“Mind The Gap!” – The life and times of a man on the move Episode 44

Imaginary binary apartments in Cyprus, meat pie in the sky down under, public war between vendor and broker, and an Anglo-Saxon FX ad on a London cab!

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: House of cards from a pack of Jokers

For those of us who have been wondering why all of a sudden a litany of advertisements featuring computer generated images of modern, multi-storey condominiums have appeared in large advertorial format across various parts of the island of Cyprus, there is indeed an explanation.

No, John Rockefeller has not moved to Cyprus and is not emulating the magnificent structure that he funded and assisted to design in downtown Manhattan, and if there was any inkling that Cyprus is about to begin to look like an island-based glass commercial epicenter such as Hong Kong, I can firmly divulge that it is not.

Driving along the very familiar highway between Limassol and Larnaca, to and from Larnaca airport, many observers will have noticed that these signs, displaying what are purely artistic impressions of new and very modern structures, for which you, the lucky investor, can pay an inordinate sum of money in order to ‘get in there first’ and potentially own a unit in one of them.

The head of this particular house of cards

Imagine the status and sense of achievement. I can hardly contain my excitement… zzzzz

Why the sarcasm, you may ask yourselves. The positioning and design of these adverts, and the lack of any sign of high volume construction got me thinking enough to begin to engage the more inquisitive section of my cognitive resources in working out exactly who was behind this, and to see if my own belief that many of these are not genuine was plausible.

The first sign comes to light when looking at how and where these images are positioned. They are almost all in slots which used to house payment fraudsters and binary options cretins, and appear to be based on the very same boiler room style marketing of how you, the investor absolutely must invest right now to get maximum return, even though you have never heard of the all-of-a-sudden well known developer with decades of expertise in developing property in Cyprus, and the minor detail that you cannot see any evidence of any construction commencing.

I’d rather buy property from Frank Spencer..

Remind you of something unpleasantly familiar? If so, this deja-vu would be justified because those behind what an insider from the Chartered Accountancy institute in Cyprus told me was the ‘biggest bank related scam Cyprus has ever endured’ are unfortunately the Israeli binary options and affiliate marketing mafia.

In Israel, a few years ago, there were several ‘construction’ companies which defrauded buyers by offering apartments at a low price if you were rash or trusting enough to buy them up front, and then of course they were never built and the ‘construction company’ owners ran away with the money, leaving many hard working citizens with a 25 year mortgage to pay and no home, and of course no recourse.

In Cyprus, the combination of that mentality plus the zero shame, zero sum binary options and b-book FX con men is somewhat worse.

Said accountant, who has very close relationships with banks in Cyprus, told me “These new property schemes, and let’s call them schemes because that’s what they are, are full of Israelis who have already performed several scams. How it works is that consortiums of them buy the land, and then the Central Bank of Cyprus got involved as they saw it as a very lucrative potential development period for Cyprus.”

“The Central Bank entered into massive loans, knowing full well who these people were, and did no due diligence. Almost all of these developments are operated by a consortium of israelis who use to be in binary options, who employed the same method as they did when they ran those white labels. They have used affiliates who were not Israelis which is where the money came from, and then began to establish where building sites would be, then they go to around 20% of the construction phase by using shell companies, they then promise to start building 6 months after that.

This week I obtained official data from the Central Bank of Cyprus which shows that in 2008, its debt instruments in direct investors, ie commercial lending, went from a massively over capitalized position in which it had assets far in excess of its lending to the tune of over 100 billion Euros higher, and now it is on par. Go figure.

According to a source I spoke to who is very close to the matter, currently, the Bank of Cyprus is now owed 7 to 8 billion euros by con men. “This island cannot sustain that” he said. One Israel-based compliance officer told me “Many of them have absolutely no limits, they are selling drugs, breaking civil laws and think nothing of stealing from the Central Bank. He told me “People in Cyprus are blind and should open their eyes. Look at the building infrastructure.”

“Nothing will cope with any of these projects, so you can easily see how it is not even possible and is just a show to take money from people. We have seen plans for several 30 story buildings and have no infrastructure. I believe that some of them will be built, and some will not be because the firms will run away, however absolutely all of them, including any that will be built, will result in the loans from the Central Bank being defaulted on because nobody has any intention of paying them. They have all been done via shell companies and the intention was to take the money from the Central Bank on false pretenses and run away” he said.

