During the passing week one story dominated the conversation in the international online trading industry more than any other – the proposed new limitations from the British regulator, perhaps the most important financial authority in the world.
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On Monday the week started off nicely with the US entity of FXCM Inc announcing that it is going to integrate live trading with cloud-based algo trading platform QuantConnect. The move is seen as an expansion of the capabilities of algorithmic traders that are using the services of the largest US brokerage for retail foreign exchange clients.
Over 24,000 quants are active participants on the forums of QuantConnect. The community provides answers to a variety of issues that they are facing with their algorithmic trading strategies.
Live trading will be executed via FXCM’s no dealing desk execution system. Clients that use QuantConnect will gain access to FXCM’s historical tick data, which also includes second and 1 min price history until 2007.
On Tuesday the news broke that the UK’s Financial Conduct Authority (FCA) is taking steps to severely limit FX and CFD trading. Immediately after the open on the London Stock Exchange, shares of CMC, IG and Plus500 tanked in response.
Responses from the industry poured in to Finance Magnates. Cappitech’s Business Development Manager Ron Finberg commented: “I believe that the Forex/CFDs industry will be able to adjust to the leverage restrictions. Both the US and Japan have long had leverage restrictions and individual traders are among the most active in the world. More than bonuses and margin, a bigger blow would be an increase of minimum capital requirements. In terms of the US, it’s the $20 million minimum that drove out the brokers and destroyed the market. On a side note, I find it interesting that the FCA also mentioned that it was in the process of evaluating financial regulation for binary options.”
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On Wednesday we reported that GAIN Capital’s City Index unit, CMC Markets and IG Group are forming a new UK industry body, sources with knowledge of the matter shared with Finance Magnates.
A CFD lobby organization can be beneficial for the UK industry as brokers can take a united position and jointly discuss with the regulator their worries.
In contrast with most responses, OANDA issued a statement of support for the proposed FCA changes
On Thursday the German financial regulator, BaFin, joined the party with its own steps to limit CFDs advertisement in the country. BaFin’s intent is to limit the marketing, distribution and sale of financial contracts for difference (CFDs). In addition the regulator is going after negative balance risks and is therefore mandating that no CFDs with an additional payments obligation can be offered to retail clients.
Chief Executive Director of BaFin, Elisabeth Roegele, stated: ”In the case of CFDs with an additional payments obligation, the risk of loss for the investor is incalculable. For consumer protection reasons, we cannot accept that.”
On Friday Plus500 issued an official statement that the company is fully compliant with BaFin requirements to offer and market its products in Germany.
CMC Markets made a similar statement: “The BaFin consultation paper requires CFD providers to ensure that retail clients cannot lose more money than is deposited in their account, a functionality which is already available to CMC Markets clients in Germany.”
OANADA again issued a pro-regulation statement, this time in Australia. Stephen Andrews, Managing Director at OANDA Australia, in a recent statement on the regulations: “We fully support the government’s move to introduce the mandatory segregation of client funds. This new law will bring Australia in line with other international markets that ensure client funds are protected and secure. We welcome this legislation as it will not only safeguard investors but it will also ensure that Australian FX and CFD markets are underpinned by a strong regulatory framework.”