“Mind The Gap!” – The life and times of a man on the move Episode 82

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

Tamas is right….

This week’s storm in a teacup involved a very interesting debate between some brokerage executives and myself, following a very poignant statement which Tamas Szabo, CEO of Australian FX brokerage Pepperstone made.

Pepperstone may well be very firmly operating in the retail sector, however due to its 10 year rise to prominence which now places it as the second largest brokerage in Australia and one of the most respected retail FX brokerages globally, ears tend to be very much angled toward the orator when a senior member of the company’s management team speaks out on an important matter.

Mr Szabo’s assertion was, quite rightly, that the recent proposals that have been set out by Australia’s regulatory authority, ASIC, are counter productive in that they ‘stifle innovation’.

I had to have my two pennies – or in this case two Australian Dollars worth, and succinctly agreed with Mr Szabo, and thus began the debate.

Kevin Murcko, who is best known in the retail FX industry for his leadership role at the ominously named FXPIG, replied to me by controversially stating “The last innovation in retail FX was retail FX itself. Everyone uses the same tech, everyone sells `deep liquidity` and `low latency`, its not about innovation in retail FX its about sales… and customer churn. A few brokers go the extra mile, most don’t.”

I decided to interject and explain that my research a few years ago had highlighted some of the root causes of the situation that has now arisen, namely the reliance on third party platforms without brokerage ownership of trading infrastructure, and that the lead generation/CPA model is still a major facet in the minds of brokers – ie churning instead of operating as a proper technology led business.

I said to Mr Murcko regarding that CPA/lead churning model that “My research was some years ago, but still the cpa/sales model prevails . Regarding what Tamas Szabo said to Finance Magnates this week, however – he is absolutely right and I agree with Tamas’ perspective.”

Mr Murcko’s response was “I hear the ‘regulation will stifle innovation’ line a lot. In my mind its factually incorrect and a mild cop out. One, regulators do not make laws, legislators do. Two if you are not trying to make yourself heard and engaging in talks with the regulator don’t make the mistake that they will understand your needs or the needs of your clients. Retail FX has done a pretty good job of skirting regulation when it suits their bottom line, but everyone loves a hardship story in the press.”

I had to be devil’s advocate here and say “Sorry Kevin, but this time I disagree. It will indeed stifle innovation at retail level, because what will happen is that instead of firms investing in the right product infrastructure, they’ll go offshore and carry on turning a handle with an off the shelf b book rented platform.”

“It’s totally retrograde steps from a regulation perspective, and the byproduct is offshore bucket shops by the dozen. The regulators (and ASIC does know what trading topography is, they know what a matching engine is and how execution works , unlike some other regulators) so they should be generating a framework whereby brokers can get more toward own infrastructure models and participating in the domestic market equities and raw materials / multi asset sector to challenge the stock trading firms , using own platforms for retail prices. As it stands, the “let’s ban it all” approach will just result in nobody developing anything , and instead doing a dividend business where they go offshore to some island and use rented third party b book platform and CPA model – which is against the point of regulating a global electronic market . Thus, Tamas is right.”

Mr Murcko signed off by saying “I agree that some regulators understand the basics of the market, but you would be hard pressed to find a regulator that truly understands the inner complexities of how the market operates or the pain points that real innovation could help solve. I agree there is a disconnect between the ‘let’s ban everything’ mantra and the ‘let’s find solutions’ mantra, BUT I do think that most retail firms run away from spending money on fighting to be heard and use this as an excuse to remain in the status quo. Our opinions are not dissimilar, just coming from a different angle.”

This, I agree with.

Later that day, John Murray from Glen Rock, New Jersey, a capital raiser at New York’s Limehedge Partners, said “The opportunity to kick up a fuss with ASIC is gone, the window has closed. China is the angry dragon putting pressure on ASIC. Xi Jinping is now an empower and he is stemming the outflow of cash. Hence his intended destruction of the HK finance market.”

“The regulation is a knee jerk reaction intended to end crypto and binary scams. ASIC can’t handle the amount of complaints the scams generate; therefore they want product intervention. ASIC doesn’t want to be seen as complicant with international clients breaking their local rules. For ex: fx is banned in mainland China, Chinese nationals flood Sydney and London with funds from Union pay or HK bank accounts.”

“Due to the product intervention regulations, retail traders and brokers will look to offshore jurisdictions in an attempt to circumvent the regulations. Regarding this article and Szabo’s comments in my opinion, “innovation” should be replaced with “revenue.” Pepperstone BOOMED as a result of great marketing and great service with MT4/MT5, as a broker, they didn’t innovate anything, they serviced the client better than most. Like a beautiful juicy grape, the fx market will shrivel to a dry raisin and the revenue stream will dry up.” he said.

