iFX EXPO Explores IB Relationships - Will the Chinese Business Model Change?

The 2018 iFX EXPO concluded today in Asia with the landmark event drawing nearly 4,000 attendees to the Hong Kong Convention & Exhibition Centre. Jointly organized by Finance Magnates and Conversion Pros, the event featured several notably panels, including a discussion between IBs and brokers in the region.

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Indeed, relationships in the Chinese market are instrumental with local IBs providing a crucial role for all parties. The panel discussion delved into the growth and continued partnerships in the China and the broader region, bringing together brokers, IBs, and local industry experts.

First and foremost – one thing that became apparent rather quickly is that the traditional retail IB model faces a different set of rules in China, and Asia itself. The retail model that has been used to great success in Europe was not seen as being particularly useful in Asia.

IBs panel on full display at the #iFXEXPO 2018 in Hong Kong @IFXEXPO pic.twitter.com/W7NLlW9Pg2

— Finance Magnates (@financemagnates) January 25, 2018

For example, the panel explored a variety of angles, noting that brands that have been in the market for a long time, might not rely on an IB network that much – however this is not suitable for new companies. By far the most important topic discussed at the panel was Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term and Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term speed, familiar talking points between brokers and IBs.

Overall, the IB model will be norm for the majority of business for some time to come. However, this does not dilute the importance of the cultural differences in Asia relative to Europe and other regions. For example, even Northern China is different from Southern China and these differences are reflected to some degree in business relationships.

Ultimately, people trust people and not online business – it is this type of relationship that governs the market. Of note, the panel gave some examples across the Chinese market of organized gangs that can blackmail brokers, present themselves as a network of IBs, and then go to an office and do a purposeful operation to get money back.

Unfortunately, this example or those like it are very difficult to identify and equally difficult to avoid. One way to help ensure a strong relationship between IBs and brokers sounds a little more familiar with Western markets, i.e. the need for fluid communication.

This is no secret as communication is very important – face to face communication is key, as it is important to see if the IB has something to bring into the table. Moreover, P&L sharing with IBs are not a long-term sustainable business model. which brings conflict of interests with the client.

Finally, there are a few things that are particularly concerning in terms of IBs and brokers, i.e. safety of funds, trading conditions, and client support. Local IBs need to explain their business and show it to foreign brokers. In parallel, the panel also touched on internal monitoring that is also instrumental as brokers need to pay attention to how are they handling client requests.

The panel stressed rather large differences between developed and emerging markets – moving forward it will be interesting to see if these trends hold. Individuals put far more emphasis on regulation and execution speed than marketing constraints and tight spreads.