Analysis: The Curious Case of BMFN Exiting the Chinese Market

The broker is currently in the midst of selling its client books to a European company.

BMFN, an FX broker that has been operating in China for the past 10 years, has been suddenly asked to exit the country by the Chinese authorities.

The company issued a statement on the matter, which included the following message: “…in the past few months, with regulatory changes in China underway, BMFN has decided to undertake a series of reorganizations, BMFN’s business in China will also be adjusted, and BMFN will cease operations in its China office.”

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Is BMFN an Isolated Incident?

BMFN believes that the step it has taken to leave China is necessary amid a broader market overhaul. Finance Magnates reached out to BMFN’s CEO Luis Sanchez to ask for his perspective on China’s leveraged FX industry. “During the meeting (with authorities) there was a list of Brokers on the table that was not visible to us, but it was in front of each government official, they read our name from the list as if it was in some chronological order,” he said.

He added: “There were other FX brokers present as well. We just were not sure if they were Foreign or Chinese as people were leaving the room when we waited for our turn and when we were leaving the room, some other people were waiting in line to get in. We assumed they were from the same industry and all six agencies confirmed that they are doing that to all Brokers.”

However, such a sentiment of an imminent shift is not shared by other industry participants. “We hear all kinds of rumors about messages from the Chinese government, and it is not sure which one is true,” one broker told Finance Magnates.

Sources with knowledge of the matter stated that major brokers operating in China have not been summoned in this fashion by local authorities, nor asked to exit China in any capacity, to this point.

Another trustworthy source has informed Finance Magnates that BMFN was asked to halt its operations in China in response to a recent incident involving a Chinese official. The official was apparently onboarded by the company, and this in turn led to the regulatory attention.

BMFN was eventually asked to stop operations altogether, and begin its plans for a swift and orderly exit, closing its physical offices in the country. Mr. Sanchez has not responded to Finance Magnates’ inquiry on the matter.

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There is some merit to the belief that the general tone toward the FX industry is changing in China. In early February of this year, Baidu was ordered to block all FX ads in the country. As is currently stands, forex keywords are currently linked to a disclaimer, which directs users to find legal alternatives to leveraged FX trading.

BMFN’s Process of Exiting China

In addition, the company has been asked to discontinue its relationships with local Chinese introducing brokers (IBs) and money managers.

According to BMFN’s statement, which can be viewed through a link found on the company’s website, BMFN is currently undergoing a process to sell its client books to a European broker, a process that is being permitted by local regulators.

The following is a translated excerpt from the company’s statement: “BMFN will withdraw from managing its retail FX and IB foreign exchange operations in China due to regulatory requirements newly issued by the China Monetary Authority. BMFN has signed a non-binding letter of intent to transfer the BMFN China client account and IB to a forthcoming European broker.”

The obvious question that arises is, why would the regulator permit the selling of Chinese investor portfolios to a foreign FX company if its true intention was to put an end to the entire industry? It raises further doubts about the recent rumors of an end to the Chinese FX market.

The move out of China was rather sudden for BMFN. The company had launched a new Chinese-focused retail FX brokerage under the name Eforex in November of last year.

Major Broker Provides Precedent

Back in 2009, Finance Magnates reported that GAIN Capital Group had voluntarily scaled back its presence in the Chinese market. However, GAIN reestablished its operational capacity to China in 2011.

GAIN’s case could be used as precedent to illustrate that even though an FX broker halts operations in China, it is not an indication of an industry-wide pattern. It also leaves room for BMFN to reenter the Chinese FX market in the future, in the event that the company receives approval from proper regulatory authorities.

Mr. Sanchez also offered his remarks regarding a potential return to China in the future. “Given what we heard and given that they were friendly with us and gave us a chance to leave voluntarily we will not be coming back to China given the current government stance in regards of Forex. If the government of China changes its view and Forex becomes a regulated product in China and we can obtain a proper license allowing us to offer the product in the country, of course we would come back.”

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