The growing popularity of trader-funded companies, marketed as leveraged trading companies, has attracted the attention of regulatory bodies. An industry source said Finance poles The European Securities and Markets Authority (ESMA) recently conducted a preliminary examination on these supporting trading companies and also discussed potential regulations in the industry. However, the pan-European regulator declined to confirm its potential move towards supportive trading regulations.
Furthermore, Raymonda Kerketerp Müller, founder and CEO of regulatory compliance firm Muinmos, confirmed to Finance poles “Regulators are conducting studies, collecting data and engaging in consultations with industry participants to better understand the nature and impacts of proprietary trading.”
Founder and CEO of Muinmos, Raymonda Kerketerup-Müller
Currently, supporting businesses only have to follow laws such as consumer protection rules, data protection rules, and international sanctions provisions. Registration of these companies is concentrated in the United States, the United Kingdom, the United Arab Emirates, and Saint Vincent and the Grenadines. However, many of them are registered within the European Union.
“Some jurisdictions have implemented specific regulatory measures or guidelines to supervise supportive trading activities within their markets,” Kerketerp Müller added. However, appropriate regulatory measures have not yet been taken.
Regulators' approach
Regulatory interest in supportive trading emerged with the lawsuit brought by the Commodity Futures Trading Commission (CFTC) and its Canadian counterpart against My Forex Funds last year. However, these were limited to implementation levels only.
In March, the Belgian regulator, the Financial Services and Markets Authority (FSMA), issued a warning against proprietary trading, describing it as a “shadow investment game, a practice that costs money and can lead to reckless behaviour.” It is worth noting that Belgium is the only country in the European Union that has banned the offering of Contracts for Difference (CFDs) instruments to retail traders.
However, none of the other regulatory bodies have made any public statements about proprietary trading and the possibility of regulation. FTMO, a popular stent trading brand, also confirmed that the company has not been contacted by any regulatory body “to discuss future regulation of the industry.”
However, when regulators prepare regulations, they usually consult industry players. “When CFD regulation was introduced in Israel, Leverate actively participated in this process,” said Ran Strauss, CEO of Leverate, a technology provider in the financial services industry.
“Some regulators don't believe in the model (of proprietary trading), some want to ban the model, and some think the model will die,” said one long-term industry insider. Finance poles. “We should expect some clarity towards the end of this year.”
when Finance poles Contacting the Emirates Authority for Standardization and Metrology, it declined to confirm the discussion of the support trading regulations, saying: “The dates of the Securities and Markets Authority’s meetings have not been published, nor the agendas for these meetings. Therefore, we cannot comment on anything else in this matter.”
However, many industry participants still expect regulatory pressure on support trading. Evdokia Petsilidou, Director of Risk and Compliance at SALVUS Funds, said: “At the European level, regulators are expected to introduce requirements for private trading firms, including licensing under the Markets in Financial Instruments Directive (MiFID), subject to the Private Account Dealing Investment Service. “
“This expectation stems from the understanding that certain aspects of proprietary trading may fall within this category of investment services. This may entail firms needing this classification to provide services to clients, even for activities such as collecting subscriptions for demo trading. The goal is to ensure that firms are subject to regulatory requirements and operational, which enhances transparency and investor protection within the support trade sector.”
The nature of the supportive trading model has also created confusion about who should regulate the industry.
“Regulation will definitely come, but it is not clear when, how and by whom to issue it,” confirmed Evgeny Sorokin, CEO of Devexperts. “The rules regarding the operations of supporting companies could be more tailored to the gaming and gambling industry legislation rather than the financial one.”
The dilemma of prop trading regulations
The supporting trading companies do not handle clients' funds for trading or provide brokerage services. Therefore, current regulations on retail over-the-counter derivatives brokers do not apply to them. Furthermore, most of the supporting trading activity – from challenges to trading with funded accounts – takes place on demo accounts.
Due to the unregulated nature of the props business, hundreds, if not more, brands have sprung up over the past few years. While some have established their names, many are facing complaints, mostly about payment refusals.
“Right now, commodity trading is a bit like the Wild West with very few industry regulations,” said Greg Rubin, president of Axi Select. Finance poles. “Most players in this space use demo accounts and charge a registration fee to participate. They ultimately structure the offering to be virtual and non-financial, and therefore not subject to financial regulation.
“This means that most businesses are likely not completing even basic customer checks such as anti-money laundering or KYC on customers.”
This is part one of our two-part series on prop trading regulations. The upcoming Part Two will depict what industry experts think about what potential prop trading regulations would look like. Stay tuned!
