“Mind The Gap!” – The life and times of a man on the move Episode 68

An Apple absurdity, ASIC gets very serious and let’s set up FX brokerages all over England and approach the world

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday: Apple gives me the pip

For a company with such a massive international user base Apple has perplexed me this week to the point of dissuading me, after over 12 years of unfaltering loyalty, from ever buying another iPhone.

Since my first iPhone in 2007, I have not only been completely uninterested in any other type of smartphone or mobile operating system, but, I am sure along with many other serial iPhone owners, a de facto brand ambassador by ensuring that anyone I ever meet, be it friend or family, considers replacing their Google Android-based phone for an iPhone next time around.

My turning point came when I, for the first time since 2007, had to actually contact Apple customer service – and I use that term very loosely – for a remedy to the corrupt operating system upgrade that failed to install correctly on my 2018 iPhone 8 Plus following my download of iOS 13.1 as a result of being prompted to install it.

Usually, these upgrades are effortless and smooth, causing absolutely no disruption, however Apple’s gormlessness caused me to award it the metaphorical wooden spoon.

I called Apple’s UK customer service number on Monday, and immediately the company remotely accessed my phone, to see if I could show the operative what the exact issue was. He confirmed that the new operating system had not installed properly, instructed me to back everything up to iCloud and then format the phone and log in.

I thought nothing of this, because one of the features I really love on the iPhone model range is that when you log in as yourself on a freshly installed or new phone, your entire storage, all your preferences, all of your saved photos, files and connectivity preferences including all passwords are immediately as they were before, all applications are completely as they were left and remember the last thing you did, and all settings, emails, contacts and even the last website visited are all remembered.

This might be ripe in three days…. perhaps…

This is user-friendliness at its best, however once a human being gets involved, the problem – or rather the blatant stupidity  – begins.

What the customer service operator failed to point out is that if I log out of my account, I would need two other Apple devices that are considered ‘trusted devices’ to verify a code which is a second layer of log in security after password and username. Whilst I am all in favor of security, there is literally no workaround for people who have no other Apple device – my iPad bit the dust long ago – and the policy is that you then have to wait three days whilst a countdown timer wastes your entire week, before you can log in again.

Apple’s bungling telephone customer service team, within which I spoke to over three operatives and four ‘managers’ were condescending, arrogant and misinformed, explaining that this is all in the name of security.

Imagine that a server administrator on a bank prime brokerage single dealer platform would tell a whole FX trading desk that because they did not have access to another ‘trusted device’ at their desk, there is no way to override the second layer and reset it over the phone by asking some security verification questions or sending a passport or employee details of a user and that the whole desk would have to wait 3 days and twiddle their thumbs whilst the bank goes bankrupt due to no activity for three days.

Apple maintains that a three day countdown timer which blocks users out of absolutely their entire work, social, travel and economic life and in this age of smartphone-centric everything, literally isolates its users with nowhere to go, is proper practice and is not overridable. What claptrap.

For a company which sells its entire product range for a far higher sum than any of its rivals by majoring on user friendliness, this is the opposite.

On Thursday morning, I was able to log in again. What on earth have they achieved by doing such a thing? This bears no relation to account security at all as the same recovery path is necessary after three days that would work immediately.

So, to break the habit of 12 years, next July 4, I will be eating Samsung Galaxy pie with blueberries.

Wednesday: ASIC gets serious

We all know that Australian non-bank financial services regulatory authority ASIC is one of only two competent authorities in the world that actually understand the complete structure and method of operation of the OTC derivatives and electronic trading industry.

ASIC has demonstrated its tech-savvy and well researched approach many times, even as early as 2010 when it adopted First Derivatives system which conducts real time surveillance on all brokerages so that immediate compliance breaches are visible and usually met with very severe censuring.

The regulator has wound up companies that do not execute trades correctly, showing its understanding of the execution model of retail FX firms, and has been instrumental in ensuring anyone selling those magic software packages that cost a fortune and claim to guarantee success whilst charging the uninformed a fortune for boasting about their own success via a demo account, gets their comeuppance. Remember the Aussie Lifestyle Trader?

He got in serious hot water, whilst his equivalent here in Britain is still very much in cold water, with his yacht moored in Millwall Dock opposite Canary Wharf, ripping off unsuspecting customers one after another in blatant and proud right-under-the-FCA’s-nose fashion with no consequence.

As we marvel at Australia’s incredible views, its authorities are watching us closely

Thus, ASIC’s recent stance is something of a consideration for everyone in the industry and has been taken very seriously, especially with regard to its proposals on curtailing the way CFDs are provided.

This week, however, a good friend and colleague of mine in the great Antipodean nation showed me a dialog between him and a fellow FX industry stalwart down under, which was very interesting indeed, once again showing ASIC’s detailed knowledge.

“I think ASIC either put out a media release or it is known in the FX circles around here, but I actually heard this from a friend, so I suppose my detail may be limited” said my Australian colleague.

“It seems ASIC objected to the use of the words “TRUE ECN” which is a common mantra used for many years by many retail firms, thinking is meant STP, or was somewhat deceptive to inddicate this” he said.

