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FCA Issues Warnings Against Three Firms

UK’s financial watchdog FCA (Financial Conduct Authority) has released warning against three firms that are unregulated by the FCA but offers financial services to the UK citizens.

New Power Gen Ltd t/a Strategy Markets

Addresses: 3rd Floor, 207 Regent Street, W1B 3HH
51 Marshall Street, Island Suite, Soho, London W1F 9SF
Palm Grove House, P. O. Box 438, Road Town, Tortola, British Virgin Islands
Strategy Corp Ltd, Palm Grove House, P. O. Box 438, Road Town, Tortola, British Virgin Islands
Telephone: 0800 031 5292,0800 031 5293,0800 031 5294,02038138577,07933855528,07599828738
Website: https://strategymarkets.co.uk/

Delta Capital Markets / ADT Group Ltd

Addresses: 86-90 Paul street London, EC2A 4NE
145-157 St John Street, London, England, EC1V 4PW
ADT Group, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960
Axium Corporate 43 The Bowls, Chigwell, Essex IG76ND
Telephone: 08002461782, 02036218153
Email:admin@deltacapitalmarkets.com,s.lockhart@deltacapitalmarkets.com,info@deltacapitalmarkets.com,support@deltacapitalmarket.comAccounts@deltacapitalmarket.com,sales@deltacapitalmarket.com,m.baker@deltacapitalmarket.com,j.stone@deltacapitalmarket.com
Website: https://www.deltacapitalmarkets.com/

The last warning is against a clone firm which is using details of a financial service prodiver regulated by FCA.

Trade Korea (clone of FCA authorised firm)
Website: www.tradekorea.com

I advise attention and caution if you receive promotional email or text message from any of those three firms.

ESMA to Limit Leverage at 30:1, Ban Binary Options

Okay. It is here, pals. I shared the news about EU-wide regulator ESMA’s intention to propose to impose leverage cap of 30:1, ban on binary options, restrictions on bonus and promotions offered to clients and mandatory negative balance protection feature on all forex brokers within its jurisdiction.

ESMA closed public consultation period by mid February and is now out with its final proposal. ESMA’s final proposal is unchanged and includes maximum leverage limitation of 30:1 for CFD and forex majors. The maximum leverage could be even lower than 30:1 for minor and exotic pairs (20:1), gold (20:1), oil (10:1), other commodities (10:1), equities (5:1), global indices (20:1) and cryptocurrencies (2:1).

ESMA to Bring 30:1 Leverage Cap, Ban Binary Options

In addition to maximum leverage cap of 30:1, binary options are going to be banned, mandatory margin close out rule and negative balance protection will be imposed on the forex brokers throughout EU countries.

Headwinds for the Industry

Needless to say, it is a major headwinds for the industry and forex brokers in Europe. Even though, negative balance protection is going to work on the behalf of the investors, they will drift away from the continent towards off-shore forex brokers in the search of higher leverage.

ESMA’s new measures are going to published in the official Journal of the EU within a month. Forex brokers will follow through and apply the new rules in two months following the publication date.

Reactions from Forex Brokers

The new measures received mixed bag of reactions from the industry players. IG announced that it is disappointed that ESMA decided to proceed with its proposal to impose different leverage restrictions on different markets. IG argues that the new leverage cap will restrict consumer choice. The company also mentioned its worry about the risk of retail clients to choose forex brokers located outside of the EU.

On the other hand, Plus500 announced that the Company welcomes the new rules and already complies with many of the proposed changes.  Plus500 believes that ESMA’s proposed measures will improve the trading conditions and have limited impact on the Company’s anticipated financial performance in 2018.

UK watchdog FCA annouced that the regulator supports ESMA’s proposed measures. FCA is expected to evaulate whether to apply ESMA’s proposed rules on the forex brokers under its regulation.

FCA Intends to Repeal STP Forex Brokerage

Financial Conduct Authority, the UK forex watchdog, is planning to bring about some new measures that could prove to be very hard to implement for a lot of forex brokers located in London. According to sources with intelligence on this subject, FCA has expressed its intention to a number of UK based forex brokers about prospective amendments to the regulatory conditions through a letter.

