Regulations for Signal and Copy Trading? Tradeslide Gains FCA Authorization

UK based Compliancy Services, a consulting firm that provides assistance to firms with their FCA regulatory and compliance needs has announced that their client, Tradeslide Trading Tech has gained authorization to act as an FX Investment Manager. It is an interesting development in terms of Tradeslide’s business model.

We wrote about Tradeslide back in February, as the firm was about to launch. Currently still in a live private beta period, Tradeslide created an innovative rating system for traders called the TS Score. In addition to rating traders on performance, the Score takes into account such items as risk, experience, leverage, and exit patterns. The goal is to provide non-experts with a tool that differentiates between investable strategies and lucky outperformers. Users of the system are also offered insights on their trading and provided features to help them succeed in the future. The product currently provides members the ability to contribute content and to mentor new traders. Not yet launched, are copy trading features. However, with the firm becoming regulated as a money manager, it’s safe to say that mirror trading is a direction they are moving towards.

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Forex Magnates reached out to Tradeslide CEO, Juan Colon for more information about their FCA regulation, mirror trading, and future plans. Colon responded that he was unable to speak about Tradeslide’s asset management license or their future plans, other than his prepared statement he provided on the Compliancy Services press release of “Receiving FCA Authorisation is a significant boost for us. We have invested in people and technology and are looking forward to providing the most dynamic mirror trading service available to our clients. Gaining FCA Authorisation highlights our commitment to service and quality.”

Colon did explain that during their current live beta testing, they have integrated their product with cTrader and MT4. In addition, they are in discussions with another technology provider in regards to offering wider integration (tradable, MT5, etc). They are using the beta period to determine the proper methods of platform integration, as well as what the pitfalls are. As a result, Colon stated to us that “we only want to publically release our final product when we know that it is fully tested and the features work flawlessly.”

Future of Copy Trading and Signals

Without providing much details, Colon did refer us to an ESMA circular about trading signals from 2012. Also alluded to in the Compliancy Services press release, the ESMA article deals with the legalities of automatic trading signals and whether they fall within regulated investment services. The circular answered that if trading signals are used for MiFID financial instruments, they would require authorization as they fall under portfolio management. The exception being, when signals need to be individually confirmed for execution by customers. As an independent institution whose mission is to create uniform pan-European financial rules, ESMA opinions aren’t laws. However, they provide a framework for regulatory bodies when creating and enforcing their laws.

In terms of copy trading, the product is far from being new. But, regulations are one area of the sector that has been slow to take shape. Mirror trading platforms provide users the ability to copy trades automatically of other traders in the system. While a customer chooses which traders to follow, they have no say on the trades themselves. As such, there has been increasing discussion whether copy trading is a form of money management that would require platform providers to become licensed as asset managers. Specifically in the UK, where the newly established FCA has begun to implement new rules effecting different facets of the financial industry, there is an expectation among many insiders that we will soon see money management requirements hit the copy trading space, with some believing a framework by the end of this year.

If ESMA advice is enforced, it would create a situation where signal providers and social trading networks would require additional licensing to provide their products in the EU. In addition, PAMM and MAMM traders would be required to become regulated money managers (in many jurisdictions these PAMM/MAMM laws do exist, but aren’t always enforced). Such a situation would be expected to create ripples within the auto trading sector and limit the ability of brokers to promote such services.

With looming changes on the horizon, Tradeslide appears to be taking the initiative to become licensed as an FX Investment Manager, to stay ahead of the regulatory curve.