Plus500 News

Plus500 Revenue to Fall 40% Following New ESMA Regulations

ESMA effect has made a very strong impact. Even the industry leaders such as Forex brokers and the CFD brokers  are at the receiving end of this effect. Plus500 Ltd, a FCA regulated CFD broker that runs online had released a Trading Update for Q3. It stated that since the previous quarter, the revenues witnessed a drastic fall of 40%. So, the current number is $100.1 million. As per records, it is just a third of the Q1 revenues. ESMA’s had a strict cap imposed on the amount of leverage that every broker can provide to the trading customers. Initially, it had 30x for FX pairs on major ones. And Q3 for 2018 took into account the very first two months of the ESMA’s new regulations.

However, one cannot identify the effect of ESMA while checking Plus500’s ARPU and even the average revenue produced per customer. Also, Q3 ARPU was at $1232 the previous year whereas it is $981 now. Further, the cost of gaining a new customer has gone up to a massive $1581 for the company. Infact, in the initial months of the year, the cost was just $677.

Plus500 News

Plan for $10 Million Share Buy-Back

Plus500’s price of the share has diminished by 40% after having a £20 peak during August. The company has come-up with a plan to cope-up with the situation. With the authority given to company’s AGM, the plan is to start a $10 million share buyback programme. And the Liberal Capital Limited will run this non-discretionary programme. But there are a few parameters that must be maintained.

Also, Plus500 offers that 8% of total EEA customers can be elected as professional clients to represent an approximate 38% of total Q3 EEA revenues. It should be noted that EU brokers and Plus500 can offer professional clients a higher level of leverage.  As the company believes, the current restrictions of EEA will only affect less than half of EEA revenues or 30% of the total revenue.

The Chief Executive Officer, Asaf Elimech quoted,

Our results for the third quarter continued to show satisfactory levels of trading activity of our Active Customers in comparison to previous years, despite regulatory changes and low market volatility. We continue to focus on our core markets and acquiring high value customers supported by our innovative technological edge and the prospect of potential new licences outside the EEA. We now expect to be ahead of current market expectations for 2018.

FX Brokers Promoting Off-Shore Entities with Non-Marketing Emails

It has recently come into notice that a plethora of EU based CFD as well as retail forex brokers have indulged in emailing their clients as well as affiliates or IBs to remind them that they will not be able to formally market the EU accounts to them. However, they have also notified them that the clients can find off-shore forex brokers to open accounts there in their own interest.

The emails are purely non-marketing to inform the clients. This is being done as per the new initiative that has been taken by ESMA to limit the leverage. This initiative has surely been frustrating for the clients since it has reduced the trading volume greatly at the broker level.

Though these emails do not include any direct promotional link for off-shore forex brokers, they obviously include instructions for clients to find the links on their own.

Restriction for Marketing to the EU Clients

As per the new set of rules for EU MiFID, clients can obviously open accounts with offshore FX brokers. But those brokers have been restricted from marketing to the EU clients. In a similar fashion, the brokers licensed in EU can obviously accept the new clients at their non-EU entities. This way, forex brokers can provide the clients higher leverage. However, they are restricted from marketing their off-shore forex brokers or non-EU entities to the EU based clients.

With new restrictive terms being placed on the brokers licensed in the EU, it is very clear that the non-EU brokers have already witnessed a huge boost in the volume as well as new signups over a period of last six weeks.

Especially, the huge increase in activity was seen amongst the ASIC controlled brokers based in Australia in the past few weeks since it is now being seen as one of the most trustworthy and properly regulated jurisdictions similar to that of EU which is still capable of offering higher leverage.

$5.5 Million Fine Imposed on Interactive Brokers by FINRA

It has recently been announced by FINRA that they have decided to fine Interactive Brokers LLC with an amount of $5.5 million for violating the SHO regulations as well as the lack of supervision for a period of three years.

The firms need to deliver the settlement date or take necessary actions to put an end to the "failure to deliver" by borrowing or buying the securities after the completion of a short transaction as per regulation SHO of SEC.

If the firm fails to close the issue of failure to deliver, then they cannot participate in short transactions without making arrangements for procuring the securities.

It has also been prohibited by the regulation SHO to carry out or offer a short sale at a price that is either less or equal to the national best bid if the security of the price has fallen at least by 10 percent in a single day.

It has been found by FINRA that for the period between July 2012 to June 2015, the supervisory systems of Interactive along with its supervisory procedures were not on par with the requirements of Regulation SHO.

