Saxo Bank on CFD rule changes: we’re not dependent on clients trading with high leverage…

saxo bank office

LeapRate Exclusive… LeapRate has received a formal statement from multi-asset broker Saxo Bank on the FCA’s recently announced rule change to CFD brokerage and trading.

Matteo Cassina, Saxo Bank

The statement is courtesy of Matteo Cassina, CEO of Saxo Capital Markets UK, the FCA regulated arm of the Copenhagen based broker. Mr. Cassina also acts as Global Head of Sales for the Saxo Bank Group.

We highlight some of the important parts of Mr. Cassina’s statement below. But in summary, and despite the large market cap hit some of the publicly traded UK online brokers took after the FCA’s announcement was made earlier this month, Saxo Bank (like us) believes that these moves will be generally good for its business, and the larger / safer brokers which don’t compete based on offering bonus payments or outsized leverage.

For those traders who also want their voices to be heard before the FCA finalizes new CFD trading rules next year, you are welcome to complete our questionnaire. Results will be submitted to the FCA.

Mr. Cassina’s statement follows.

We have recently seen proposals from different jurisdictions on how to better guide and protect clients trading for example leveraged CFDs. It is important to note that all details are not yet in place but if we look at the proposed caps on leverage from the FCA in the UK, we expect this to lead to rising standards in the industry which is likely to be positive for investors and traders and for Saxo Bank. We expected this to come and we welcome the change. We also hope and expect to see this in a uniform manner throughout Europe like we have seen in the US and parts of Asia.

In many ways, we have been ahead of the curve in Saxo Bank and have made a clear strategic decision not to compete on high leverage. Some of the suggested changes are likely to lead to a more level playing field with focus increasingly turning to services, platform and depth of product offering.

Our strategic decisions put us in a good position to maintain and grow our business in this new regulatory environment. First, while we see some experienced traders trading with higher leverage, a very large majority of our clients in Saxo Capital Markets UK Limited trade with leverage within the caps proposed by the FCA which reflects our strategic decision not to compete on high leverage.

Second, the FCA also emphasizes the experience levels of clients trading leveraged products. We are fully supportive of this enhanced focus and a very high proportion of our income from private clients’ trading activity in Saxo Capital Markets UK Limited comes from experienced traders.

The overarching goal is to ensure that the leverage offered to clients is in line with market conditions in terms of volatility and available liquidity in the market. The proposed caps on leverage from the FCA are likely to support that, which is clearly positive for clients. Offering very high leverage out of sync with underlying market conditions is irresponsible in our view.

Our business model is therefore not dependent on clients trading with high leverage and our interests are aligned with our clients’ interests. And we take a dynamic approach to leverage, adapting margins to volatility, market capitalization when trading stocks and available liquidity in the market. We for example raised margins ahead of the UK EU referendum and the US election. The levels set were perhaps a bit conservative compared to the industry but our clients appreciated the changes and were overall able to trade these events successfully. Some major markets saw rapid moves or gaps in the 5-10% range, but because our clients had sufficient funds or buffer available, they could stand through the turmoil. Many times these moves even without major events on the agenda, come over short periods during trading hours. That’s why we in our Risk Management team spend a considerable time to set the correct margin or leverage reflecting the underlying instrument, no matter if it is foreign exchange, stocks, commodities or fixed income. Based on this, we believe the FCA is heading in the right direction and in line with how we manage leverage toward our clients.

We welcome that the margin trading industry is being pushed in the direction of “looking after and protecting the client”. Getting the basic leverage right and paying attention to potential events is paramount for all clients. To put it in layman terms: When you together with your family get into the car and drive across multiple EU countries for summer holidays, signs will show the different speed limit in the cities, high ways etc. These limits are set taking into consideration the infrastructure, road quality, accident history and other statistics etc. The same principles should apply for margin trading products. Leverage must be in sync with the underlying market conditions. Secondly if there are road works along the way there will be a speed reduction to the overall limits. Same should apply for leverage around events like the UK EU referendum, US elections etc. The leverage caps suggested by the FCA lowers the overall speed limit which we find prudent and fair.

While we welcome the overall outline proposal from the FCA, we are currently looking into the fine print of the proposal and will give more comprehensive feedback to the FCA in the beginning of 2017.

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