given the right technology and structure.

Today, FinanceFeeds spoke to Roman Nalivayko, CEO of TraderEvolution Global, a firm that has made significant inroads into Australia, with Global Prime having taken the multi-asset solution.

Mr Nalivayko explained “For many brokerages, being locked by the legacy technology and not being able to react quickly to the new challenges is an unfortunate situation. I mean, of course, in the light of new requirements brokerage companies will apply the new leverage but what next?”

“Brokers have to invest in modern technologies by developing their own in-house trading environment or invest in getting the right one from a proven vendor. All of TraderEvolution’s clients have the ability to easily expand to any new region, connect to any execution venue they chose, and offer not only leveraged but also cash instruments with no compromises or semifunctional solutions” said Mr Nalivayko.

An existing TraderEvolution client in Australia, Global Prime, is a case in point. In terms of functionality, Jeremy Kintslinger, Director of the company recently explained to FinanceFeeds “Our multi-asset platform interacts directly with Global Prime clients in our online Discord community. The transparency of the team which provides the platform goes hand in hand with our business model, and the feedback loop this creates is beneficial to all parties.”

“We’ve worked closely with the TraderEvolution team to integrate with TradingView and we are really excited to go live with the project. This will enable our clients to trade and manage their positions across both platforms”

It would be very churlish of ASIC to bear down on a trading environment in which broker infrastructure offers connectivity to multiple listed derivatives venues, as Australia’s background is deeply rooted in commodities trading along with listed equities and futures, a traditional hallmark of an Australian business that hails back to the colonial period.

Therefore, future-proofing will not only bring your brokerage to a higher level in terms of client status and longevity but will also win the minds of ASIC. We are the innovators, therefore it is down to us, the industry professionals, to do just that.

“You can imagine what would happen if your typical retail broker offered a room like this, they’d get ripped to shreds with complaints. Having our own community really helps to hold us accountable to our clients” said Mr Kintslinger.