Redefining speculation; where are we really going, regulatory speaking?

Redefining speculation; where are we really going, regulatory speaking?

It’s indeed gloomy to see the “speculative” ecosystem collapse on itself, while it undergoes dramatic changes in its regulatory regime. Looking back to 2004 when MiFID I was created to ensure a harmonised, more contextual framework and as such industry participants saluting its posh, arrogant posture, one has to wonder “Where are we really going, regulatory speaking?”

Following last Friday’s ESMA statement in relation to CFD’s and after the diverse opinions in comments we received on our recent article about MiFID II, it is true that we are deviating more and more from what the word speculation means in its core. Google (and who can argue with Google) says that speculation is “the forming of a theory without firm evidence” and as such, “investment in stocks, property, etc. in the hope of gain but with the risk of loss.”

Speculation is part of our everyday life, whether you’re buying groceries (recent example of salmonella found in baby food products), a TV, kitchen appliances, a laptop, accepting a new job, riding a motorcycle, driving a car or even climbing a tree to show off to your girlfriend (not sure to whom this applies for, thought it would make a valid point). Although you might have some information on what you’re about to do, you’re still speculating on whether the outcome will be beneficial for you or not – my wife this morning speculated that a “frozen” box with sandwiches would be humorous (photo above); and it was… nothing humorous about the sandwiches though, those things were seriously delicious!

And although the sentiment projected by news outlets shows a positive people’s view towards tighter regulations and investor protection (even though these same people lose more and more market share and are in danger of closing shops), it seems that industry participants have other views as well that they don’t publicly share… why, I do not know. It’s not constructive not to express one’s thoughts therefore we decided to do it for you.

When you go into buying property, does the seller give you – without being asked – a file with the property’s historical breaks and fixes (a.k.a. fines disclosed on a broker’s website), does he tell you what’s about to be broken (plumbing, electrical, tree roots that will slowly elevate your house),do you know if there’s a cat buried in the yard? Where are the corresponding directives/authority guidelines in this case, limiting the leverage, the distribution and/or sale accordingly?

When you get into a casino and you’re about to lose your life savings, is there anyone limiting the amount of chips you can use on tables? Is there a risk warning hand-stamp on entrance and/or on the casino sign and/or on the chips and/or on the tables in front of you saying “gambling involves significant risk of loss?”, is there a prohibition of specific tables that you’re not allowed to go and empty your wallet?

When you go buy a car and you’re about to damp 30-50K on a second hand SUV or a shiny looking vehicle imported from a dark corner of the world, is there a limit on the incentives the seller is providing to get the thing off his hands? Is there a negative protection rule in case you need to spend double the money fixing that shiny looking piece of garbage?

My point is that more than a decade in the financial services industry can testify to the fact that investors that look into speculative markets, get into them knowing exactly what the risk vs. reward ratio is. Putting in place a framework that colours a personality on a faceless sinkhole is a great idea, welcomed and supported by every single participant. Shouldn’t we be careful though not to deviate too much from the point of it all and as a result redefine words like speculation? It’s a Google definition after all…

Not to level everything, we were never really advocates of specific products ourselves like binary options and we always urged caution towards them. We were also against vile marketing/sales practices that turned more and more people against the idea of FX trading, we were against lists of leads being harassed and funnelled like dirty laundry.

That being said, contracts for difference (CFD’s) and margin trading are exactly what their names imply. Trading on contracts with the use of margin, maximising your potential gains/losses through leverage and you being the sole decision maker of when you want in/out. And so industry participants with opinions they don’t share, would want the leverages where they are – more like back to where they’ve been – they wouldn’t want prohibition but instead regulation on the marketing, sale and distribution of financial instruments, they would want a strong framework fearful enough to any party not willing to comply. They also wouldn’t want taken away, the thing that makes the market tick.

And I don’t mean supply and demand, but the ups and downs of traders, beginners or not, who even though they constantly complain to the regulators (because they can), they get angry because they lost a trade or even broken because they lost everything they own, we all have to remember that these same people will eventually register with another broker, they will demand high leverages, lower stop out levels, bonus on their deposits, referral incentives and lower spreads and so the cycle goes on and on.

