Obamacare and the impact on Institutional FX market
Now that the FCA has made it clear about cutting margins in FX and CFD business for retail customers, this will reduce the volumes of business and eventually retail activity will effect institutional activity, says Meir Velenski
What will be the impact of the recent failure of the Trump administration to cancel Obamacare on financial deregulation .
The failure to rescind Obamacare last week will have far reaching effects on many key areas that Donald Trump is trying to reform.
By failing to rescind Obamacare , the House and congress have sent a message , that not everything that President Trump has campaigned on will pass.
This is very serious knock backward for for what was the cornerstone or main pillar of the Trump election campaign .
As regards further promises that Donald Trump has made especially regarding deregulation of the FX and banking market .
Retail and Institutional FX
Prior to the the recent events on Obamacare , it is my option that this is the time to start looking at setting up a broker in the States or expanding the prime FX market.
Presently , the tier 1 prime brokers have several concerns in the US and Globally.
These Tier 1 providers which are the FX Market Makers provide liquidity to the prime of prime and layers below them in the FX market.
There is / was and opportunity depending on approval of changes to the regulations , that would now precipitate an atmosphere of loosening financial restrictions. This would allow brokers with small capital adequacy requirements to set up shop in the US.
These retail FX brokers would need liquidity provision , once their upper risk limits have been breached and offload the risk – hedge.
The prime Brokers would see an increase in their business levels as more entrants came into play in the US FX markets.
However , this opportunity might be at risk now due to the shadow cast over the Trump moves in Obamacare .
So Prime brokers and Tier 1 risk managers are looking for risk locally in the US and globally to produce a good feed of FX institutional business.
FCA and Europe
Now that the FCA has made it clear about cutting margins in FX and CFD business for retail customers, this will reduce the volumes of business and eventually retail activity will effect institutional activity.
Not only in the U.K. Have authorities relooked at the FX market but also in other European countries .
This does not bode well for the Prime brokers in the FX market. Presently, there are numerous retail and institutional providers looking for more business in the tight FX market place.
The competition is very tight and all has signs of a saturated market. Institutional FX providers upped there margins at the time of the Swiss Bank action on the CHF peg but have now reduced that, in order to be competitive.
What is likely to happen soon is that retail FX brokers will be sold or amalgamate and thus cause more pressure on the Prime institutional FX providers.
FX in both retail and Institutional sectors need to look carefully and design a tactic to work within a smaller market place .
So when looking at triggers that might shift market FX conditions, we need to look further then the obvious and see how the block on Trump’s approach will and can have a wider impact then one would have thought .
The next item in the agenda is the Corporate tax and banking deregulation . Based on the Obamacare block , another block on Tax and banking could cause a serious increase in the VIX and FX volatility.