A few quick searches online will lead you to some VERY familiar names. I unearthed one site with incredibly poor English all over it, which stated that the company’s directors (both Israeli binary options fraudsters) are “leaders with huge information and knowledge in initiating and developing real-estate projects, encompassing the complete vary of property varieties from the abstract stage to the project’s successful completion and operation. The company director, (insert Israeli binary options name here) is a respectable key player within Limassol real estate arena, with proven managerial expertise in a number of the leading entrepreneurial and contracting companies.”

No he is not! He is a former binary options salesman.

For those considering, do not be tempted.

Tuesday: Meat Pie in the sky

Australia’s regulatory authority, ASIC, has gained a well deserved reputation among all participants in the electronic trading business globally as a pragmatic, modern regulatory authority which utilizes technology that integrates into our business well and as one of the only regulators which actually understands how our industry works.

Its recent moves have, however, cast some doubt into the minds of some of the very respectable executives in that region, largely based on the regulator’s kneejerk reaction to Europe’s ill-judged restrictions and has begun its draconian campaign of preventing international business and chopping leverage.

As I have said before, I am no advocate of highly leveraged OTC business, however in the case of Australian brokers, many of the well established companies have had very little client complaint volume, are monitored strictly by ASIC’s totally automated surveillance system and have to make reports and prove how they conducted their business.

This was a comfortable compromise which allowed the ASIC regulated firms to gain an enviable reputation in their region – notably China and South East Asia – and quite rightly so, however now there is a gulf that is going to be difficult to bridge.

I do know, however, via my close relationship with a Chinese banking executive based in Hong Kong that it is not plain sailing even for Chinese owned firms. CITIC has caught a huge cold with its KVB Kunlun ownership.

The odd thing is, in a way, as most Chinese retail were brought to the brokers by Chinese IBs where they received between 25 to just over 50% of the earnings cut in rebates, so simply a redistribution from the many mainland direct retail customers to the few Chinese that lessens the potential, plus they have the original MT4 system so cannot sell the client base or business.

Speaking in London this week to some institutional hedge fund managers and bank based prime brokerage executives, the viewpoints are becoming clearer from within.

Australia’s brokerages are some of the most well organized in the world

“It is a sort of slow moving train wreck” said one of the astute individuals.

“I suggest there will be lots of stories in the coming months, both in Europe and APAC as the regulatory winter sets in. This slow burn, some institutions did some preparation but most didn’t for the on-coming ice age and now this slow moving train wreck of an Opera enters the final scene for most.”

“So some stories, as this is life, would be interesting to tell as it plays out for the industry, but for most, it is the end, not a transformation, but the beginning of the end as this industry stresses to survive. That means that anyone with any aspirations of supplying retail derivative traders on high leverage, which is insane, will have to pack it in.”

“I would say that a key note is to watch local key players still promoting 500:1 leverage within the the Antipodes, given the new industry code is at 400:1 maximum and ASIC singing its tonsils out that this is toxic to retail. So, I wonder if many of the brokers are listening, and if they are, to whom? Their marketing department, their shareholders, their mortgage banker (lifestyle coach), or their car dealer who sells them the next Mercedes” he mused.

“We will see who is smart, street wise as this plays out, and must I say, a lot walked into the trap. They saw gold from Europe, but it was fools gold, and they are now caught in a rabbit trap with the hunter moving in to put them out of their misery” was his somewhat callous opinion.

There have been some IPO orientated aspirations for the last few years down under, however in order to list on a public exchange, a domestic client base and a proprietary platform would be two of the first things that an auditor from KPMG or PriceWaterhouseCoopers would look at before getting into their Toyota Camry and heading back to their beige-walled offices.

I really want to see the Australian brokerages do well and prosper domestically, and continue to uphold their excellent reputation. I will of course support their growth plans and help where I can, but I do advise NOT to be tempted to go offshore and go backwards.

After all of this hard work and incredible development to get to where the retail sector is now in Australia, it would be a terrible waste to go offshore.

