Cyprus is a global center of institutional regulatory and market infrastructure evolution: In-depth report from Limassol

Cyprus has become a pinnacle of high quality electronic markets prowess and is now attracting dialog from regulatory technology firms with large listed derivatives giants of Chicago, Tier 1 banks of Germany, global execution solutions stalwarts and government leaders alike. FinanceFeeds exclusively details Cyprus’ elevation on the world stage

No longer is the Eastern Mediterranean island of Cyprus considered to have the sole functionality of acting as a hub for retail FX brokerages from across the world to place CySec licensed operations in order to align themselves with the European MiFID regulations and thus attract clients to a credible entity.

Far beyond the inaugural days that laid the foundations for Cyprus’ now fully comprehensive FX industry, the country now plays host to the major platform providers Spotware Systems and MetaQuotes, developers of the cTrader and MetaTrader platforms respectively, liquidity management companies oneZero and PrimeXM also have operations on the island, institutional prime brokerages and liquidity providers operate in Cyprus, as do management consultancies and regulatory technology and trade reporting specialists.

In short, Cyprus is an FX industry powerhouse as it hosts the entire component system of the electronic trading ecosystem, and is inhabited by highly skilled professionals who understand this business in a detail perfect fashion.

This is now a manifestation of the established status of Cyprus as a mainstay of the mechanics and infrastructure that powers the global retail FX industry, however there is now a further major evolution that has clearly demonstrated that Cyprus is ready for its next move in the upward direction and onto the world stage of the institutional and exchange listed derivatives sector, not just in terms of sales and distribution, but also in terms of market infrastructure development and technological topography.

On the 27th of January in Limassol, senior executives from the world’s largest derivatives marketplaces convened at the Four Seasons Hotel in Limassol, joined by regulatory chairmen and government officials, in order to discuss on a global scale the transitioning of the industry into a new era of regulatory reporting.

RegTech, an acronym for Regulatory Technology, has often been heralded as the new FinTech

From what was only, a few years ago, a relatively vague concept have now sprung more defined and specialized branches of technological innovation, often driven by financial institutions’ desire to find better solutions for regulatory challenges and business opportunities.

Narrower definitions, such as “regtech,” “insurtech” and “edtech” have emerged, driving interest to new heights.

While fintech and regtech are interrelated, both conceptually and in application, their origins differ. Regtech evolved from post-crisis regulatory changes and fintech trends, and extends beyond finance to any regulated sector. Fintech, on the other hand, is more about improving the technology of the original financial system.

With the electronic markets dominating the entire financial system across most of the developed world, regulatory oversight and reporting has become as much of a technology-driven business as the electronic trading industry itself, and government departments and regulatory directives are majoring on market infrastructure.

Markets in Financial Instruments Directive II (MiFID II) and European Market Infrastructure Regulation (EMIR) are two critical directives that are central to the European Commission’s rulings on financial markets across the continent, and on January 27, Cyprus, and its regulators and government officials along with major infrastructure providers and derivatives marketplaces from across the world, convened.

Not London, or Brussels, but Cyprus

Point Nine, which specializes in post-trade execution, operation, processing and reporting, was founded in 2002.

The company collaborates with both buy and sell side financial firms and corporations to help them meet the ever-expanding challenges of post-trade processing. Circle, the company’s in-house proprietary technology, provides a real-time solution to its customers and their trading relationships, and is developed and supported from the firm’s offices in Limassol.

Point Nine, along with the Cyprus International Institute of Management, hosted the conference and was instrumental in ensuring that the major figures from around the world engaged with regulators and officials.

On the subject of the landscape of regulatory reporting, Fabian Klar, Relationship Manager at Clearstream Banking SA, a position in which he is responsible for institutional client relationships across Europe, went into great detail, presenting to government officials and CySec Chair Demetra Kalogerou, his perspective with regard to recent changes in regulatory structures and how they should affect firms, as well as challenges and obstacles that must be overcome.

