The recent regulatory prospects for the forex and CFDs trading industry in the UK have sparked a slew of commentary from the industry. The response came from UK publicly traded companies. Their shares collapsed in the aftermath of the Financial Conduct Authority’s announcement.
CMC Markets, IG Group and Plus500 have all expressed concerns about the limits on leverage trading. But Matteo Cassina, Saxo Bank’s Global Head of Sales and CEO of the Danish company’s UK unit, Saxo Capital Markets UK, has a different viewpoint.
Commenting on the recent FCA regulatory proposals he said: “If we look at the proposed caps on leverage from the FCA in the UK, we expect this to lead to rising standards in the industry which is likely to be positive for investors and traders and for Saxo Bank.”
Offering very high leverage out of sync with underlying market conditions is irresponsible in our view
“We expected this to come and we welcome the change. We also hope and expect to see this in a uniform manner throughout Europe like we have seen in the US and parts of Asia,” he elaborated.
The CEO of Saxo Capital Markets UK elaborated that the brokerage has been “ahead of the curve” when it comes to competing on high leverage products. The company made a strategic decision not to market such products some time ago.
“Some of the suggested changes are likely to lead to a more level playing field with focus increasingly turning to services, platform and depth of product offering. Our strategic decisions put us in a good position to maintain and grow our business in this new regulatory environment,” Cassina explains.
Higher Leverage Offerings not a Competition Point for Saxo Bank
Saxo Bank’s UK unit has some some experienced traders that are using higher leverage. That said the majority of the customers of the bank are trading with leverage which falls within the caps that have been proposed by the UK financial regulator.
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With the emphasis that the FCA puts on a trader’s experience, clients that are handling leveraged products require more attention.
“We are fully supportive of the FCA’s enhanced focus and a very high proportion of our income from private clients’ trading activity in Saxo Capital Markets UK Limited comes from experienced traders,” Cassina said.
Commenting on the company’s vision on the matter, he added: “The overarching goal is to ensure that the leverage offer to clients is in line with market conditions in terms of volatility and available liquidity in the market. The proposed caps on leverage from the FCA are likely to support that, which is clearly positive for clients. Offering very high leverage out of sync with underlying market conditions is irresponsible in our view.”
Where Do Client and Broker Interests Align?
“Our business model is not dependent on clients trading with high leverage and our interests are aligned with our clients’ interests,” Mateo Cassina states.
With the company’s business in the UK heavily focused on high net worth individuals and with the firm’s minimum deposit for opening an account set at £6,500, the firm has a somewhat unique market. Smaller companies that rely on revenues from clients that are not prepared to commit that much, are more reliant on high leverage.
Elaborating on the matter, Cassina stated: “We take a dynamic approach to leverage, adapting margins to volatility, market capitalization when trading stocks and available liquidity in the market. We for example raised margins ahead of the UK EU referendum and the US election. The levels set were perhaps a bit conservative compared to the industry but our clients appreciated the changes and were overall able to trade these events successfully.”
“Getting the basic leverage right and paying attention to potential events is paramount for all clients. To put it in layman terms: When you together with your family get into the car and drive across multiple EU countries for summer holidays, signs will show the different speed limit in the cities, high ways etc. These limits are set taking into consideration the infrastructure, road quality, accident history and other statistics etc. The same principles should apply for margin trading products,” Cassina elaborated.
The company is looking at the fine print of the FCA’s proposal and will be submitting its feedback to the FCA in the beginning of next year.