Discover How Forex Brokers Make Money.

According to the letter, the UK regulator is considering to obligate straight-through processing (STP) forex brokers to obtain full market maker license. FCA clarifies that this action necessary to ensure the brokers ability to make up for negative balances resulting from possible client losses due to unexpected market volatility.

Financial Conduct Authority - FCA

Some officials in the UK has been warning that STP is inadequately capitalized to cover negative balances of the clients. My followers know the importance of negative balance protection since I have been indicating it as one of the most important criteria while choosing a forex broker.

Negative Balance Protection

To remind you, FXCM was one of the biggest victims of the abrupt decision of Swiss National Bank (SNB) to cease defending 1.20 floor for EURCHF.

The decision sent shockwaves throughout the industry resulted from clients’ negative balances after sudden plunge of EURCHF. The pair lost more than 4000 pips in few minutes and sunk thousands of clients’ account into negative balance.

FXCM managed to survive through arranging a credit line worth of $300 million while Alpari closed its UK branch due to the $20 million of capital shortfall. It seems to me that FCA is worried that STP brokers’ capital strength is not going to be sufficient enough to cover negative balances in case of another unanticipated disaster.

If FCA goes ahead with its plan and forces STP brokers to upgrade their licenses, this leaves two options for the brokers; either to adhere and upgrade their licenses or abandon retail forex market in the UK.

Interactive Brokers and UFX Parent Fined by Regulators

Financial Conduct Authority (FCA) has announced that it has imposed a fine on the UK arm of Interactive Brokers (IBUK) in the amount of 1.05 million pound. The fine comes as a result of poor market abuse controls and failure to report suspicious trading transactions, says FCA.

IBUK outsourced its post-trade auditing to a subsidiary within the Interactive Brokers Group in the US but didn’t provide adequate training for the staff and ensure to avoid potential market abuse from the clients.

FCA

IBUK’s systems were inadequate and ineffective in the face of potentially suspicious transactions; they fell below the appropriate standards and exposed counterparties and the market to risks they did not bargain for. The FCA will continue to enforce appropriate standards of market conduct to ensure our markets function well.

IBUK is not the only broker who got bitten by watchdogs recently. Cyprus Securities and Exchange Commission (CySEC) fined UFX.com’s parent company Reliantco Investments for a sum of €95.000 for three different types of compliance breaches; €40.000 for violation related to customer support services account managers provide to clients, €40.000 for failure to provide accurate, clear and non-misleading advertising materials to clients, €15.000 for non-compliance to obtain all the necessary and complete information to ensure customer suitability checks.

CySEC

The Company has not met the standards prescribed by the laws we have in place to protect investors. The fine imposed on the Company for their failings to act in the best interest of their customers follows CySEC’s initial supervisory action towards Reliantco. A fine is not an end-stop action for investment firms regulated in Cyprus, and CySEC will not hesitate to use all the supervisory tools at its disposal to limit consumer detriment.

ESMA Proposes to Lower Leverage to 30:1 in Europe

European Securities and Markets Authority (ESMA), the EU-wide financial markets regulator, has recently announced that it is intending to propose to lower the leverage to as low as 30:1, ban binary options and restrict incentivizing promotions as such deposit bonuses.

Bad news, indeed! Even though, the proposed measures will be just in the degree of recommendation which means that each member country’s own watchdog will make the final decision to endorse or not, it is believed that political pressure will lead many regulators to adopt those new rules. In addition to 30:1 leverage cap, ESMA is considering to recommend local regulators to restrict marketing of forex and related products and impose negative balance protection on forex accounts.

It did not take long for proposed measures to receive backlash from the brokers and other industry members. GAIN Capital, one of the industry leaders, warned that the ESMA’s proposed changes may lead to ‘’unintended consequences’’ while IG Group described the measures as ‘’disproportionate’’. 30:1 leverage cap and binary options ban will certainly bring about profound unfavorable effects for the industry in Europe however there is one good thing coming out of bad situation; negative balance protection (NBP).

