Saxo Bank, a Danish bank specialized in providing online trading services, said on Tuesday the business model of its UK unit is not dependent on clients trading with leverage and does not expect its operations to be affected by the recently announced proposals for new forex trading rules.
The UK Financial Conduct Authority (FCA) is heading in the right direction and in line with how Saxo Bank manages leverage toward its clients, the bank said in a statement on the matter issued in the name of Matteo Cassina, CEO at Saxo Capital Markets UK and global head of sales at Saxo Bank Group.
Earlier in December, the FCA announced it intends to set a leverage cap of 50:1 (25:1 for inexperienced traders with less than 12 months of trading) and to ban bonuses or other benefits to promote risky trading instruments. The changes were triggered by the recommendations and guidelines of the European Securities and Markets Authority (ESMA).
The broker said it welcomes the new rules and expects to see other European countries to follow suit.
“[…] 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,” Cassina said in the statement.
The proposed leverage cap work entirely in investors’ interest and offering high leverage out of sync with the market conditions is irresponsible. It would result in higher safety when trading, especially in times of events with high market volatility.
“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, highways 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,” Cassina said. “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.,” he added.
Saxo Bank noted it already uses a dynamic approach to leverage, adapting it to market conditions. It has adopted a strategy not to compete on high leverage, which puts it “in a good position to maintain and grow our business in this new regulatory environment”. Most traders with Saxo Bank already trade with leverage within the proposed maximum.
Saxo Bank was not the only forex broker operating in the UK that reacted with a statement on the proposed market rule changes. Some of the top forex brands in the UK – CMC Markets, Plus500, IG Group and Gain Capital, quickly came out with statements regarding the UK regulator’s decision. IG Group raised a question, asking why the new FCA proposals “do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state”. Meanwhile, CMC Markets seemed to be unbothered by the new requirements and and Plus500 Gain Capital said it did not expect to be affected by potential new rules since its practices are already consistent with the proposed changes.