Having concluded its second and final day, the IFXEXPO event at the Grand Resort Hotel in Limassol, Cyprus presented by Forex Magnates in conjunction with Conversion Pros has hosted further discussion panels as a continuation of yesterday’s points of interest.
Many hot topics surround Cyprus as a hub for forex and binary options firms post bail-in, in what Founding Partner at Jackavoma Investments Ltd Jason Ballor referred to today as “Green Monday”.
Today’s panel discussions began in the early afternoon with a more global topic as the central point. Moderated by Forex Magnates Institutional Editor Adil Siddiqui, the panel opened one hour of detailed debate among senior industry participants on the subject of customization, and how this compares to off the shelf technology solutions as a method of growing an FX business.
Jeff Wilkins, Managing Director of ThinkLiquidity commenced by mentioning his observation that technology is getting cheaper in most aspects, therefore it is helping companies evolve.
Tim Haman, CEO at Fair Trading Technology said: “The traders got smarter. They demand things from brokers today that they didn’t before. The demand nowadays is for enterprise technology. Datacenters are gaining attention, and the reliability of such datacenters. There is a definite need to have disaster recovery plans in order, and maximize reliability. This builds trust in the trader, who has come to rely on technology.
This progression has occurred relatively quickly, explains Mr Haman. “Five or ten years ago, they didn’t know the questions to ask the broker about technological performance, but today it is a different matter. The whole mobile platform business is exploding and the numbers are awesome. Adding intelligent software and managing social trading platforms and mobile applications is essential”.
According to Stanislav Stolyar, VP FX Products and board member at Devexperts, this whole business is technology led: “This business is all about technology. Last year, there were extremely low volumes industrywide, and many FX firms had to cut costs and one of the methods of doing so was to replace manual operations with technology.
“This is where vendors generated certain solutions for that in order to keep the cost down but continue to grow the business. An example of this is offering different asset classes and adding them to existing platforms. Brokers are taking this to vendors, facilitating customization of the platform to accept these” added Mr Stolyar.
For further scrutiny of this point, Adil Siddiqui posed the question “Can you as vendors collate different asset classes under the same technology that exists now and integrate such technology?”
Tom Higgins, CEO of Gold-I replied: “The nirvana for retail traders is a single platform where a trader can log on and see all asset classes and trade them all in the same place.”
The Hare and the Tortoise – FX vs Equities
Mr Haman added that “speed is also a matter to consider, not just from a development perspective, but also with cost in mind. There was a distinct agreement among the panel that while from the standpoint of Equities, the execution speed is leaving the microsecond space and going toward nanoseconds, whereas FX is still in the microsecond space.”
Proprietary vs Third Party
Moving on to discussing whether it is more effective for brokers to operate using off the shelf systems or customized ones from vendors, the discussion continued with Mr Wilkins surmising from his perspective: “Truly a mix. We use off the shelf systems all the time, however we have worked with some vendors which provide some excellent customizable solutions. There is a healthy mix, but we are starting to get much closer to the off the shelf solutions”.
Mr Haman continued: “I agree with Jeff. Also white labeling is easy with off the shelf products, they can get up and running quickly. However when a broker wants to change the platform to suit a specific purpose, and still meet regulatory requirements and allow the broker to mitigate damage to existing system then customizing has to be looked at.”
Mr Stolyar takes a different view: “Our business is all about customization, we can provide a suite of technologies that can suit each business circumstance but we are looking for long term relationships. Therefore we can increase performance and help brokers meet demand when a broker starts to grow. It is perilous to go into business and start up in two days with an off the shelf system. Management teams of firms need to learn the business as they grow and adapt accordingly. It’s also about marketing advantage. Why would a client or trader pick one also-ran product over another similar one?”
When asked whether it is really viable to customize, given the cost the cost of changing functionalities which can be high, the panels responses were generally aligned.
Mr Higgins is of the mindset that “most of the time, people take a standard platform, then add up to 10 back end add-ons to customize it and give each platform an edge.”
Mr Alain Broyon, CEO at Dukascopy Bank is in the same camp, however he considers it important for certain popularly requested custom objects are provided as an integral part of the platform. He explains “The Jforex platform is built with different interfaces that can be set by the broker. Every platform should have a detail that is different, to help it be global and allow the technology to be in line with regulation.”
Tim Haman, CEO At Fair Trading Technology said: “Traders want to use EAs, signals and other electronic methods. They may not be programmers therefore they need to be able to have a list of pre-set options to customize their platform to suit trading style.”
Mr Higgins said “We see a lot of server side integration, copy trading, Multi-Account Managers, and are very big on the server side. There is a lot of demand for back office integration so that databases can be managed and reports to regulators can be easily pulled off the system.”
Linking to mobile vendors and online stores is also key, according to Mr Broyon. He explained that “third party providers which can link a broker to appstores and provide on-the-move open applications can really make a difference to the reach of broker.”
When asked if the future is open platforms, the answer was a resounding yes. Closed platforms are not offering enough solutions to brokers or traders according to unanimous agreement from the panel. They believe that it is down to programmers and developers to continue to engineer open platforms.
The general consensus was pro open platforms. “We do agree a lot , don’t we!” exclaimed Mr Higgins.
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Why Are We Away From Nanoseconds?