ESMA to Propose 30:1 Leverage Cap

ESMA Headquarters in Paris, France

The proposed NBP rule is going to remove the risk of owing to a forex brokers more than the investors deposited which was the case for many traders after Swiss National Bank’s decision to remove 1.20 EURCHF floor almost three years ago.

Another good thing that I see which is coming out of this bad situation is the smile on the faces of off-shore forex brokers. Being offered leverage as high as 3000:1, traders who bargain for higher leverage than proposed 30:1 will make their way to the off-shore brokers scattered from Central America to Indian Ocean.

FCA Response

FCA’s response to the ESMA’s statement was most looked for and it was swift. UK is in the process of breaking up with EU and London is the home for some big retail forex brokers. FCA indicated that it supports ESMA in its consideration of the new measures however its own domestic policy work on permanent product intervention measures applicable to firms offering forex and binary options is ongoing. It is known that FCA is considering a leverage cap of 50:1 for forex and to regulate binary options market rather a ban.

NFA Issues New Requirements for Forex Transactions

The US financial watchdog, National Futures Association (NFA), released a new directive for forex brokers on 4th, December. The amendment pursues greater transparency regarding the order execution costs. NFA now requires STP (Straight Through Protocol) forex brokers to disclose any commission, fee, price mark-ups and mark-downs and non-STP forex brokers to disclose mid-point spread cost at the request of the customer.

The bizarre term, mid-point spread cost, is further explained by NFA as the difference between executed price of the order and mid-point of the bid/offer spread at the time the forex brokers receives the order from the customer.

What does Straight Through Protocol mean?

Let me try to explain the other peculiar term called Straight Through Protocol (STP). This is about the forex broker’s revenue model. STP forex brokers act like a middleman between their clients and liquidity providers. Their revenue comes from the mark-up on the bid/ask spread which they receive from the liquidity provider. In other terms, they are compensated by widening the spread so their revenue doesn’t depend on the customer’s loss. STP brokers might be categorized as spread takers.

On the flip side, non-STP forex brokers operate on a dealer model where the firm determines the bid/ask spread and carries the full risk of the trade. If the customer wins on the trade, the broker loses and vice-versa. Thus, non-STP brokers could be classified as spread or price makers.

FXCM’s Parent Global Brokerage to File Chapter 11

Here is another bad news about one of the most legendary forex brokers in the industry. Perhaps more appropriate to say once renowned, now troublesome. FXCM’s parent company Global Brokerage Inc announced last night that the company is going to file Chapter 11 which means that it is to undergo bankruptcy procedures. Global Brokerages Inc is also considering to be delisted from NASDAQ, board member changes and other restructring measures.

Global Brokerage Inc’s subsidiary Global Brokerage Holdings (by 74.5% interest) owns 50.1% of FXCM. Therefore the firm has an indirect 37.3% ownership of FXCM. Just for the record, other half of FXCM is owned by Leucadia National which loaned bail-out funds to FXCM in 2015 January following the firm’s massive losses due to Frank appreciation after SNB’s sudden decision to remove EURCHF floor.

FXCM and Clients Not Affected

Okay. Here is an important caveat. Thanks to FXCM management’s visionary policies, the company took several steps in past few months to distance itself from Global Brokerage Inc. Consequently FXCM and clients are said not to be affected by the parent company’s Chapter 11 filing.

FXCM CEO - Brendan Callan

FXCM CEO – Brendan Callan

Commenting on the bankrupty news, The CEO of FXCM, Brendan Callan, stated that “FXCM clients should know that Global Brokerage’s refinancing does not affect FXCM Group, which continues to operate as usual. Global Brokerage’s plan is positive news for FXCM as it allows us to put GLBR’s distractions behind us.”

Additionally, The Chairman of the Board of FXCM and Managing Director of Leucadia, Jimmy Hallac, said “We are very pleased that Global Brokerage has pursued a path that, in relatively short order, will resolve the uncertainties relating to its future. We believe that the Restructuring is a very positive thing for FXCM that will allow the firm to put to rest any remaining uncertainties surrounding its ability to drive forward and continue to plan for the future following the changes in early 2017. To that end, Leucadia extended our credit agreement to give FXCM even better flexibility to achieve that goal.”

