London Summit 2018 Spotlight

Why ESMA’s Cap Will Benefit Clients Via Brokerage Competition

Andrew Edwards offers his stance on the recent regulations and challenges facing brokers today

The London Summit 2018 will kick off in just a few weeks, and ahead of the event, Finance Magnates has been speaking with leading executives and speakers for a sneak peek into sessions and panels.

In our latest piece, we look at the impact of regulations on all aspects of the brokerage business, ranging from overall competition to cryptocurrencies. All these and more will be discussed during the highly anticipated CEO panel, which traditionally draws leading panelists from around the industry.

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The retail and regulatory space has been far more active in 2018 than in years past. With so many changes and a number headwinds facing the industry now is the perfect time for reflection as well as foresight. For his part, Andrew Edwards, CEO, Saxo Capital Markets UK delves into his stance amidst this shift.

What is your position and what does your role entail? Tell us about your industry journey.

I am CEO of Saxo Capital Markets UK Ltd (Saxo), the UK arm of Saxo Bank, the leader in trading and investing. I joined Saxo because of its position as a trusted facilitator of trading and investing for both private and institutional clients.

Our retail clients can access global trading and investing opportunities in over 35,000 instruments through our award-winning platforms – SaxoTraderGo and SaxoTraderPRO. We also provide outsourced trading and investing solutions to a number of institutional clients who use our platform on a while labeled basis to better serve their end clients.

What is the single most important market event or development in 2018 so far?

Regulations, in particular, measures introduced by ESMA to reduce the amount of leverage in certain instruments, have brought a significant change to the online trading industry. Having never competed on leverage, we were well prepared for these changes, and as a result, our business is well positioned for growth.

ESMA’s cap on leverage, in particular, will make the market more competitive, allowing providers to compete on quality and depth and breadth of platform, product, and services, rather than leverage, which ultimately benefit end clients.

What’s the biggest challenge that brokers face today, and how does Saxo cope with it?

The industry needs to focus on better serving the end clients through a full alignment of interests. This has always been a guiding principle for us at Saxo, and it has served us well. Brokers providing superior service, pricing, technology, and products have a better chance of maintaining clients for the long term.

At Saxo, we combine all of those elements with access to a broad range of asset classes and trading instruments and a strong research platform generating value-adding trading ideas. We want to make sure that our clients have all the tools required to succeed.

Is cryptocurrency a primary concern for Saxo traders? 

For Saxo, an early technology pioneer and always with a keen eye on the future, it has been both fascinating and concerning to observe the speed with which the hype around cryptocurrencies has spread.

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And it is precisely our experience, know-how and focus on providing the access to investment and trading opportunities underpinned by regulatory certainty and transparency that has made us consistently sound a note of caution when it comes to cryptocurrencies.

Today, cryptocurrencies come with a range of weaknesses: large energy consumption for mining them, often exorbitant fees for buying and selling them, exposure to cybersecurity risks and theft, unclear tax treatment of returns generated and, last but not least, exceptionally high volatility.

We continue to follow the market closely and will only give clients full access to the market when it fulfills some of the key criteria which make other asset classes investable securities. Until such time, we see ETNs as the most prudent and transparent way to get exposure to major cryptocurrencies.

In which area can global players like Saxo benefit from partnerships with or acquisitions of fintech startups?

Since the advent of technology and its application in financial markets, we knew that the world was moving towards greater specialization. As a result, rather than deciding to provide waterfront coverage, we decided to focus on areas where we could add value to clients and do it better than anyone else and then supplement that with collaboration with best in breed providers – from liquidity provision to investment strategies, and everything in between.

As a result, today, we are in a unique position where we can act both as a fintech backbone to other banks and brokers, but at the same time act as a bank to fintech innovators. It is important to distinguish between collaboration and competition.

Yes, the latest wave of technological innovation has led to the emergence of a number of fintech providers, but ultimately, to be viable in this space, you need to develop critical mass and scale (which you can achieve through collaboration) as well as be able to continuously invest in and stay ahead in the technology race.

It will be interesting to see how many new entrants are able to achieve this – as a 26-year-old fintech, we know that there is only a short-term window to develop sufficient scale before the industry consolidates again.

What do you see as the primary area for growth for retail FX brokers in the aftermath of ESMA’s regulations?

From a product perspective, we expect FX Options will become more attractive to a broader set of retail clients following regulatory changes introduced by ESMA which limit the activities of the binary options industry.

However, our business has never been about a single product and while we trace our origins in FX trading, our clients today trade across the range of our asset classes (which include FX, CFDs, equities, ETFs, futures, options, bonds).

It is this mix which allows clients to take advantage of all trading opportunities and provide investors and brokerages with long-term stable earnings.

Andrew Edwards will be speaking at the upcoming London Summit 2018 regarding regulations and the retail brokerage space. The in-depth session will be held on November 14 from 11:00-11:45. Learn more and register here today!

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