Furthermore, the broker LLC also ignored several red flags from its compliance and clearing personnel, FINRA, risk assessments, given in the form of internal audits and warnings.

Failure to Close More Than 2300 Transactions

These warnings clearly showed that its system for Regulation SHO supervision was impractical. Despite knowing the incapability of its supervisory system, Interactive did not take any action up until mid-2015.

Thus, it failed to close more than 2300 fail-to-delivers and carried out short transactions without preparing to procure securities for over 28,000 times. Moreover, Interactive displayed more 4,700 short sale orders in covered securities at a price that was less than the best national bid.

Susan Schroeder, the Executive Vice President of FINRA said

"Firms that are aware of deficiencies in their supervisory systems must promptly remediate them. In this case, the firm internally identified the problems, yet did not revise its supervisory systems for more than three years, creating the potential for negative impact on the markets and investor harm."

Interactive did not admit but also did not deny the charges against them to settle the matter rather they consented to the findings of FINRA.

FINRA is a non-profit organization that works to protect the investors and maintain the integrity of the market. Based in the US and controlled by SEC, FINRA creates rules and regulations apart from enforcing the compliance with the FINRA rules as well as federal laws.

FINRA also protects the integrity of the equity and the options market while maintaining a forum to resolve the disputes of investors, brokerage firms as well as their employees.

CySEC Fines InstaForex and ForexMart Parent for €130000

CySEC has issued a notice recently making everyone aware of their decision to impose a €130,000 fine on the Instant Trading EU Ltd, a regulated CIF broker that operates the InstaForex, InvestCity and ForexMart.

CySEC went out of its way this time to provide a clear explanation by dividing the fine into two different parts unlike what this regulatory organization does in similar cases.

The regulatory organisation fined the company €90,000 for not acting justly, professionally and honestly to work in order to benefit their clients. Furthermore, CySEC has stated that the company has been totally non-compliant while providing trading bonuses or benefits to the clients, using the leverage properly and safeguarding the clients against a negative balance.

The company was also fined €40,000 for not asking the clients to provide all the information required in proper details that show the experience as well as knowledge the clients have in investing money. CySEC stated that complying with this regulation is necessary since it helps a company to understand the products or services that are in the best interest of the clients.

However, the regulatory authority, CySEC also stated in their notice that the company has taken corrective measures after being warned and they do not have any track record of committing similar atrocities in the past.

The complete notice that CySEC issued is given down below:

02 August 2018

CYSEC Board Decision

Announcement date: 02.08.2018;  Board decision date: 11.06.2018

Regarding: Instant Trading EU Ltd

Legislation: The Investment Services and Activities and Regulated Markets Law, Directive DI144-2007-02 of 2012

Subject: Total Fine €130.000

The Board of the Cyprus Securities and Exchange Commission (‘CySEC’) would like to inform the public that, at the meeting held on June 11, 2018, it has decided to impose a total administrative fine of €130.000 to CIF Instant Trading EU Ltd (‘the Company’) for non compliance with the following:

  1. the Investment Services and Activities and Regulated Markets Law of 2007, L.144(I)/2007 (‘the Law’), and
  2. CySEC Directive DI144-2007-02 of 2012 for the Professional Competence of Investment Firms and the Natural Persons Employed by them (‘Directive’).

In detail, the CySEC imposed an administrative fine:

A. of €90.000 for non-compliance with article 36(1) of the Law, as it did not act fairly, honestly and professionally in accordance with the best interests of its clients.

B. of €40.000 for non-compliance with article 36(1)(d) of the Law and paragraphs 15 and 16 of the Directive, as it failed to ask clients to provide the necessary information regarding their knowledge and experience, to assess whether the investment service or product is appropriate is appropriate for them.

In reaching its decision, the CySEC has taken into consideration the following:

(i) The importance attributed by the legislator to violations of this kind, which is reflected by the maximum administrative sanction provided for violations of article 36(1) of the Law, in article 42(3) of the Law, i.e. €350.000.

(ii) The importance attributed to the need to ensure that the persons subject to the supervision of CySEC comply fully with the provisions of the Law and the relevant Directives.

(iii) The importance attributed to the obligation of the CIFs for acting fairly, honestly and professionally in accordance with the best interests of its clients.

While in particular, the CySEC has taken into consideration the following factors –

1. For the Company’s non-compliance with article 36(1) of the Law,

(i) The importance attributed to protecting the interests of CIFs’ clients.