CME Group’s Director of Global Repository Services Igor Kaplun picked up on this subject, going into detail on how EMIR will require new methodologies with regard to margin and clearing, and what the rewrite will entail.

Mr. Kaplun is based in Chicago at CME Group’s head office, and has ten years of experience in post trade services, trade reporting and OTC as well as futures markets. As business line head for CME Group’s North American Trade Repositories and global commercial business, Mr. Kaplun is well versed in complete overhauls of infrastructure regulations and has been debating this in Cyprus in order to bring to light matters that should be addressed when the rewrite of the EMIR regulations is instigated.

The interbank sector has had its say in Cyprus, with Dr Hagen Tiller of Commerzbank’s legal department, who is a specialist in the company’s Markets and Distributions division, having explained in full to the officials, industry participants and regulators exactly what should be reported under MiFIR which is the new market infrastructure regulation that applies Europe-wide.

Dr Tiller advised firms in Cyprus how they can begin preparing for the MiFIR rulings and what the practical implications are. Interestingly, the panel discussed the legal agreements that need to be in place with trading venues, including the terms and conditions of exchanges, multilateral trading facilities and bilateral trading agreements, as well as the all important matter of custody of client funds and safekeeping of financial instruments, as well as how European regulators will view algorithmic trading and HFT.

What is an OTF?

Len Delicaet, Head of Regulatory Reporting Strategy for TRAX which is an Approved Reporting Mechanism (ARM) under MiFID and provides regulatory reporting to FSA (UK), AMF (France), AFM (Netherlands) and NBB (Belgium), detailed the impact of algorithmic trading on regulatory reporting and how MiFID IIviews it, as well as the need to increase transparency with regard to expanding the pre and post trade transparency regime to equity-like instruments, such as depository receipts, exchange traded funds and certificates, as well as non-equity like instruments such as bonds, structured allowances, and very importantly, derivatives.

Mr. Delicaet examined third country access to EU markets, something vital for discussion in Cyprus, as well as what constitutes an organized trading facility (OTF) and the impact of such venues on internalizer registrations.

Point Nine co-founder and Chief Technology Officer Pavlos Christoforou, who established the firm in Cyprus alongside Yannis Matsis in 2002, addressed the officials with regard to RegTech on the cloud, and how the hosting of regulatory technology in an infrastructure-free environment poses challenges and opportunities.

“The regulated landscape is continually shifting. This presents a challenge to traditional enterprise architectures. Agile, cloud based solutions are better suited to the task” said Mr. Christoforou.

During the morning discussions, Dr Dirk Schubert, a Partner in the Financial Services division of KPMG in Germany, asked “To clear or not to clear?” whilst taking thirty minutes to explain how professional services consultancies view the challenges in derivatives business processes in the presence of CRD IV, EMIR and MiFID II regulations.

KPMG’s Cyprus operations followed this up later in the day with board member George Tziortzis explaining how the financial services industry’s regulatory sphere must embrace the cloud and drive innovation whilst maintaining control through secure cloud adoption frameworks.

Dr Theodosis Mourouzis, lecturer of Information Management of CIIM, explained what emerging Technologies are and their impact in the FinTech Space.

CySec Chairman Demetra Kalogerou delved deep into regulatory compliance issues in Cyprus and across the MiFID II jurisdictions, the global leaders having gained her perspective as an official that presides over the not so easy task of regulating one of the world’s major epicenters for electronic trading businesses.

Dr. Andreas Charalambous, Director of the Financial Stability Directorate of the Ministry of Finance, has made an introductory speech presenting the macroeconomic and macroprudential environment, the political and regulatory situations and policy reposnses.

Discussions were held between the executives during the course of the day, and this format will reconvene on a regular basis, marking Cyprus out as not only an elevated region which has captured the attention and debating resources of institutional leaders from around the world, but also a development ground which is instrumental in pushing forward the industry’s global stance on the new methods of infrastructure regulations.

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