LPs, Market Makers and CySEC
- The new requirements represent a core component of a wave of regulation that will fundamentally affect the FX industry.
While the FX industry is rapidly growing, FX regulation is extending globally as there is a need to maintain it as a reliable and well protected industry for investors.
The EU, with the establishment of MiFID 2, requires higher transparency from investment firms. CySEC, as a regulator within the EU, and in the context of establishing effective arrangements and procedures, proposed several changes to the regulatory framework related to the selection, use and monitoring of Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term providers/market makers by its supervised investment firms.
The recently issued consultation paper, addressed to all Cyprus Investment Firms (CIFs), reminded brokers of their responsibility to remain compliant and monitor the quality of execution of clients’ orders even if they use a single liquidity provider/market maker.
CySEC, in addition to this, also disclosed several conditions that must be met on the selection of Liquidity Providers Liquidity Providers A liquidity provider (LP) constitutes either individual and/or institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as the both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profi A liquidity provider (LP) constitutes either individual and/or institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as the both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profi Read this Term from investment firms.
Pursuant to this, CySEC proposed to investment firms that liquidity providers should be regulated and authorized within the EU. However, in cases where a selected liquidity provider is regulated and authorized in a third country, this must have a capital ratio of not less than 10%. Otherwise the investment firm would have to maintain, on an ongoing basis, enough own funds to cover the risk over the liquidity provider/market maker.
The amount of additional funds required, even though this could not be defined as this will depend on the nature and level of risk, cannot in any case be less than two million euros.
It is clear that the requirements of MiFID, and now MiFID 2, represent a core component of a sweeping wave of regulation that will fundamentally affect the FX industry in its effort to provide a more transparent and secure environment to investors.
Investment firms on the other hand are examining closely all the changes proposed by CySEC but can only wait for the final changes on regulation to be issued for proceeding with the necessary steps of implementing them to their business.
While the FX industry is rapidly growing, FX regulation is extending globally as there is a need to maintain it as a reliable and well protected industry for investors.
The EU, with the establishment of MiFID 2, requires higher transparency from investment firms. CySEC, as a regulator within the EU, and in the context of establishing effective arrangements and procedures, proposed several changes to the regulatory framework related to the selection, use and monitoring of Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term providers/market makers by its supervised investment firms.
The recently issued consultation paper, addressed to all Cyprus Investment Firms (CIFs), reminded brokers of their responsibility to remain compliant and monitor the quality of execution of clients’ orders even if they use a single liquidity provider/market maker.
CySEC, in addition to this, also disclosed several conditions that must be met on the selection of Liquidity Providers Liquidity Providers A liquidity provider (LP) constitutes either individual and/or institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as the both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profi A liquidity provider (LP) constitutes either individual and/or institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as the both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profi Read this Term from investment firms.
Pursuant to this, CySEC proposed to investment firms that liquidity providers should be regulated and authorized within the EU. However, in cases where a selected liquidity provider is regulated and authorized in a third country, this must have a capital ratio of not less than 10%. Otherwise the investment firm would have to maintain, on an ongoing basis, enough own funds to cover the risk over the liquidity provider/market maker.
The amount of additional funds required, even though this could not be defined as this will depend on the nature and level of risk, cannot in any case be less than two million euros.
It is clear that the requirements of MiFID, and now MiFID 2, represent a core component of a sweeping wave of regulation that will fundamentally affect the FX industry in its effort to provide a more transparent and secure environment to investors.
Investment firms on the other hand are examining closely all the changes proposed by CySEC but can only wait for the final changes on regulation to be issued for proceeding with the necessary steps of implementing them to their business.