“ASIC appears to have taken notice of a series of AFCA complaints about one specific broker, however I guess it was more that ASIC is really aggressive about protecting consumer interests, in particular highlighting the study they put out which everyone has read alerting consumers to the dangers, as the prime message has not worked” he said.

“The industry needs to understand this is a very aggressive approach taken by ASIC. They are serious, and the industry will need to pull its head in somewhat, as some companies are still shouting 500:1 leverage which is pushing ASIC’s buttons” he said.

“So what does TRUE ECN actually mean? Most people in the retai industry knows it is still B Booking, and ASIC is aware that this is a well known tack. There may be something more to this, but the company concerned did not help itself by fingering ASIC by telling through the media “We are keeping the Chinses mug punters and not sending them to an island.” he said.

In conclusion, his words were “ASIC is watching, be very careful.”

Indeed they are, via that Orwellian surveillance system that literally is an all-seeing eye.

Friday: By Gove, a world without borders!

The beauty of running an FX brokerage is that, aside from some differences in terms of what regulators allow, it is a borderless industry.

The electronic trading market, and all its assets, are global, and universal, regardless of location.

In a modern world, this should be the paving of the way forward for all financial services, nobody wants to deal with an insular European bank if they live in Singapore or Australia, and nobody wants to have cross-border costs, latency, slow transfers and down right obsolescence that goes with non-electronic markets based business.

This Friday, after so much absurd wrangling and the past three years being the biggest assault on British democracy since the 18th century in that the public voted in a referendum to favor Britain’s exit from the grasping socialist grip of the European Union and finally be allowed to free itself of the shackles, yet here we are three years on, millions of pounds wasted, and no Brexit.

It all looked like the last straw was drawn this Friday, when Prime Minister Boris Johnson was told once again that he would have to extend the deadline and do a deal with Europe (a deal with Europe means EU membership but with a different name!), putting any possibility of actually carrying out the will of the electorate at eternal risk.

Nope, it’s not Singapore, its….. Manchester!

By the end of the day, however, Michael Gove, Chancellor of the Duchy of Lancaster, came forward and managed to scramble a coherent sentence together, saying that he insists that the UK will be able to leave the EU at the end of October this year, and that the government has put in place no-deal contingency plans.

No-deal contingency = Brexit

Deal with EU = EU membership by a different name!

Well done that man. Let’s get on with it and remove the shackles of the socialist abyss from Britain’s highly advanced, global, and diversified industry base with its modernity in tact and its massive economy flourishing without sponsoring siestas, corruption and the archaic non-producing tumbleweed of central and southern Europe.

But more importantly, a life without the dictatorships of Strasbourg and Brussels meddling in the free market affairs of the British economy and its enormous, world leading financial sector.

London is by far the number one financial and FinTech capital of the entire world, and with the way Hong Kong is going, London is about to see most of that business land on the banks of the Thames too.

Europe would love to curtail the business of global enterprise and in true socialist dictatorship spirit, plunder London and blow the money, whilst telling London’s institutions and vast businesses where and how they can do business – ie Europe only, nowhere else. It’s a one way street. A red-painted one way street.

So, interestingly I had a conversation with a pal of mine here in the City, who is actually a card carrying member of the Illiberal Dictators… er, I mean Liberal Democrats – There’s an oxymoron if ever there was one!

He said “Shh, my party wouldn’t agree with me on this but I think when Brexit happens we should go to the FCA and lobby them to make it very easy for European FX brokerages and multi-asset trading companies to set up office in England and get an FCA license, then use that as a very distinguished base to reach an absolutely global audience.”

Yes, there will likely be some MiFID II alignment, but post-Brexit, the UK will be able to define its own global target markets without the restrictions of the moustachioed bryl creme wearers in Brussels.

Very good idea! I had been thinking the exact same thing, which I then explained during this conversation, to which I also pointed out that the rather misleadingly named Liberal Democrats would reverse Brexit and rejoin the EU, ignoring the democratic vote altogether, should they ever come to power.

Yes, there are some good policies in the Liberal Democrat party, such as decentralization of government rather like the model used in Switzerland, proportional representation as per the United States governmental system, and freeing up bureaucracy to make it easier for small businesses or startups to prosper. I am in favor of all of those things, but reversing Brexit? That’s a deal breaker… oh, wait a minute!

So, that got me thinking. We chewed this over for half an hour, and I mentioned that I had thought of this already. Surely people who have done the rounds in Limassol and now find that there is nowhere of interest socially or commercially on a barren island would prefer to live in central or Northern England where life is sustainable and everything works properly for the same price, in the same industry.

And surely the owners of FX brokerages would rather live in England and have an FCA license to show prestige to their client base, for the same operating cost of running a brokerage in Cyprus?

I think this could be a great way to leverage (pardon the pun) a whole new audience, globally, without any interference from a massive continental dictatorship and lead the way, with similar skill sets and similar costs.

London is home to the largest institutional FX firms in the world, as well as most of the non-bank liquidity providers and prime of prime brokers, and also hosts some of the longest established CFD and spread betting companies.

