HK regulator urges Forex brokers to comply with regulatory standards

Maria Nikolova

Forex brokers are expected to review their policies and controls to ensure compliance with the expected regulatory standards by January 1, 2021.

Hong Kong’s Securities and Futures Commission (SFC) is urging Forex brokers to comply with regulatory standards. The regulator has elaborated on these standards in a circular issued earlier today.

The standards for leveraged foreign exchange trading (LFET) brokers concern areas such as customer due diligence. It is important for brokers to take all necessary steps to establish the financial situation, investment experience and investment objective of each FX client; and assure themselves that the client understands the nature and risks of the LFET products they offer and has sufficient net worth to assume the risks and bear the potential losses of trading in the products.

The brokers have to inform the client that the transaction in OTC products may involve greater risk than investing in exchange traded products because there is no exchange market on which to close out an open position. The risk of slippage should also be explained to the client.

Forex brokers are also expected to provide clear and effective disclosure to clients about how their orders are executed. This concerns, inter alia, the order execution policy, explaining the methodology they use to deliver the best possible outcome when executing orders.

Brokers adopting a Straight Through Processing model or executing orders on behalf of clients have to disclose information on:

  •  the capacity in which they trade with or act for the clients; and
  • any intra-group link or relationship between the firm and the liquidity provider with which the client order is executed or hedged.

Brokers adopting a Dealing Desk model have to disclose information on:

  • the fact that they act as the counterparty of client orders and take opposite position to a client’s order; and
  • the circumstances which give rise to the potential and actual conflicts of interest in their principal-dealing and market-making activities;

The companies are expected to review their policies and controls to ensure compliance with the expected regulatory standards by January 1, 2021.

The SFC today released its Report on Leveraged Foreign Exchange Trading Activities Carried Out by Licensed Corporations which summarises the findings of a survey of the leveraged foreign exchange trading (LFET) activities conducted by 32 firms licensed for Type 3 regulated activity between January 1, 2018 and December 31, 2018.

Key findings of the survey include:

  • In 2018, the turnover in LFET market was $1,844 billion and over 99% was attributable to rolling spot forex contracts. Turnover was relatively low for more complex forex products such as options and forward contracts, which may be difficult for retail investors to understand.
  • All LFET products were traded on an over-the-counter basis.
  • Of the total 15,096 active LFET clients reported by the brokers surveyed, 98% were retail investors.
  • More than 60% of the LFET clients of a sample of brokers made net trading losses in LFET.

Read this next

Metaverse Gaming NFT

DCentral Miami brings together all of Web3, NFT, DeFi, Metaverse

The world’s biggest Web3 meeting entitled DCENTRAL Miami is set to take place November 28-29, featuring a lineup of some of the biggest and most influential names in the blockchain space.

Digital Assets

Crypto ban expands across UK banks as Starling joins ‎crackdown

UK digital bank Starling has banned ‎all customer payments related to cryptocurrencies, another blow for the crypto traders ‎who recently saw a sizable number of banks deciding not to ‎finance the wobbly asset class.‎

Interviews

Markets Direct at FIA EXPO 2022: Traders know what they want from brokers

The FIA Expo 2022, one of the most prestigious events within the global derivatives trading industry, took place in Chicago on 14 & 15 November.

Interviews

FIA Expo 2022: TNS addresses public cloud limitations with hybrid infrastructure

November is the month of the FIA Expo, one of the largest futures and options conferences in the world, bringing together regulators, exchanges, software vendors, and brokers in one place: the Sheraton Grand Chicago Riverwalk. 

Retail FX

Italy’s regulator blacks out Finance CapitalFX, MFCapitalFX

Italy’s Commissione Nazionale per le Società e la Borsa (CONSOB) has shut down new websites in an ongoing clampdown against firms it accuses of illegally promoting investment products in the country.

Retail FX

Suspected leader of Honk Kong ramp-and-dump scam appears in court

A leader of a sophisticated ramp-and-dump scheme made his first court appearance in a Hong Kong court today, charged with market manipulation and various criminal offences. The case stems from an earlier joint operation of Hong Kong’s financial watchdog, the Securities and Futures Commission (SFC), and the local police. 

Institutional FX

Cboe’s James Arrante discusses growing demand for fixed income, FX algo

We caught up with James Arrante, senior director of FX & US treasuries product and business management at Cboe Global Markets, to uncover emerging trends in the FX and fixed income markets and learn more about the bourse operator’s recent initiatives.

Retail FX

Eurotrader acquires UK broker Petra Asset Management

Eurotrader Group has formally entered into the UK market with the acquisition of FCA-regulated broker, previously named Petra Asset Management Ltd. The new entity operates under the brand name Eurotrade Capital Ltd.

Inside View, Retail FX

The Game of Chess Continues – OPEC, China and the Oil Market

Over the past decade, the US has been complaining about the amount of power which the BRIC group, and specifically China, has on the global economy. BRIC stands for Brazil, Russia, India and China; these were the world’s fastest growing economies. Only in the past 10 months, the US has turned their attention toward OPEC due to the prices of fuel. Nevertheless, China seems to have a strong influence even over the price of crude oil.

<