The growing popularity of trader-funded companies, marketed as leveraged trading companies, has attracted the attention of regulatory bodies. An industry source said Finance poles The European Securities and Markets Authority (ESMA) recently conducted a preliminary examination on these supporting trading companies and also discussed potential regulations in the industry. However, the pan-European regulator declined to confirm its potential move towards supportive trading regulations.
Furthermore, Raymonda Kerketerp Müller, founder and CEO of regulatory compliance firm Muinmos, confirmed to Finance poles “Regulators are conducting studies, collecting data and engaging in consultations with industry participants to better understand the nature and impacts of proprietary trading.”
Founder and CEO of Muinmos, Raymonda Kerketerup-Müller
Currently, supporting businesses only have to follow laws such as consumer protection rules, data protection rules, and international sanctions provisions. Registration of these companies is concentrated in the United States, the United Kingdom, the United Arab Emirates, and Saint Vincent and the Grenadines. However, many of them are registered within the European Union.
“Some jurisdictions have implemented specific regulatory measures or guidelines to supervise supportive trading activities within their markets,” Kerketerp Müller added. However, appropriate regulatory measures have not yet been taken.
Regulators' approach
Regulatory interest in supportive trading emerged with the lawsuit brought by the Commodity Futures Trading Commission (CFTC) and its Canadian counterpart against My Forex Funds last year. However, these were limited to implementation levels only.
In March, the Belgian regulator, the Financial Services and Markets Authority (FSMA), issued a warning against proprietary trading, describing it as a “shadow investment game, a practice that costs money and can lead to reckless behaviour.” It is worth noting that Belgium is the only country in the European Union that has banned the offering of Contracts for Difference (CFDs) instruments to retail traders.
However, none of the other regulatory bodies have made any public statements about proprietary trading and the possibility of regulation. FTMO, a popular stent trading brand, also confirmed that the company has not been contacted by any regulatory body “to discuss future regulation of the industry.”
However, when regulators prepare regulations, they usually consult industry players. “When CFD regulation was introduced in Israel, Leverate actively participated in this process,” said Ran Strauss, CEO of Leverate, a technology provider in the financial services industry.
“Some regulators don't believe in the model (of proprietary trading), some want to ban the model, and some think the model will die,” said one long-term industry insider. Finance poles. “We should expect some clarity towards the end of this year.”
when Finance poles Contacting the Emirates Authority for Standardization and Metrology, it declined to confirm the discussion of the support trading regulations, saying: “The dates of the Securities and Markets Authority’s meetings have not been published, nor the agendas for these meetings. Therefore, we cannot comment on anything else in this matter.”
However, many industry participants still expect regulatory pressure on support trading. Evdokia Petsilidou, Director of Risk and Compliance at SALVUS Funds, said: “At the European level, regulators are expected to introduce requirements for private trading firms, including licensing under the Markets in Financial Instruments Directive (MiFID), subject to the Private Account Dealing Investment Service. “
“This expectation stems from the understanding that certain aspects of proprietary trading may fall within this category of investment services. This may entail firms needing this classification to provide services to clients, even for activities such as collecting subscriptions for demo trading. The goal is to ensure that firms are subject to regulatory requirements and operational, which enhances transparency and investor protection within the support trade sector.”
The nature of the supportive trading model has also created confusion about who should regulate the industry.
“Regulation will definitely come, but it is not clear when, how and by whom to issue it,” confirmed Evgeny Sorokin, CEO of Devexperts. “The rules regarding the operations of supporting companies could be more tailored to the gaming and gambling industry legislation rather than the financial one.”
The dilemma of prop trading regulations
The supporting trading companies do not handle clients' funds for trading or provide brokerage services. Therefore, current regulations on retail over-the-counter derivatives brokers do not apply to them. Furthermore, most of the supporting trading activity – from challenges to trading with funded accounts – takes place on demo accounts.
Due to the unregulated nature of the props business, hundreds, if not more, brands have sprung up over the past few years. While some have established their names, many are facing complaints, mostly about payment refusals.
“Right now, commodity trading is a bit like the Wild West with very few industry regulations,” said Greg Rubin, president of Axi Select. Finance poles. “Most players in this space use demo accounts and charge a registration fee to participate. They ultimately structure the offering to be virtual and non-financial, and therefore not subject to financial regulation.
“This means that most companies are likely not completing even basic customer checks such as anti-money laundering or KYC on customers.”
This is part one of our two-part series on prop trading regulations. The upcoming Part Two will depict what industry experts think about what potential prop trading regulations would look like. Stay tuned!