One critical thing to consider is that London’s retail electronic trading businesses are now into their third decade, and are highly capitalized, the sales teams often have a very high level of industry knowledge and are a long standing and integral part of the company’s operations.

Many sales executives in London have good relationships with suppliers of liquidity, banks and ancillary service providers, therefore hosting an all-encompassing service in London across all departments is essential for companies with their own proprietary platforms and established presence such as CMC Markets, and IG Group

he London-centric aspect is less important for smaller brokerages, however, and this is something that no company has yet looked at.

International entrants to the UK market automatically think ‘London’ rather than ‘UK’. It is possible to hear industry executives referring to the Financial Conduct Authority (FCA) regulatory structure as a ‘London license’ when really it is a British regulatory structure for the entire country.

There is no reason why, for example, a MetaTrader 4 brokerage with an FCA license cannot have its registered office in London, and its sales and marketing team in Liverpool.

Whilst London’s residential and commercial real estate outside of the financial sector is beginning to decline in value, investment in offices in London rose to £8.2 billion in 2015, setting a new record by being significantly higher than the pre-financial crisis figure of £7.5 billion in 2007.

Presence in London is necessary for FX firms due to their need to maintain an FCA license, and for liquidity providers and prime brokerage companies due to the standing of London as the world’s institutional FX center, as well as proximity to important commercial partners, however this is an extremely technologically advanced industry and therefore offices in other, less expensive parts of the UK would suffice, and provide the same connectivity via Equinix LD4, as well as have access to the same commercial partners and enable executives to reach meetings in the City.

Indeed, the UK’s FX industry is not only completely London-centric, but is actually Square Mile and Canary Wharf-centric.

In some of the more prestigious streets in central London, rent averages £85 to £100 per square foot, making a 4,000 square foot office (about average for a medium sized FX firm) cost anything upwards of £340,000 per month.

When considering that the average deposit size from retail customers, according to research by Citigroup, was $6,600 across the world’s 4 million retail FX traders in 2015.

Bearing in mind that in the United States, the average account size is higher than the rest of the world, the likelihood is that for a UK customer, $4,000 is about right.

In Dale Street, Liverpool, office space in a very high quality purpose-built office tower, with full service, security and concierge, 5 miles from Liverpool airport and 2.5 hours from Central London by train, costs £12 per square foot.

Liverpool is just one example, however this can be singled out because it has a very good university and therefore some very good undergraduates and post graduates who could work in sales and retention, many of whom come from all over the UK including London, and the salaries would be a fraction of the cost.

Executives from London could easily visit by train when needed and vice versa, and still the savings are immense and suddenly when viewed like this, the cost of acquisition and retention comes down immeasurably.

Capture
This office in Central Liverpool is just £1,750 a month for 10 personnel

Taking into account liability insurances, travel costs that need to be paid to employees in Central London and the cost of hiring and replacing sales staff due to high staff turnover, it could be considered that the cost of operations could almost be halved by thinking nationally.

Of course, this applies to smaller brokerages that conduct a lot of international business and use MetaTrader 4 rather than the spread betting and CFD giants of the Square Mile.

It is well known that Cyprus has been the destination for retail FX, and that the entire country is set up for it, but it’s become a small world and many firms there are having to circumvent regulations set out by Europe to continue serving their client bases which are as far from Cyprus as the main offices of the brokerages based there.

In Limassol, an office can be rented for approximately 1,200 Euros per month, and can house the entire company’s operations. Taxation is low and sourcing skilled employees who really know the business well is very easy indeed.

This is a cost saver in itself, however there is more to it than that.

Perusing the available sales positions, it is clear to see that a salary of 1,500 to 2,000 euros per month plus commission is the approximate rate, with successful sales personnel earning 5,000 to 6,000 euros per month including commission.

a non-executive level sales person (account manager) in London would earn £5,200 as a salaried employee, with commission raising this, according to FinanceFeeds research, to over £8,000 per month.

Going up one level to the prime brokerage sector, and a sales person which sells to brokerages will earn a six figure annual salary without reaching an executive position. In Cyprus, that would be 75,000 euros per year for the very highest level B2B salesman with very good relationships.

In Liverpool, call center employees earn approximately £1,426 per month, which is £342 per week. Indeed, they would have little FX experience but for a broker intent on being in England and offering MetaTrader 4 environment to overseas customers and leverage the kudos of an FCA license, this is an option.

I single out Liverpool because it is a major city with a very good, world renowned university, and is a desirable place to live for many young people, yet it is still very cheap. It is on the same territory as London, which matters for all the reasons above, however if you want to be a bit avantgarde, there is Manchester, which is still very reasonable yet is home to the largest concentration of retail FX traders in Europe – 26000 Mancunians regularly trade – and is the default capital city of the North of England.

Talent acquisition would be easy, and it is a great place to run a business.

So, let’s wait till next week and then watch the floodgates open. As I have said before, nobody is going to shut down and move to Europe, more like the other way round will be the case.

Wishing you a super week ahead!

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