Just like there are no limitations in the examples above, maybe there should be grounds for more exceptions in the speculative world of financial instruments as well. But in the end, who are we to consult on how laws should be drafted, we just gave our 2 cents to anyone who cared to read.

#carebearwhoreads, #frozen, #cfds, #mifid, #regulation, #speculation

MiFID II / MiFIR ladies and gentlemen – if you’ve got an issue, here’s a tissue… with a twist

MiFID II / MiFIR ladies and gentlemen – if you’ve got an issue, here’s a tissue… with a twist

Following a decade of regulated activities that MiFID I introduced when it became law in 2007, participants of the financial industry are now facing one (more like two) of the biggest challenges they faced to date. “Dr. Evil” – MiFID II – accompanied by “Mini-me” – MiFIR – have been the subject for debates, lobbying and groovy contests these past few years. Are you ready to face reality?

The new Directive and Regulation were created back in 2014 and will become law in January of 2018, following a series of uncanny practices (Libor and FX fixing/rigging – in this doc referred to as “situations” which is French for situations), relating to deeds of banks and institutions whose greedy, slimy fingers are a disgrace to what the industry stands for. Who can really blame though someone (some more than one) who, given the opportunity to pocket gazillions, his/her conscience is not enough driving force to stop them? Oh well, maybe (and I say maybe) if we were in their shoes we would probably do the same, but since we’re not, we might as well keep name calling and blaming them for everyone’s misfortune.

Past the name calling though, we thought a good idea to share our understanding and views on the matter, written in plain English for the faint hearted and allow room for simple yet beautiful brains to comprehend. Remember magistrates of the world, that we train sales teams. We don’t draft laws so give us a little credit for understanding this much. So here it goes:


In simple words, MiFID I consists (ed?) of 73 Articles which cover(ed?):


  • Conduct of business
      • Best Execution Policy ensuring all reasonable steps were taken and enforced by institutions.
      • Suitability and Appropriateness tests, usually performed through the registration process, client categorisation, conflicts of interest identification.
      • Investment advice , inducements.
      • Handling of client orders to ensure firms are acting in the client’s best interests.


    • Compliance
      • Licensing, authorization and passporting.
      • Compliance monitoring, record keeping, internal and external audits.
      • Corporate Governance relating to how companies collect and store client information.


    • Transparency
      • Pre/post trade reporting so as to prevent market manipulation (see the irony or is it just me?)
      • Systematic Internalisers executing client orders against their own books or other clients.


The new-fangled monster called MiFID II consists of 97 Articles and MiFIR (mini-me) of 55 Articles, which cover:


  • A new regulated trading platform, abbreviated OTF, since it stands for Organized Trading Facility:

It’s a multi-lateral system (that is not an MTF or RM) and allows buying and selling in a form that creates a contract.

It aims for more transparency and structure to OTC trading.

– Through tighter exception rules (more on this later), publication of trade details using an Approved Publication Arrangement (APA), reporting of data to national authorities to vet on pre/post trade transparency/translucency/vale-on-vale-off.

– Demands more “neutral” operators; it restricts execution of client orders against the operator’s own capital. Discretion is permitted under specific circumstances.


  • Extended Trade and Transaction Reporting:

Under MiFID I trade reporting, the buy side could avoid reporting all together through an exception. Under MiFIR (mini-me), this exception a.k.a. expressed agreement of who has the obligation between the buy and sell sides, is not possible.

Under MiFID II transaction reporting, the buy side may rely on its broker to create a report (on top of their own) on its behalf through a transmission of order arrangement. Buy side must accept though that the information necessary to complete such a report are detailed (report field numbers sky rocketed), they are personal and may well conflict with best execution requirements. Food for thought – will all transactions – even with non MiFID brokers – be reported by the sell side? (How do you like your thoughts, rare, medium or well-done? now wait, there’s more…)

Words like MiFID I’s “reasonable” Vs MiFID II’s “sufficient” referring to the steps taken to achieve best execution results, already wreaked havoc since as ambiguous as they sound, minimum standards that are not defined must be met.

The execution per category of financial instruments must be published. Constant monitoring of the effectiveness must be in place with adequate adjustments when necessary.


