Copenhagen based multi asset broker Saxo Bank has issued a statement coming out strongly in favour of new FX and CFD brokerage rules proposed by pan-European financial regulator ESMA.
At the center of ESMA’s proposals – which include a Binary Options ban, required negative balance protection, and a ban on incentive bonus payments to retail traders – is a 30x cap on trading leverage, which could be as tight as just 5x for highly volatile instruments.
Some of Saxo Bank’s main competitors, most notably London based IG Group Holdings plc (LON:IGG) and New York based Gain Capital Holdings Inc (NYSE:GCAP), have already come out vocally in favour of ESMA’s overall approach to improve conditions for retail traders, but strongly against the relatively low leverage cap.
Many European traders are used to trading with upwards of 100x leverage of their capital base. According to both IG and GAIN Capital, ESMA’s proposals are likely to have the unintended consequences of pushing European retail traders into the arms of offshore, unlicensed brokers offering high leverage and deposit bonuses.
Saxo Bank’s full statement on ESMA’s proposals follows:
18th December, 2017
Saxo Bank welcomes ESMA’s proposals and supports consistent EU-wide regulation on the provision of CFDs to retail clients
Saxo Bank, the global multi-asset trading and investment specialist, welcomes ESMA’s latest update on its preparatory work in relation to the provision of CFDs to retail clients. The update, which was issued on Friday, 15 December and envisages a brief period of consultation in January 2018, paves the way for a more level playing field among EU providers offering CFDs to clients, avoiding an arms race on leverage.
Commenting on ESMA’s proposals, Kim Fournais, co-founder and CEO, Saxo Bank, said:
Saxo strongly welcomes and supports the proposals set forth by ESMA and believes that consistent, harmonised regulation at a European level will be positive for clients and the industry as a whole. At Saxo, we have been expecting these developments for some time and have provisions in place. We made a clear strategic decision not to compete on high leverage, placing us in a good position to maintain and grow our business in this new regulatory environment.
Saxo believes that trading with CFDs and FX instruments has its advantages for traders looking hedge their global market exposure in a flexible and efficient way. However, with too high leverage, the risks of trading these products can outweigh the benefits.
It is important to note that this is a leverage problem – not a product problem. Responsible caps on leverage are therefore key to consumer protection. Our approach and business model clearly show that running a profitable business and being a responsible market participant are not mutually exclusive. For its long-term survival, the industry should welcome the move away from competition on leverage and embrace competition on quality of platform, price, product and service,
ESMA’s latest proposals signal a need for better alignment between leverage levels and market conditions. Saxo takes a dynamic approach to leverage, adapting margins to volatility, market capitalization when trading stocks and available liquidity in the market. It believes that offering very high leverage which is out of sync with underlying market conditions at any given time is irresponsible.