FX MARKET REGULATIONS
customers. Regulators in the EU appear to be failing to understand that whenever there is a gap in the market it quickly gets filled by new players, and there is very little they can do about this matter.
Hot sales were one of the main instruments used by regulated binary options brokers for years, before the relevant regulatory a u t h o r i t i e s , namely
the
Cyprus Securities and Exchange C o m m i s s ion (CySEC)
awoken to the problem
has and
cracked down on binary brokers after they abused the system for five years or so.
The Broker Business Model
materially lower (unless clients
choose to deposit more funds into their trading accounts.
Similar changes to the Japanese forex industry
in the aftermath
of the 2008 crisis have prompted the local regulators to limit the
crackdowns is any guide, the number of retail forex brokerages in the US has dropped to just two (GAIN and OANDA), while Japanese clients had the ability to choose among over 200 brokers when compared to just above 45 at present. A consolidation in the forex b r o k e r a g e industry is the most l i k e l y s c e n a r i o for
the
development of
this
b u s i n e s s g o i n g f o r w a r d . Te limited ability of c u s t ome r s to
choose Consumers who want to use higher
leverage might turn towards brokerages located in remote or offshore jurisdictions
Last but not least, let’s talk about the impact on EU- regulated brokers. The highly restrictive measures which the ESMA has announced are very likely
to make a big splash in
the brokerage industry. Not all brokers will survive within the new regulatory environment. The acquisition costs are likely to get higher, while trading volumes tick
20 FX TRADER MAGAZINE July - September 2018
maximum leverage to 1:25. Despite this, the Japanese market remains one of the biggest ones in the world and for retail traders it is by far the biggest market by volume. (Courtesy Japanese yen stability!)
Let’s be honest here - the impact to the books of brokers is unknown, but if history of regulatory
will most c e r t a i n l y impact their costs
of trading and
u l t imate l y hurt
their in t e r e s t s.
While ESMA has been vocal about the temporary nature of this measure, the slow-moving EU regulatory machine is not very likely to be flexible quickly, (especially if clients don’t complain enough).
Victor Golovtchenko Senior Editor
Foreign Exchange Markets
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