Although FXCM’s attempts to distinguish the company from Global Brokerage Inc, the whole thing has already put another stigma on FXCM’s struggle in last two years. It is really sad to hear all those negative news about a forex broker who was once leading the industry worldwidely. Hoping bright news to come.

Plus500’s License Application Denied By Bulgarian FSC

If you have been in forex thingy for a while, you have probably heard or perhaps traded with this broker; Plus500. It is one of the leading and largest brokers in the industry for trading CFDs, forex, indices, ETFs and commodities. Publicly traded in London Stock Exchange, Plus500’s market capitalization value is above $1 billion. They are sponsoring major football clubs, rugby teams and their ads are all over the place on internet.

Such an almighty firm, isn’t it? Well, perhaps not. Plus500 has been denied by Bulgarian Financial Services Commission in its application for providing financial services in the country. The company is already present in Bulgaria where a big portion of its customer support and operations department is located. The reason for denial is unknown so far however it was based on a procedural issue according to representative from the firm.

Just for the sake of record; Plus500 doesn’t need a license to conduct what it is conducting in Bulgaria right now. So its presence in the country will continue for other purposes but won’t be able to provide financial and investment services.

IronFX to Attract $100 Million Investment

It is being a very ordinary summer, huh? Not much volatility going on in the market. Hybernation for both market and forex industry is prevailing for the last few weeks. Thanks to IronFX, we have some significant news to talk about. And it is a good one for the industry.

IronFX, which is based in Cyprus and regulated by CySEC, ASIC and FCA, has announced that the firm managed to attract investment worth of $100 million from a wealthy Middle Eastern family (oil?). The payment is to be made in tranches and the first tranche is already delivered with remaining tranches to be delivered in next 12 months.

The Company aims to use the funds to acquire existing forex brands as well as for the process of developing new brands and services in the sector. I haven’t made this up guys, this is what the official announcement says. So expect follow up headlines about acquisitions in the industy regarding IronFX. Perhaps something like this ”IronFX to Complete FXDD Acquisition” ;).

This is the full announcement from IronFX about the $100 million investment deal:

IronFX (the “Company”) has successfully concluded an agreement with a prominent MENA region family office investor for a strategic investment of $100 million, which will be made in tranches to fund its growth capital needs.

IronFX is aiming to expand its markets of coverage and launch additional brands, as well as, acquire existing brands and books of business. The initial investment into the Company has already been completed.

The additional investment tranches are set to be completed during the course of the next twelve months and will be subject to regulatory approvals.

FXCM Sued for Cancelling Trades Worth $460.000

Finally a broker news worth to mention; a trader filed lawsuit against FXCM for cancelling transactions $460.000 in profit. I am very sure that every one of you has heard FXCM and probably some of you even has traded with them. It is one of the most well-known forex brokers in the world. However I have to say that FXCM had very difficult time to keep its head up in recent years.

After going bankrupt because of the SNB’s disastrous and abrupt decision to remove EURCHF floor in early 2015, the company managed to find bail out funds to live through. Well, as if this is not troublesome enough, FXCM was barred from doing business in the US and fined $7 million by Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) early this year.

The reason for that was to misinform clients and public on the company’s order execution model. FXCM long has been advertising that they used a No Dealing Desk model when, in fact NFA’s findings point that FXCM was channeling clients’ trades to a firm owned by FXCM itself.

Okay… so what now? Hang on guys. A trader from Bulgaria sued FXCM for cancelling trades worth up to $460.000 in profit. FXCM claims that the trader engaged in what it defined as ‘abusive trading strategies’ back in 2013. As far as I understand, FXCM asserts that the $460 grand profit from the trades were a result of technological glitches which they call ‘manifest error’.

I am going to follow up this subject and update you on it. Meanwhile we better to learn this ‘abusive trading strategies’ thingy pals.