IronFX CEO Markos Kashiouris Discusses Recent Company Developments

February has been a very tumultuous month for the foreign exchange industry. With the shock of the Swiss National Bank's decision still rippling through, many brokers have suffered losses. According to the CEO of one of the major brokerages in Cyprus, IronFX, the firm remained unscathed by the event.

However, the company's reputation has been recently tarnished by numerous reports in the Chinese media alleging improper business conduct by the firm, culminating in a number of clients storming IronFX's offices in Shanghai. More recently, an official court filing alleges that the company is withholding withdrawals of client funds without providing a sufficient reason for its actions.

Forex Magnates' reporters contacted IronFX and asked the company’s CEO Markos A. Kashiouris questions about the recent market turmoil, the allegations brought forward by the Chinese IBs, the rumors about an ongoing restructuring in the Chinese and Cypriot offices of the company and the reports about an IronFX IPO.

How is the recent Swiss Franc debacle likely to affect the FX industry, and how do you see the market changing? Was IronFX affected?

Indeed, the SNB announcement on the 15th of January was an event-turning moment in the retail FX space. A lot of brokers, especially those running a full Agency/STP model, were seriously and negatively affected while at the same time clients sustained some loss of confidence, which however, we believe that it will be short-lived. Regarding the CHF move and SNB intervention, IronFX was not affected by the event.

The company certainly benefited from the fact that it is not an STP broker and has thorough and advanced Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent. One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, most brokers employ a risk management department tasked with analyzing the data and flow of the broker to mitigate the firm’s exposure to financial markets moves. Why Risk Management is a Fixture Among BrokersTraditionally the company is employing a risk management team that is monitoring the exposure of the brokerage and the performance of select clients which it deems risky for the business. Common financial risks also come in the form of high inflation, volatility across capital markets, recession, bankruptcy, and others.As a countermeasure to these issues, brokers have looked to minimize and control the exposure of investment to such risks.In the modern hybrid mode of operation, brokers are sending out the flows from the most profitable clients to liquidity providers and internalize the flows from customers.This is deemed less risky and are likely to incur losses on their positions.This in turn allowing the broker to increase its revenue capture. Several software solutions exist to assist brokers to manage risk more efficiently and as of 2018, most connectivity/bridge providers are integrating a risk-management module into their offerings. This aspect of running a brokerage is also one of the most crucial ones when it comes to employing the right kind of talent. Read this Term systems and procedures and trading technology in place that worked very well under the circumstances (e.g. stop-out triggers were properly activated). We have continued complying well with the company capital regulatory requirements under all regulatory bodies we have licenses with. Post the event, the company continues conducting business as usual.

What about Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. Read this Term issues, did you have clients who took advantage of negative balance protection?

Certainly a number of our clients did run into negative balances, but the portion of clients and balances was relatively small. The company has fully covered all negative balances arising from the SNB intervention, and we remain committed in continuing offering negative balance protection going forward.

The company’s Chinese operation is drawing a great deal of criticism in the local media. What is the reason for that? What is the current status of the offices of IronFX in China, are they operating?

In China, IronFX works via an extensive network of large Introducing Brokers, one of them being IGHG. We are not doing anything different from other companies in the industry in China and globally. All our affiliated Chinese IBs operations, including IGHG, are operational and refer clients to us normally.

Our fast growth and our dominance in recent years have naturally attracted criticism from competitions. It is not surprising that our success story and market growth challenges can trigger the interest of the industry and attract attention from various channels and third parties including media.

The important thing for us is that we remain focused and committed to our customers and the integrity of our business, while adjusting our business according to industry events and client needs.

A claim by Chinese clients and IBs has been filed against the company in a Limassol court, demanding from IronFX more than a million dollars in claims. Is the claim related to the “abusive traders” who you have identified?

Indeed this claim is related to the recently identified group of abusive traders that employ an abusive trading strategy to manipulate our promotions. This group has been placed under investigation for breach of our trading terms and pending this investigation we have put a limitation on all promotions-related withdrawals from this abusive trading strategy as we are entitled to do. We will continue taking the measures to which we are entitled to protect the legitimate interests of the company and the over 500,000 clients who maintain active accounts in our company.

In our over five-year history, we never received a formal notification or fine from any of the eight regulatory authorities across the globe to which we report (CySEC, FCA, ASIC, DFSA, FSB, FSP, CRFIN, UCRFIN).

We have learned that as many as 200 employees were recently laid off from the company’s Chinese and Cypriot offices. Is this restructuring related to the SNB event or the recent Chinese media reports?

IronFX has one of the biggest operations in terms of number of direct offices (26) and number of direct aemployees (c. 800) worldwide, the majority of whom are account managers. This is a normal cycle of talent refreshment and structural reorganization. Any company of such size and high growth naturally needs to adjust every so often to optimize operations. It has been some time since we reviewed a reorganization to optimize our operations and align them with our overall strategic growth plans.

Post the SNB event, we decided that it was a good time to do so. Some positions and roles were deemed obsolete whilst others were deemed more necessary. Our strength has always been on the local approach and personalized service of our account management force globally, which we are dedicated to keep investing in. As a result, we continue actively looking to hire higher performance and more experienced account managers to enhance the worldwide fabric of our operations.

What is the added value of having multiple offices worldwide? What is your next strategic target of expansion?

“Global reach with local presence” is part of the company’s overall strategy. Physical offices appeal to our clients (introducing brokers and end clients) and they represent added value customer service for them. Our established unique customer-focused model based on local offices and complemented by our account manager model, under which every client is provided a dedicated native AM, has been the key driver of our success.

The combination of both allows the company to meet with clients on the ground, build long-term and trusted relationships as well as gain expertise in the local market.

We will continue this strategy to further penetrate our current local markets and expand into new geographical locations where we expect FX business is likely to grow. Irrespective of the events of January 15, we are optimistic for the future of the sector and IronFX’s place in it as one the leading global and trusted retail FX brokers.

In December a report by the Wall Street Journal suggested that IronFX has filed for an IPO in the US. Was this report accurate, and if so why did you choose an arena in which you have no offices or clients?

Whilst we cannot confirm the WSJ report that IronFX has filed for an IPO in the US, we can confirm that post-SNB the competitive landscape has changed decidedly in our favor. The company is actively evaluating a number of capital markets opportunities with a number of interested parties that recognize the strength of the global financial distribution platform we alone offer and are willing to partner with us to potentially capitalize on these opportunities and consolidate our no.1 position in retail FX.