What’s next after ‘Swiss roll’?

Financial Mirror (Cyprus) - - FRONT PAGE -

The Cyprus forex trad­ing and bro­ker in­dus­try is brac­ing for con­sol­i­da­tion, with sev­eral small firms al­ready barely main­tain­ing suf­fi­cient lev­els of liq­uid­ity after suf­fer­ing heavy loses on the Swiss franc.

The Swiss Na­tional Bank (SNB) stunned mar­kets on Jan­uary 15 that it will no longer support a self-im­posed floor on the EUR/CHF ex­change rate send­ing shock waves across the forex mar­ket, caus­ing many mar­ket par­tic­i­pants to be caught out and in­cur trad­ing losses.

The Fi­nan­cial Mir­ror es­ti­mates that at least five of the 182 in­vest­ment firms li­censed by the Se­cu­ri­ties and Ex­change Com­mis­sion (CySEC) are be­ing eyed by big­ger play­ers want­ing to con­sol­i­date their po­si­tion as prof­itabil­ity shrinks and mar­gins get tighter.

Mak­ing mat­ter worse, liq­uid­ity providers are turn­ing down calls for lever­age, which is putting a fur­ther squeeze on forex bro­kers as many scram­ble to re­port cap­i­tal re­quire­ments to the reg­u­la­tor.

On the other hand, Li­mas­sol-based IronFX was re­ported as show­ing in­ter­est to bid for Al­pari UK after the firm en­tered ad­min­is­tra­tion along with its Ja­panese sub­sidiary, but in­dus­try sources told the Fi­nan­cial Mir­ror that the bid is a “long shot” at the mo­ment.

Al­pari was one of sev­eral high-pro­file bro­ker­age vic­tims of the franc’s surge after the SNB aban­doned its three-year old cap on the cur­rency.

“We are in the process of mak­ing a bid and (are) in con­tact with the ad­min­is­tra­tors,” Dim­itris Hatzis, IronFX’s chief op­er­at­ing of­fi­cer, was quoted by Reuters as say­ing.

The Wall Street Jour­nal re­cently re­ported that IronFX is in an ad­vanced stage of go­ing pub­lic in the US, in an IPO which could value the company at about $800 mln and give it a pow­er­ful arse­nal to buy up ri­vals.

KPMG, ad­min­is­tra­tors for Al­pari, are re­port­edly in dis­cus­sions with a hand­ful of firms to se­cure a quick sale to keep staff and clients and as much of the business in­tact as pos­si­ble.

Al­pari was ini­tially set up in Cyprus by one of its co­founders, An­drey Dashin, but after the share­hold­ers de­cided to move to the UK, he stayed be­hind and es­tab­lished his own firm, ForexTime (FXTM).

London-based ETX Cap­i­tal also put in a pro­posal to ac­quire Al­pari UK, ac­cord­ing to LeapRate, while Al­pari UK of­fi­cials in London de­nied any ac­qui­si­tion by FXCM Inc.

In any case, the Rus­sia arm of the Al­pari Group, which emerged un­scathed from Swiss Franc Black Thurs­day, has con­tin­ued a PR and mar­ket­ing cam­paign to help dis­tance it­self from the fate of Al­pari UK and is go­ing after for­mer Al­pari UK clients, with a 30% de­posit bonus.

The con­sol­i­da­tion in the Cyprus FX mar­ket is some­thing that the au­thor­i­ties are look­ing at with a pos­i­tive eye, as they do not want news to emerge that two years after a bank­ing cri­sis, Cyprus-based forex bro­kers were go­ing belly-up and shut­ting down.

On the con­trary, some ex­perts are con­fi­dent that Cyprus mar­ket will ex­pand with new play­ers com­ing in.

“The forex sec­tor (in Cyprus) is def­i­nitely still grow­ing. New firms are be­ing set up and we be­lieve this will con­tinue un­abated within 2015,” said Dr. Ste­lios Platis, Chair­man of the As­so­ci­a­tion of Cyprus In­ter­na­tional in­vest­ment Firms (ACIIF).

“It is how­ever a risky, cap­i­tal-in­ten­sive, very com­pet­i­tive and ag­gres­sive in­dus­try where mar­gins are be­com­ing smaller and smaller. There­fore, some global con­sol­i­da­tion of the in­dus­try should be ex­pected soon – es­pe­cially in the af­ter­math of events like we had last week with the Swiss Franc.”

Platis ex­plained that it is, after all, the fi­nan­cial ser­vices sec­tor and mar­ket events de­ter­mine the path of the in­dus­try.

“Re­gard­ing the Cyprus-reg­u­lated forex bro­kers and specif­i­cally the Euro-Swiss Franc de­ba­cle, given the size of the sec­tor the EUR 40 mln losses for the sec­tor are not sig­nif­i­cant. It ap­pears that the Cyprus forex in­dus­try is much more re­silient than peo­ple out­side ex­pected.”

“Don’t for­get we sur­vived a hair­cut and ba­si­cally the col­lapse of the lo­cal bank­ing sec­tor and are still grow­ing!” he added.

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Mean­while, CySEC Chair­man Deme­tra Kalo­girou said that there is grow­ing in­ter­est from com­pa­nies in Rus­sia, Lux­em­bourg and Greece to set up Un­der­tak­ings for Col­lec­tive In­vest­ment in Trans­fer­able Se­cu­ri­ties (UCITS), while there were 14 ap­pli­ca­tions for al­ter­na­tive in­vest­ment funds (AIF), five of which have been ap­proved by the CySEC board.

Euro­pean leg­is­la­tion pro­vides that such en­ti­ties can man­age funds of over EUR 100 mln, Kalo­girou ex­plained, adding that in cer­tain cases their pur­pose is to invest in Cyprus, such as in the shipping sec­tor or oth­ers that have good growth prospects.

CySEC has also re­ceived from the Cen­tral Bank 12 pend­ing ap­pli­ca­tions for the es­tab­lish­ment of pri­vate in­vest­ment plans (ICIS), while the UCITS man­age­ment company GMM, which has al­ready been li­censed, has is­sued three mu­tual funds, of which two are sin­gle schemes and one is an um­brella with 14 sub-funds.

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