“My Advice to Regulators? Stick with Fraud”

London Summit 2018 will kick off early next, with Finance Magnates finalizing its interview series with some of the event’s leading executives and speakers. The latest piece touches on the whirlwind year of regulations, including substantial changes in leverage requirements and cryptocurrencies. What does the industry do from here and what has been the impact from ESMA’s decision so far?

Muhammad Rasoul, Director of TradeTech Group gives his perspective on the situation at hand as well as other revelations in the fintech, FX, and cryptocurrencies space.

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What has been the single most important market event or development in 2018 so far?

In my opinion the single most important event this year has been the ESMA changes.  Many might say it’s cryptos, blockchain, etc. but I would disagree. If we are talking about things that are materially impacting the OTC trading sector it’s 100% ESMA.

Crypto and blockchain concepts and project are interesting, but much like the Dotcom hype of the late 90’s, early 2000’s, we are still at the very beginning of the curve and what the future will yield and how crypto assets and blockchain technology evolves is still far off before it can materially impact our space.

It’s too young, it’s not tested, the leaders now I doubt will be the leaders 5 years from now, it’s highly speculative about what will be and so I think the hype is gone, the industry now is focusing on survival.

That survival will not be determined by the crypto sector, but rather how brokerage and financial institutions adapt to the changing markets around the world that are being impacted by regulatory policy shifts.

Leverage is by far the most important issue resulting from the ESMA actions. I think ESMA and many regulators globally are a bit naive that they can impact profitability of speculators via leverage changes.

Loss making when trading is their focus, but you cannot regulate emotion, you cannot regulate the persona of a person that is an active trader and unfortunately for many when you try to predict short term price movement the large majority will always fail to have success.

This however is the allure, that the winners however few and far between enjoy huge benefits. You cannot regulate this out of the population, it’s the same for exchange traded products as well.

I think the biggest hypocrisy right now is the different treatment of exchange traded derivatives versus OTC. It’s the same beast, but yet there is a massive difference in treatment globally from a regulatory perspective.

When you try to regulate at a granular level the person, and his/her way of thinking, their choice you are just going to drive the customers offshore, and or to other regulatory markets where they get what they think they want.

This actually creates a much more dangerous situation with is counter intuitive to what ESMA is trying to do. My advice to regulators abroad has always been the same for over a decade. Focus on fraud, if you can find efficient ways to eliminate fraud then you have made a huge improvement that will benefit the moms and pops.

Fraud in advertising, fraud in education, fraud in execution, fraud in sales, fraud across the board where many retail customers just do not understand what they are getting into and the risk associated with it. Focus on this, not on the mechanics of how the markets work.

This is my issue with ESMA, and the result of their lack of understanding on what the real problem is by far is our biggest issue in 2018.

Has the 1:2 leverage cap on crypto pairs by ESMA affected demand by brokers

I don’t think so. The allure of the crypto markets, the crypto hype if you will, was around being a part of something new. Something that could get you rich quick. It wasn’t about the technology, it wasn’t about blockchain.

The real hype that brought in the masses was again this same get rich quick thinking that has been and will always be. That is what caused the rally in so many crypto assets and consequently the crash that followed.

That crowd of new traders were really buy and hold investors, and again only because of the allure of the big win. You don’t need leverage for that. Most brokers that we interact with now at TradeTech Group, (“TTG”), cryptos have become something that they have to have in their product line up; not because it’s driving business, but because you can’t not have it.  It’s one less objection in the client acquisition cycle.

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Which crypto assets are you supporting, and do you plan to expand the list? How vetting and addition of such token work?   

We are very careful about what we add into our portfolio of products that we facilitate execution on and or make a market in. The crypto world is not ready for prime time and as such, when you have scale, like we do, it’s quite risky to interact will all the new crypto tokens/assets as they spring up here and there.

We are sticking to what is liquid, what is available in regulated market structures, and then watching. We are very keen to see where this technology and the different uses of it lead, but right now it’s just too early to plant any roots.

A year since the acquisition by TradeTech Group, how do you see the synergy between Alpha’s assets, CFH and the retail arm (markets.com)?

We are having fun. It’s been a great year since the acquisition and with the strength of the group balance sheet behind us both CFH and Alpha have grown significantly. We have seen synergies in sales, legal, compliance, technology, general operations; pretty much across the board.

Our management team is very strong with backgrounds in so many areas of expertise.  While the markets have been challenging this year at times, we are happy with the foundational work that we have done, new business that has been brought in, and the path that we are on.

The Markets brand is now more than ever operating from a very strong position with its unique trading platform which offers tools and capabilities to its customers which are, in some areas, unparalleled in the market.

MarketsX is soon to be launched and that is going to be an industry leading offering for active traders and professionals. We feel that Markets is in a good growth position and we will look to fuel that organically.

The Alpha business and team have gone through a long process to assess risk across the groups, costs across the group, and laid a high-level risk framework both in its market making group and general risk management teams to support future growth of the overall group.

A year ago, the group was not secure in its ability to monetize risk as well as forecast where the risk is coming from. Today, in every entity we feel in control.  I think perhaps the biggest growth in the group has been through CFH which is getting serious traction based on what we believe is the best ECN/STP liquidity offering on the market today.

We have been very successful in Asia and are looking to continue to build out the mix of products that CFH can offer direct market access to, wither that be FX, Index products, cryptos, or single stocks. We have a great road map we are following and it’s good to be a part of this.

What role does fintech play in FX liquidity creation and aggregation, and which areas are ripe for disruption?  

TTG right now is focused on be disruptive in the total brokerage space, not so much the direct marketing to clients, but rather enabling the brokerage world to do that. We are just starting a push in making the sector aware of our overall offer of best in class technology, best in class liquidity, and best in class risk management services.

The proposition is disruptive and it’s a fintech play at its core. If you look at our B2C brand Markets. The data driven tools it uses to acquire clients, onboard clients, sift through big data and determine what is the best way to interact and attract similar clients, compliance tools, regulatory reporting tools, and of course how it gets its liquidity.

It’s really a white paper and testament to our offer. So many brokers are at a point now, primarily due to the ESMA changes, that they are determining again who they are. What they want to be and how that will manifest itself into client acquisition.

They are trying to reinvent tools like front end trading tech, CRM, BI, and back office.  These are basic housekeeping items which I think is best outsourced. We can provide not only the house keeping staff, but a well-built house, plumbing, electrical, and landscaping service if you understand my analogy.

How you decorate your house we leave up to the broker, but we work as an extension of them to make them a success. This concept has been talked about forever, but never have I seen the scope of offer backed by the strength of our PLC for brokers to take advantage of.

It’s literally best in class everything and when you are trying to take your bottom line from a 5-30% business to a 30-50% business you are not going to do that owning, operating, and maintaining everything inside. It’s too much cost. Too much staff, inefficient staff, too much tech, staff to monitor the tech, and then the trading side.

The value these days is in the marketing message, the added value services, the IP in tech or whatever that is unique that creates value in differentiation. Your CRM does not create that, your back office does not create that, more and more today even your front end doesn’t create that.

Our message is simple, partner with us, we will take our teams and make them yours.  Focus and spend your money on where you can really see value and differentiation. This is our push, and it’s all about FinTech.

Muhammad Rasoul will be speaking at the upcoming London Summit 2018 in one of the event’s marquee sessions. The highly anticipated CEO panel will be held on November 14 from 11:00-11:45. Learn more and register here today!