Mr Higgins explained that in the equities sector, participants are installing hardware switches next to the exchange and its fixed infrastructure, and trading takes place in a fixed location. In FX, where the areas are different and it is borderless, 2 to 3 milliseconds doesn’t matter, whereas 200 ms does. “There is no need to go down past the milliseconds in our world, the cost would be very high and the benefits negligible” he explained”.
Mr Wilkins said “All of us bridge providers offer low latency but of course the customer base is all over the world, and unless they are using a VPS, then there is going to be variation in latency just on the basis of regional differences. A trader with a dialup will see 3 to 4 seconds for an order to be executed, therefore ensuring a world standard is not down to the technology provider. What we can do is ensure latency is as low as practically possible without causing unnecessary expense which would make little difference.”
Point of Presence solutions (PoP) are becoming popular. More and more denial of service (DOS) attacks have come about recently. Distributed PoPs allow protection against DOS. We always advise that this type of infrastructure is put in place”.
Discussion moved to the increase in use of PoPs, which dates back to 2005/6 when DOS attacks began. Most were attacking the primary websites of those brokers but at the time they didn’t give thought to the infrastructure. Most went down and trading stopped for minutes, or sometimes hours. That was the first time PoPs were discussed. The second purpose is for download purposes.
If having a desktop platform handling a lot of traffic a pop will stabilize the speed and download performance of this. VMWare type solutions are a good option. This increases communication speed between datacenters as they are virtual and can be moved.
The next and final panel discussion for the event was moderated by Jason Ballor. It comprised of a panel of Cypriot lawyers whose firms assist and advise FX and binary options companies in their licensing and regulatory matters, and also assist new firms in establishing in Cyprus.
This was a blustery panel with a lot of energy injected into it by Mr Ballor, focusing on the regulatory position of Cyprus authorities following what Mr Ballor refers to as “Green Monday”.
An overview was given as to how FX developed in Cyprus. “Before pan European regulatory directive MiFID was introduced, there were two or three brokers in Cyprus. At that time, these brokers had a CySEC license but under the old system. MiFID came in in 2007, then CySEC sent a letter to those brokers saying that they could no longer offer spot forex. This was a mistake by CySEC.”
“This was disadvantageous compared to other regulators such as the FSA which did regulate these items. We took this to CySEC and then provided the proof that it is a financial instrument. In June 2009, they accepted this and that was the landmark for the growth of FX in Cyprus.”
Costas Constantinides, Partner & Director at 360 Consulting explained that “moving into MiFID was a smooth transition involving soft parameters and straight forward new paperwork for the entrance into the new rulings. From a legal perspective, this is now a reality in Cyprus and therefore the world recognizes it as a passport to European markets. The Cyprus firms were doing very well already, so it attracted others to the region.”
Marios Lazarou, Board Member, Financial Risk Management at KPMG said “Cyprus became a member of the EU in 2008, together with the fact that CySEC wanted to regulate this. It particularly attracted some unregulated companies who wanted to gain a license with minimum entry barriers and begin to offer cross-border services.”
Advocate Tal Itzhak Ron, Tal Ron, Drihem and Co. Law Firm, attributes Cyprus’s popularity with brokers to many factors. He said “Proximity to Israel, home to a wide range of FX market participants and technology companies/software providers. Competitively priced. Cheaper to do this regulation with Cyprus rather than the FSA/FCA.
“If you need to pay 200,000 for a license, whereas in UK it is often 5 times the cost, and it achieves the same end. You get an FSA registration number with a CySEC license due to the EU passport. This has a tremendous value.
It was agreed among the panel that it is unfair to compare the Cypriot regulator CySEC to large, long established regulators such as Britain’s FSA (now FCA). CySEC has a max of 10 years of life, whereas the FSA (FCA) is regulating the world’s largest financial center. Therefore the lawyers confirmed that CySEC’s remit is to facilitate FX regulation and also ensure ease of doing business for the FX company as well as securing client interests.
Mr Ballor asked “FSA fines a lot of people – CySEC seem to fining people. This is more in line with the FSA. Are they moving in that line?”
Advocate Angelos Paphitis, Founder & CEO at A.G.Paphitis & Co LLC added: “This is not to do with moving in line, it is supposed to be that way regardless. This is not to do with emulating the FSA, it is part of the job of the regulator.”
Marios Cosma, Owner at K Treppides & Co said “CySEC is a user-friendly organization, and has improved dramatically with time”.
Subsequent to the discussion, the panel was open to comments and questions, during which Johnny Abuaitah, founder and CEO of Windsor Brokers, the very first company to obtain regulations in Cyprus in 1988 asked a question. He was very positive about Cyprus as a place to live and operate an FX business. Mr Abuaitah explained “Windsor Brokers was granted regulated status 1988 by Central Bank of Cyprus, and after that with CySEC. I am Palestinian, and my market is the Arabic countries of the Middle East.”
“I was looking for regulation to let me into the Middle East. Cyprus is close to my original home and my client base from inception till today. I was able to travel from here, and it is a great location in which to live and operate. There was a grey area in Cyprus for many years, so many Middle Eastern companies came to Cyprus and operated without a license. Without the help of gentlemen hosting this panel, things would have been different.”
Mr Abuaitah concluded by providing his view that Cyprus is also located in a practical place for his business needs. “Flying from here to the Middle East, Europe and the Far East is Easy.
As events draw to a close here in Limassol, 1,500 senior industry participants can reflect on an interesting and enjoyable IFXEXPO. See you all next time in Tokyo and again in London.
Forex Magnates wishes you all a good journey home.