  • Enhanced Investor protection:

By forcing firms to provide total overview of expected costs and must inform their clients about the way these costs are charged.

By forcing any “independent” investment advice to actually be independent like it should from ground zero (ground zero is the day the words independent investment advice were connected and meant just that). If it’s independent or non-independent, it must be communicated before the advice is given.

Also through enforcing research that once was offered for free by the sell sides (investment bankers, commercial bankers, stock brokers, market makers) to buy sides (mutual funds, pension funds and hedge funds) in exchange for transactions placed with their banks and brokerages, to be now paid. Some of the aftershocks of this quake aka quacker, aka quackadoudledou, aka quakabanga (see what we did here? Ninja turtles? No? ok moving on..) include but not limit themselves to these:

  • – Buy side will probably not be willing to pay for the analysis, mid-tier providers will stop producing it, distribution of a number of funds will be reduced since they will not have enough information to invest in markets unfamiliar to them, there will be lower liquidity for smaller and mid-tier stocks and finally widening of their spread (which is the opposite of what MiFID II was targeting in the first place… I can breathe….
  • – The ones that walk among us with the supernatural gift should begin to see the ghosts of small to mid-tier research providers whose struggle to stay in business signified their doom. To return to the living, they must match the quality of top tier research providers (here lie the ruins of your dreams to become a mid-tier research provider…)
  • – Specialists and/or niche research providers will have their 5 min of fame since buy side willing to buy research will go after their service, which might well be in competition with top quality service providers. You see their pizza is now pizza special…

Stricter corporate governance:

Since board of directors of institutions (including non-executives) must pay attention like good boys and girls, be aware – better yet awake – of the activities and attend their meetings for real (yes I wrote “for real” in a document that describes highly sensitive, regulation matters).


Algorithmic and High Frequency Trading requirements:

Systems that aim to control the execution of algorithmic trading in the marketplace.
Product governance and supervision as in:

National regulators can now ban and/or restrict marketing, sales, practices, activities and products they don’t agree with as they see fit. We should also see higher fines, penalties, reprimands and of course Santa not delivering gifts at Christmas.

A manufactured financial instrument must have a measurable target group whose needs, characteristics and objectives are met. The strategy for distribution must be appropriate and consistent with this target group and its potential risks to the target group consistently re-evaluated.


Non EU firms selling to EU citizens:

Although full harmonisation was not possible since EU member states can continue to apply national rules, it remains a choice of the national regulator to:

– Enforce a detailed set of rules set by MiFID II, designed to harmonise granting access and the compliance requirements of the non EU firm, in order to be authorised to provide services in its country (the rules don’t include dress code, food preferences and opinions on space exploration).

– In the above case, the non EU firm can provide services to these clients only through an authorised branch, compliant with these rules. That being said, MiFID II will Europeanise y’all, whether ya like it or not.

– An authorisation can only be given to branches whose mama-firm is authorised already in its own country to provide all services it’s applying for. If some of the services are not regulated in the mama country, they will be restricted in the EU Member State as well. It goes without saying that it’s a no-no to unregulated branches as well.

– A cross border service can be provided to eligible counterparties and professional clients if the non EU firm is authorised by ESMA, who will only register countries whose legal framework is equivalent to MiFID II and both co-operate on a supervisory level through the exchange of information (among other things).

– All entities trading with European counterparties will be required to obtain legal entity identifiers (LEIs) which they need to store in their reporting system. No LEI – No trade; or something like that…


The sales function never really saw eye to eye with compliance and laws that only add more obstacles when trying to meet your goals. It’s also a fact though, that if these laws did not exist, sales people would rule a world where there is  no more money to target since all of it would fall into the hands of a few, opportunistic corporations that target loopholes and prey on the desires of  “investors” to force their hens to lay more eggs.


We should be therefore grateful that we have these “watchdogs” as many times referred to by news outlets, regulating these fellows and allowing room for a healthier financial industry that enjoys its eggs in a fashionable and fabulous manner, whether runny, scrambled, omelette or poached (no pun intended).


#mifid, #mifir, #egg, #eggplant, #ninjaturtles, #mini-me, #watchdog, #doubleeyedog, #tomandjerryanddog

CySEC License – What is a CIF and what are the application requirements?