I heard that some firms have begun applying for Vanuatu company registration. That would be like moving out of your Hyde Park mansion that you worked all your life to pay for just as the last mortgage payment is made, into a yurt on a beach which has a high tsunami risk.

Wednesday: Tit for tat battle as token failure blames FX platform developer

As you all well know, I despise these token sales and attempts to extract money from well meaning investors who then find out that there is no product, no company and no substance whatsoever.

Unfortunately this week, one of the major platform providers has been blamed for the ‘demise’ of a zero fee ‘exchange’. I characterize the words ‘demise’ and ‘exchange’ in quotes to emphasize the point that to experience a demise would mean that something would have had to exist in the first place, and an exchange is not what this was, even though it calls itself one.

Here we have a classic case of a firm which failed to get off the starting block blaming its developer for its inability to launch.

Digitex began its spat with Spotware Systems, the developer of the c-Trader platform and a well recognized quality provider (despite its indecisive corporate direction) recently, with its CEO making a public apology for not being able to launch, laying the blame firmly on the doorstep of Spotware Systems.

Indeed, new technology and new projects tend to require significant development and often suffer setbacks, such is the nature of innovation. He who carves a totally new path takes all the risk – it is easier to follow an existing path and be an also ran than it is to build something new. Just ask Isambard Kingdom Brunel … .oh wait….

Is this really the way to do things? The jury is still out

Of course, being a bland facsimile of MetaQuotes, with no intellectual property and no technological edge over anyone else is the route to nowhere, but doing something new and not yet existent is fraught with potential pitfalls.

However, most innovators – and this industry is absolutely based on innovation and there are many fabulously creative technologists who have led the whole financial sector forward – do not blame outsiders for their own failings. A genuine innovator whose intention is to move an entire business sector to the next level will internalize any setbacks and fix them privately.

This public blame, in my opinion, makes an easy out for Digitex as it appears a plausible excuse and turns a (perhaps premeditated) fail into a sob story and frames a well known development firm.

Who is wrong and who is right is not my business and I am not privy to that information, and according to many professionals who have approached me in this, it is now a subject of discussion in the exchange and digital asset sector on portals and indeed is publicly placed on Digitex blog.

I have spent most of my 27 year career within the technology development side of the electronic trading business, 18 years of which was for banks via my own consultancy. Reading the publicly available notice, specification limitations within the platform are cited.

This is not how interaction between vendor and customer works – as a specification and proof of concept would have been available to both parties during the development phase.

I am not here to take sides, but this is a bizarre step by Digitex and in my opinion a PR fail.

Thursday: Mind your Pips and Qs!

Ever since the days of the beginning of the end of open outcry pits and the first electronic dealing rooms, I always thought that colorful use of Anglo-Saxon vocabulary was generally not heard or seen outside of the walls of those two environments.

Indeed, I once hired a temporary SQL developer on a project at UBS whose prose was peppered with the use of one particular expletive that it was present several times in every sentence to the point where it lost its effect!

How wrong I have been all these years!

Walking along Cornhill in London’s financial district this Thursday, I caught sight of a ubiquitous London Taxi, with an advert for e-Toro, one of the most avantgarde retail electronic trading firms in the world which has totally turned its fortune round since partnering with PingAn in China, a development which I have followed closely, including via meetings with the leading investors in China who contributed toward e-Toro’s massive revitalization.

I beg your pardon, young man

The advert featured a play on words, which highlighted the strongest word in the Oxford English dictionary, and quite honestly it was very difficult for me to really understand what the abbreviation of this word was referring to.

There appeared to be a very tenuous connection between the large, capital-letter abbreviated curse word and what the advert was trying to get across to its audience.

Me? I’m not sure I would want to arrive at a West End show or the Last Night of the Proms at the Albert Hall in a taxi, itself one of London’s finest landmarks, with such a word plastered across the side of it.

Maybe I am just old and cantankerous, or maybe shock value-style advertising that makes people look because of its social awkwardness can be done in a less vulgar way. Britain, after all, is the land of fine comedy, excellent sarcasm and irony.

Wishing you all a super week, and I look forward to seeing you on Tuesday at our conference in London!

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