A growing number of retail foreign exchange (FX) brokers seek additional funding and development opportunities through the initial public offering (IPO). One such example is X-Trade Brokers (WSE:XTB), whose Polish branch debuted on the Warsaw stock exchange last May.
Finance Magnates sat down with Jakub Malý, XTB’s CEO, who has been associated with the company for almost 10 years. Due to the changes in the regulatory environment introduced by the local financial market watchdog, a few Polish brokers have decided to discontinue the provision of forex and CFD services for retail investors. Mr. Malý discusses the current situation, talks about XTB’s plans for the near future and explains the reasons behind the company’s financial results decline after the stock market debut in May 2016.
Since HFT Brokers announced that it is leaving the Polish FX market, XTB has the chance to become the biggest broker in the country. Is the retail CFD market in Poland still profitable? How does the potential customer base look in terms of size and composition?
First of all, to our best knowledge and data, we are the biggest broker of our kind in Poland with or without HFT presence. Second of all, HFT withdrew from the market because of the capital requirements necessary to run this business. Third of all, the market profitability is comparable on global scale. We believe that it is matter of efficient spending.
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On the subject of HFT, XTB finally decided not to migrate clients – why? Is the discount campaign launched especially for the HFT customer simply a cheaper solution?
We have been engaged in talks with HFT, however the contract has not been finalized, as mutual expectations have not been met.
More than six months has passed since XTB’s stock market debut on the WSE. How could you assess the current effects of the IPO, so diligently tracked by the industry observers?
There are not many public companies of our kind and therefore the attention is natural as it may act as a barometer of the industry. As a company we are happy with the intended transparency message and we believe that it will pay off in the future. Judging IPO effects after only a few months would be inappropriate.
XTB stock price, May – December 2016
The H1 and Q3 2016 results proved to be far worse than before the IPO. Are we talking about creative accounting which had to attract investors, or perhaps the reasons were completely different?
We do not engage in creative accounting, we are debt free company striving for maximum effectiveness. Above average spending was expected, however we are not able to influence the market conditions that have not been favorable to us. The main reason for the financial results was the general low volatility on the markets which always impacts the volume traded and it has been relatively low since the Q2 of 2016. When clients do not find interesting opportunities to trade, they simply don’t and that directly affects the level of our revenues. However, despite the adverse circumstances, we continue to grow our client base. Over the last quarters we have observed a growing number of new accounts, as well as a growing number of active accounts.
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We are not able to influence the market conditions that have not been favorable to us
XTB’s stocks declined rapidly by more than 30%. Do you think that these current conditions will change in the near future?
Repeating what has been said, we want to deliver value for our investors.
Online retail FX brokers often base their marketing efforts on cooperation with sports clubs. XTB took another path and has signed a partnership deal with a big-screen star, Mads Mikkelsen. Do you consider this campaign a success?
Every endorsement is about sharing common values and reaching the right audience. I think that both approaches deliver effects.
In July 2016, XTB introduced synthetic equities. How do they differ from traditional contracts for difference?
No leverage, no expiration time, dividend payments, sub-low commission. All the best from the global equity trading, less the hassle with custodians and unnecessary costs. Thousands of titles from around the world in a single leading trading platform.
When talking about the new services, I have to mention the September debut of the xStation 5. Can retail traders expect major changes compared to previous versions?
xStation 5 is completely rewritten user-end platform, based on HTML 5 technology that allows us seamless updates. The user interface has been upgraded to the latest standards, the overall speed has improved substantially, there are new analytical functions, account overview statistics and many more. In addition, there are new features being currently tested and will be deployed in short period of time enabling our clients to get better insights to the markets and trading communities.
Once the regulations are reasonable and are truly constructed to protect the client from dishonest establishments, I support that
XTB has conducted services in many jurisdictions with differing levels of regulation. Where are the operating conditions most restrictive and where are they more liberal?
Judging by our experience, the Polish Financial Supervision Authority, our main regulator, is one of the most demanding. Nevertheless, the most restrictive would be the Turkish CMB, with the UK’s FCA as the counterpole.
Do you think that market watchdogs actually work for the benefit of clients, or are they simply leaving less and less room for manoeuvre for honest brokers that conduct high quality services?
Nothing is black and white, there are always plenty of shades of grey. Once the regulations are reasonable and are truly constructed to protect the client from dishonest establishments, I support that. However, imposing restrictions to discourage clients from trading by artificially manipulating balanced market offer through mechanics of leverage restrictions, volume limitations, imposing operational administrative restrictions alongside by ever increasing open or hidden taxes is questionable. During the lifetime of our company, we have not experienced clients demanding such governance.
How does XTB see itself in the near future? Expansion to new countries, promotional campaigns? Can you unveil any secrets?
XTB needs to stay flexible, efficient and responsive. We will continue developing our current markets and working on our mid-term targets described in prospectus at full speed. I believe that the best is still to come.