Since we started the Full Brokerage Solution package, one of the main questions we receive regarding licensing, is the requirements necessary to submit a CySEC license application for a CIF.

allFX-Consult outsources this to experienced offices in Cyprus that specialize in this regard. We do not undertake licensing projects, in any jurisdiction.

Everybody sells “experience” but if you choose the wrong office for your project, you will unnecessarily lose loads of time and money.

We’ve been in the FX industry for more than 10 years; we have worked with almost every office offering services so let us point you to the right direction, and your next moves can be viable.


What is a Cyprus Investment Firm (CIF)?


  • A registered, regulated and supervised firm, reporting in regular intervals to the Cyprus Securities and Exchange Commission (CySEC).
  • CIFs must be licensed by the Cyprus Securities & Exchange Commission, which is the relevant regulatory and supervisory authority.
  • A CySEC license application is necessary to be submitted, with the Investment and ancillary services the CIF is planning to provide (Please see below all services).


CySEC License – Investment Services


  • Reception and transmission of orders in relation to one or more financial instruments;
  • Execution of orders on behalf of investors/clients;
  • Dealing in financial instruments on own account;
  • Portfolio management;
  • Investment advice;
  • Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;
  • Placing of financial instruments without a firm commitment basis;
  • Operation of Multilateral Trading Facility.


CySEC license – Non-Core – Ancillary Services


  • Safekeeping and administration of financial instruments for the account of clients (includes custodianship and related services such as cash-collateral management);
  • Granting credits or loans to an investor (to allow investors to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction);
  • Advice to undertakings (relating to capital structure, industrial strategy and related matters and consulting, and services in relation to mergers and the purchase of undertakings);
  • Foreign Exchange services (in cases when they are connected to investment services);
  • Investment research and financial analysis (relating to transactions in financial instruments);
  • Services relating to underwriting.


The CySEC license application requires the following documents:


  • Completed application form as provided by the CySEC (recent)
  • Information about the directors, managerial staff and shareholders with special participation (for example CVs, completed questionnaires as provided by CySEC etc)
  • Company legal documents (certificate of incorporation, Memorandum and Articles of Association etc)
  • Certificates of the registered office in Cyprus
  • Certificates by the Republic of Cyprus confirming the Directors & Secretary of the Company
  • Group structure
  • Organizational structure
  • Clean criminal records and Certificates of Good Standing of the shareholders with special participation, the Board of Directors and employees of the Company
  • Company procedures manual for all activities and operations
  • Together with the above document bundle, a three year business plan, the internal procedures manual and anti-money-laundering and know-your-client procedures must be filed with the application.


Share Capital Requirements


125,000 Euro:
  • Reception & Transmission
  • Execution of orders on behalf of clients
  • Portfolio management
  • Investment advice


730,000 Euro:
  • Dealing on own account (market maker)
  • Provision of underwriting services in respect of issues of financial instruments
  • Reception & Transmission
  • Execution of orders on behalf of clients
  • Portfolio management
  • Investment advice


Employees of the CIF – Managerial positions may require certificates (Basic/Advanced examination)


  • 3 Resident Directors and 1 non-resident (if need be)
    • Two Executive Directors
    • Two Non-Executive Directors
  • Money laundering, risk manager and compliance officer
  • Head of each department
    •    – Dealing Room
    •    – Sales,
    •    – Backoffice
    •    – Dealing on own account
    •    – Accounting
  • Internal and External Auditors
Important Notes


It’s important to consider that the above is for information purposes only. The actual requirements will be thoroughly discussed with the application promoter that will handle your CySEC license.

There is no “guarantee”, no matter what people/companies tell you regarding the time frame to receive a license and/or a successful application outcome. The granting or rejecting of the application as well as the complexity of each application determines the outcome and the CySEC committee is the sole decision maker.

CySEC is an independent public supervisory Authority, currently supervising over 500 entities, of which 208 are Cyprus Investment Firms, 155 are Administrative Service Providers, the Cyprus Stock Exchange and 12 issuers registered in foreign markets (information taken from a public document published on CySEC website).