IDM: Decrease in the number of retail customers in the EU

In August, 2018, the European regulator ESMA introduced a product intervention, which significantly limited the level of financial leverage for individual clients trading on the forex market in the European Union. At the end of January this year ESMA has published a decision to extend the intervention for the next three months, ie to 30 on April 2018.

We present a comment below Brand of Wołos, an expert of the Chamber of Brokerage Houses for OTC marketson the decision of the European regulator.

ESMA does not see the harmful impact of product intervention on the EU OTC market ... 

In its justification for its decision, ESMA wrote that extending the duration of product interventions does not create the risk of regulatory arbitrage and has no detrimental effect on the efficiency of financial markets or investors. At the same time, the regulator admitted, however, that the introduction of product intervention did not significantly change the customer's results. ESMA reports that the number of gaining clients is relatively constant. The regulator also drew attention to the drop in the number of CFD contract accounts maintained by retail clients and the increase in the number of professional clients. A professional client is not subject to such protection as a retail client, but he may use a higher level of financial leverage. The goal of ESMA's intervention was to increase the protection of the retail client. In addition, ESMA notes the increased activity of non-EU investment firms that urge investors to transfer their investment accounts to them. 

... meanwhile, market data show declines among EU investment firms 

According to the data of brokerage houses operating in the EU, after several months of product intervention, the number of active investors decreased significantly and the volume of their turnover decreased. Saxo Bank, one of the largest investment companies in the world registered in Denmark, subject to ESMA's intervention, has been experiencing a decline in currency exchange volumes since the 6 months. In January this year these values ​​were the lowest since the beginning of 2016 on October 

The increase in turnover and the number of active investors is noted by companies from countries not covered by ESMA product intervention. An example is the Swiss broker Swissquote, which in 2018 recorded record revenues and profits. Total broker's revenues in 2018 increased by 15 percent. y / y to 214 million CHF.3 IG Group, one of the leading suppliers of CFD products in the world, in the report for the second quarter of the financial year 2019 shows that the number of customers increased due to the transfer of bills by customers to countries not covered by the product intervention of ESMA .4 

Further limiting the competitiveness of the EU industry exposes retail investors to greater risks 

The quoted data confirm the concerns raised by domestic and European investment companies. Recent months in the market, after the introduction of ESMA intervention, have in many aspects demonstrated the lack of effectiveness of intervention. What is more, the intervention revealed the risk of regulatory arbitrage, outflow of customers to entities operating outside the EU and weakened domestic brokerage firms that can not compete with foreign companies. Further limiting the competitiveness of the domestic industry exposes domestic clients to higher investment risks associated with the use of non-KNF supervisors. The Chamber of Brokerage Houses informed the Ministry of Finance and the Polish Financial Supervision Authority about cases of non-EU companies that do not comply with the ESMA product intervention and their activities are probably incompatible with national law. 

Marek Wołos, expert of the Chamber of Brokerage Houses for OTC markets