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brexit

Darwinex & Brexit, once again

We hoped for far more clarity on Brexit than we have, but it’s time to explain the options for Darwinex.

At the time of writing, there’s 3 potential scenarios, ranked in descending severity.

  1. Hard Brexit
  2. May’s “deal”
  3. Postponement

Why Brexit matters

Darwinex is the trading name of Tradeslide Trading Tech. We’re regulated by the UK’s Financial Conduct Authority (FCA) as:

  • A full license brokerage that can deal with retail, as well as professional clients, and
  • An asset management license to offer DARWINs to the same clientele.

As a UK entity, we currently leverage “MiFID passports” to service EU and EEA customers. Brexit could affect none, some or all those passporting rights – which is why we’re writing this post.


“Crashing” out of the EU will not sink the UK in the Atlantic

Neither will Brexit sink your Darwinex funds, they will continue to enjoy:

Furthermore, there’s no agenda restricting capital flows between the UK and the EU. Which means you will continue to have control over where you send your monies:

  • EU residents can trade with Australian regulated brokers, and
  • EU residents can trade with off-shore regulated brokers, and thus
  • EU residents will be able to trade with FCA-regulated brokers.

The EU will not force you to trade with EU-regulated brokers. Reverse solicitation will apply, nothing will stop EU customers from engaging UK entities.


The Brexit question mark then is – will UK entities keep permission to engage EU customers? If yes, how?

In a nutshell, Brexit (even Hard Brexit) will

  • NOT affect existing customers – the FCA will continue to regulate the relationship.
  • NOT affect any non-customers reading this post – they engaged Darwinex unsolicited.
  • Affect the way Darwinex proactively markets to prospective customers.

Given our very limited (if any) outbound marketing, we expect little to no short-term impact.


Every other Brexit scenario

Given the farce Brexit has become, we’ll quote a Member of Parliament who summed it up: “F*ck knows“.

For our part, we’ve had it with the uncertainty, and will:

  • Keep our FCA license no matter what – London remains key to our institutional expansion
  • Potentially secure EU regulation depending on if there’s a Brexit (may well not be one!) and if Brexit results in Darwinex losing passporting rights.

Work to deliver the vision – we’ve wasted enough time as it is.


Questions?

We appreciate there’s plenty of uncertainty, but there’s little more we can add to the above at this stage.

Feel free to ask – we’ll do our best to explain our stance on the matter.


Photo by Tiocfaidh ár lá 1916 en Foter.com / CC BY-ND

Our letter to ESMA

We’ve drafted a letter on behalf of the anonymous retail trader. We look forward to your amending as you see fit, and submitting to ESMA. If anyone feels like translating to languages other than English and Spanish, feel free to share in our Twitter account.


 *You may e-mail your own take to: CFECFDBO@esma.europa.eu

Dear ESMA,

Let me introduce myself.

I don’t work in the financial sector but I have carried out transactions, of significant size, in CFDs with an average frequency of 10 per quarter over the previous four quarters. I haven’t (yet) grown my portfolio bank account above 500 000 Euro, but I plan to. That makes me a “retail trader”: a law abiding, tax paying, financially literate citizen exercising a right to trade the markets.

I hear that ESMA plan on restricting trading CFDs on leverage – my passion and intended livelihood – and asked for my feedback, so here it is. I love CFD trading because:

  1. CFDs taught me how to win, as well as lose, trading financial markets
  2. CFDs let me freely go long and short in any underlying,
  3. CFDs let me better diversify my risk across underlyings than any other instruments,
  4. CFDs let me manage my risk, in trade sizes comfortably affordable to me at all times

Whatever measures you impose to restrict CFD trading restrict my rights. Furthermore, the measures you propose fail to adequately protect me. The fundamental problem is NOT my trading CFDs, but regulators allowing retail CFDs cleared over the counter (OTC).

OTC CFDs:

  1. Make me a second class citizen allowed to take, but not make, liquidity
  2. Divert and fragment liquidity from their underlying exchange traded markets,
  3. Are prone to intransparent market price finding, and therefore, market abuse,
  4. Are leveraged by systematic internalisers to acquire and churn inexperienced traders, reinvesting proceeds in a loss financed advertising spiral your measures identify, but fail to tackle at root

ESMA won’t protect all retail investors – experienced and inexperienced alike – until it regulates retail CFD contracts cleared on MiFID MTFs. No matter what alternative measures ESMA introduce, the CFD market will structurally fail to self-regulate as long as regulated and unregulated OTC providers directly profit from customer losses.

Exchange cleared CFDs will grant retail traders the same transparency and trading rights enjoyed by all participants on regulated stocks and futures on exchanges. Markets will remain tough, but self-regulate towards transparency and fairness. Moreover it will incentivise retail providers to educate winners, to profit with winners, instead of advertising to attract new losers.

So here’s my suggestion:

  1. By all means protect inexperienced investors as you see fit, BUT
  2. Don’t restrict my economic rights as a tax paying, financially literate individual,

Grant me the investor protection, transparent conditions and fairness I enjoy in all other properly regulated markets, by clearing my CFDs on MiFID MTFs.

Best regards


You may find more information on this here