What will Cyprus FX brokers do to comply with new leverage and bonus rules? Part 1 – the Prime Brokerage
“When you have regulatory changes regarding bonuses and leverage which have to be adhered to, you have to factor this into the business. In essence you just have to roll up your sleeves and find new clients to make up the shortfall.”
At the end of last year, CySec, the regulatory authority that is charged with the not inconsiderable task of designing and maintaining the regulatory framework by which the 180 FX brokerages on the island must conduct their business, made a distinct attempt to align itself with the long-established blazer-and-clipboard brigades of Australia and the United Kingdom.
This manifested itself in a mandatory default leverage choice of 1:50 for OTC derivatives traders, accompanied by a test which is intended to determine whether traders are able to trade with lower margin requirements that must be completed by customers wishing to trade with higher leverage.
Whilst this does not represent an actual cap on leverage, it does show that, although in a diluted manner, CySec is alluding to caution with regard to leveraged margin products.
As of two days ago, companies in Cyprus offering retail spot FX trading will have been expected to have implemented this and will have begun asking clients which ratio of leverage they will be willing to trade with.
Quite rightly, deposit bonuses are in the firing line too, something that FinanceFeeds will not mourn the passing of.
In order to ascertain the internal thoughts of the pinnacles of the industry with regard to these new rulings, FinanceFeeds spoke today to Paul Orford, Head of Institutional Sales at AMB Prime in Limassol, to look at how order flow can be conducted via liquidity management systems with regard to ensuring that brokerages in Cyprus can forge good relationships with liquidity providers when providing lower leverage and therefore providing lower trading volumes for the commission business of their liquidity providers.
“When you have a change in legislation you have to react to this, this is a fact of life if you want to stay on the right side of the regulator” said Mr. Orford.
“When you have regulatory changes regarding bonuses and leverage which have to be adhered to, you have to factor this into the business. In essence you just have to roll up your sleeves and find new clients to make up the shortfall.” – Paul Orford, Head of Institutional Sales, AMB Prime
“Whether this is a good thing for Cyprus in terms of lower leverage, and on the retail side, whether marketing restrictions are a good thing, it should be viewed in sensible context” said Mr. Orford.
“With regards to the marketing restrictions, you can see that these were on the horizon from the actions of various market participants over the past several years. I always like to look at the end user with regards to their market experience, and I personally do not think that lower leverage is a bad thing. They can learn more about the markets mechanisms rather than just rolling the dice and see what happens” concluded Mr. Orford.
This is most certainly a pragmatic approach, and with Cyprus’ continuing development as a major center for every component of the FX industry, an approach which echoes the island’s position as the global hub for the spot FX industry.
FinanceFeeds will continue to research the inside perspective on this matter within a cross section of industry sectors.