(ii) The fact that the Company’s non-compliance relates to the use of leverage, to the granting of bonuses/trading benefits to clients and to the clients’ negative balance protection, for which guidance was provided in CySEC Circulars C168 and C192, to ensure compliance with article 36(1) of the Law.

(iii) As moderating factors, the fact that:

– as stated in its representations, the Company has taken corrective actions in relation to the use/offer of leverage, the improvement of its mechanisms for the protection of customers from negative balance as well as the termination of the granting of bonuses/trading benefits to its clients,

– the Company did not commit a similar violation in the past.

2. For the Company’s non-compliance with article 36(1)(d) of the Law and paragraphs 15 and 16 of the Directive,

(i) The importance attributed to the protection of the interests of CIFs’ clients and more specifically the need to collect information on the clients’ experience and knowledge, which enables the CIF to better assess whether an investment service is appropriate for a client.

(ii) As moderating factors, the fact that:

– as stated in its representations, the Company has taken corrective actions and more specifically it has updated the procedure for the assessment of clients’ appropriateness as well as the relevant questionnaire,

– the Company did not commit a similar violation in the past.

IGM Forex License Suspended by CySEC

In a new notice, CySEC, the financial watchdog of Cyprus has notified everyone about their decision to suspend the CIF license for the trading of FX Broker based in Limassol, IGM Forex Ltd. In the notice, the regulating body has stated that they have undertaken the decision to suspend the company was based on the inadequacy that they found in the capital and funds requirements that the IGM Forex has shown.

As per the notice published, it was informed that the CySEC or Cyprus Securities and Exchange Commission has taken the action against the IGM Forex under the violation of rules and regulations by the company stated under section 71(6) (c) of the Τhe Investment Services and Activities and Regulated Markets Law of 2017 (L.87(I)/2017) in coalition with the rules stated in the Section 10(1)  of Directive DI87-05 for The Withdrawal and Suspension of Authorisation.

The financial regulating body has taken actions under the light of different suspicions that have been raised against IGM Forex. CySEC has allegedly charged the company under the violation of certain clauses that are mentioned below:

  1. Article 92(1) of Regulation (EU) 575/2013
  2. Section 10(1) of The Investment Services and Activities and Regulated Markets Laws of 2007 to 2016 (L.144(I)/2007) and Article 93(1) of Regulation (EU) 575/2013

The allegations that CySEC has brought against the IGM Forex are very serious. If these allegations are true, then it jeopardizes the safety of the investors and clients of the company. Furthermore, it disrupts the integrity of the Forex and securities market completely. CySEC has also provided the company with a deadline of 15 days to clear the allegations brought against them by complying with provisions that are mentioned above.

However, as long as the suspension is in action, IGM Forex has to follow the following regulations under the directives of section 9 of DI87-05:

  • The company will not have the permission to offer investment services; carry out any new transaction with any client or individual and promote itself as a Forex broker.
  • However, the company is allowed to finish the transactions of the clients or its own initiated before the suspension came into force. Furthermore, IGM will also have to return the funds as well as any other financial tool that belong to the clients.

French Regulator AMF Updates its General Regulations

In a new notice, the French Autorité des Marchés Financiers or AMF has stated that they have decided to amend its General Regulations. They have also published a new set of instructions in order to regulate the entry as per the latest Prospectus Regulations.

As per this new set of regulations, the threshold limit for offering Securities that needs a prospectus is increased to EUR 8 million. With this new regulation being put into effect from 21st July 2018, it has now also been made mandatory to prepare an information indenture if the public offerings of the uncharted securities fail to match the threshold limit.

The provisions for the PR3 or the European Prospectus Regulations for providing securities requiring a prospectus has also been annexed with this new set of regulation. Furthermore, a new notice numbered 2018-07 will also be published to establish this new rule. The following points will be covered in the new notice:

  • The threshold limit for the public offering of financial securities for which a prospectus will have to be published after being reviewed by AMF has been increased to EUR 8 million.
  • If the securities fail to meet the threshold limit, an information regime has to be published without carrying out an initial review from AMF has to be published for the case of securities that are not enlisted in any crowdfunding website.
  • In the case of Initial Public Offerings or IPOs on a fully organized multifaceted trading facility that is open to any individual, an information indenture has to be issued as per the market rules as well as reviewed by the operator stuff of the market when the securities fall under the threshold limit of EUR 8 million.

These new outlines have been preparing to consider the decisions made during the Initial Public Consultation which was organized at the time period between 24th January 2018 to 21st February 2018 along with reviews received during the second consultation that was held between 6th June 2018 to 29th June 2018.