Sarcasm, they say, is the lowest form of wit, and this conversation was ended with exactly that. Justin Smith said “Took me far too long to figure out that we weren’t talking about Application Specific Integrated Circuits here. My first thought was, “if ASICs are going to be banned in Australia, people will just use FPGAs.”

Indeed. The possibility that few salespeople or regulators will understand what that type of ASIC is, perhaps highlights the innovation issue!

How to build business – the methodical way.

On the other end of the scale to those who do not invest in their own infrastructure is AxiTrader, which bought Star Systems recently.

I see this as a major step forward, and have spoken in person to the very affable and highly regarded senior technologist that has been leading Star Systems since its establishment, Dan Moczulski.

Mr Moczulski comes from very high quality background, having spent over nine years at IG Group as Global Head of New Business on the retail and institutional side between 2000 and 2009, founding Star Systems in 2003 after a stint as Commercial Director Zignals, and a Directorship position as Global Head of Sales at City Index.

The notion that AxiTrader actually went to the extent of purchasing a specialist technology provider which develops trading systems for brokerages and margin dealing systems for CFD, spread betting and FX companies globally represents a very important step in the retail FX sector, in that AxiTrader is viewing its future as the opposite of the lead churning, CPA-based ‘bums on seats, calling 200 leads a day for deposits’ as happens in affiliate based low end enterprise that does not belong in our industry at all.

Technology and infrastructure investment is the way forward, and therefore we must laud this decision by AxiTrader and consider this to be a very good move indeed.

Trading academies and educators get my goat.

I cannot stand them, and everyone who knows me knows that clearly. As you know, I did a full investigation into the odious activities of Hither Mann recently, and exposed her for what she is – a cardboard cutout with absolutely no understanding of the truth, of right and wrong, and of how to behave in a regulated financial markets environment. Basically, a purveyor of the waste product that emanates from the rear end of bovine animals.

She is, of course, not alone, and all of these cretins tend to follow the same format. Whether it is Andy Shearman with his aggressive attitude, lack of credentials, false career at Citibank and decaying yacht in Millwall Inner Dock, or Greg Secker and his ludicrous array of rented Ferraris, absurd helicopter ‘trading’ initiatives and faux strategies, or Mathew Ashok in Singapore who regards everyone as a ‘loser’ and ‘poor because they’re stupid’ except himself, and his incredible, cure-all route to wealth for doing absolutely nothing and whilst having zero education or expertise.

There is of course Kiana Danial, who is basically a clone of Hither Mann (or vice versa), but with more media exposure. Her vacuous inanities are plastered all over the television (but then the television is where nonsense reality shows, the lottery and other mindless, undermining bilge is aired daily to a TV dinner-chomping, mouth-breathing audience of automatons), all over the internet and in absurd videos of her dancing and pointing at monosyllabic buzzwords, some of which do not even exist in the English language, whilst claiming that she has a background in our industry.

Yes. And I’m an astronaut.

This week she took umbrage with me when I pulled her up on her fakery, and was pacified by a friend of hers, who asked me to speak to her on the phone. Had that phonecall taken place, I would have told her straight, to take all her ‘content’ down, and stop breaking the law. Of course, she didn’t show up on the call. Surprise.

There are some good people around, and one of them, who I will be visiting soon, in order to make sure that the context of what he does is actually genuine, and I will be researching whether this individual has actually got the trading background and algo programming expertise he claims he has – he is a well known name in the industry so it is well worth the research – and if it all checks out, I will detail everything in full so that brokers who do wish to offer their clients educational services that have merit, are within the realms of the law, and will actually help traders rather than see them lose their money whilst the orange-tanned, botox-infused dreamers split the client losses between themselves and the broker, thus being quite the opposite of a “Fortune Academy” or an “Invest Diva” (for goodness sake).

Meanwhile, an Israeli fraudster called Eyal Shachar, of a similar nefarious non-entity with an equally puffed up bravado known as OTA, short for Online Trading Academy, has been in serious trouble with the law in California.

Federal Trade Commission took OTA to court and won, suing them and Mr Shachar for exactly the kind of snake oil sales tactics and promises of high returns, fake imagery and scammery that all the above practice.

Ms Danial – you live in America. Take heed.

Brokers, once again, I cannot stipulate enough – either hire your own educators and pay them a good salary, this way you can be sure of their background and you can ensure alignment between client, broker and educator, or go to the proper leaders of hedge funds, algo trading facilities, proprietary trading companies and pay them a fixed fee for an after dinner speech, then invite high deposit traders to the dinner and let a proper professional speak to them in person, or otherwise, attend our thought leadership conferences and see some 40 year experienced leaders of large companies in North America and London speak in detail.

There will definitely be more to come on this, because I genuinely want to help by providing access to the right educators so that brokers can be represented by proper people.

Wishing you all a super week ahead!