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The Brokers (re) Evolution: The CEO's reply

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Christian Frahm, Senior Executive Director at Saxo Bank A/S: "NFA regulatory changes strengthens the credibility of our industry"

Mon, Oct 1 2007, 16:12 GMT
by Marina Schiaffino

FXstreet.com

[ View the full interview ]

Mr Francesc Riverola would to thanks Mr. Frahm and Saxo Bank for participating in FXstreet’s questionnaire.

Saxo Bank is joining InterbankFX, FXCM, GFT and Forex.ch in answering our questionnaire. We are sure we still have many to come.

Questionnaire:

What is your opinion on the recent NFA regulatory changes? How do you view the implementation of these new measures for FDMs?

I think it strengthens the credibility of our industry and we view it as a positive move.

We have been through regulations in Europe over 10 years ago and a couple of years ago in Japan.

If you look at Japan as an example - before the regulatory changes they had over 600 brokerage companies offering margin FX - a lot of them very small and some of them not necessarily offering a professional service to their clients. As soon as regulations kicked in, the market space changed from 600 unlicensed brokers to less than 100 licensed brokers.

The clients benefited from the comfort of being serviced by a licensed counterpart and as a whole the industry benefited from a more professional service offering in margin FX.

We see the same dynamics coming into play in the US – a lot fewer brokers offering margin FX - but as a whole a more professional industry.

The new proposal also calls for the use of proper and uniform accounting methods and tightens internal controls. Do you think this measure could affect your company's business in some way?

No, we do not think it will have a direct impact for our business.

Saxo Bank, as a fully EU licensed bank, is already under very stringent internal controls and regulatory requirements. Our award-winning platform, the SaxoTrader, is already industry leading in terms of back office reporting, audit trails and transparency and availability of account information for the clients.

We remain committed to satisfy the reporting requirements for areas where we do business and keep an open dialogue with local regulators.

"As soon as regulations kicked in, the market space changed from 600 unlicensed brokers to less than 100 licensed brokers. The clients benefited from the comfort of being serviced by a licensed counterpart and as a whole the industry benefited from a more professional service offering in margin FX."

Do you consider these measures could be a breath of fresh air that could result in more investors joining the FX Market?

In general, yes. The FX industry in the US has had a mixed reputation over the years, however in recent years this has improved. More stringent regulations with higher capital requirements and better reporting for the clients, will only validate the FX business as an asset class in my mind and attract more people to invest in FX.

Switzerland has recently started a similar process, what is your opinion about it?

Similar thoughts. I think. The industry benefits, the clients benefit and ultimately as clients go for quality, names like Saxo Bank benefit.

Would your company be on the bid side if some firms were not meeting new requirements? What is your company's policy on acquisitions of smaller firms?

Sure, that is a possibility that we cannot rule out. Clearly, there will be good companies which will not meet the new requirements and if the opportunity is right, we will evaluate like any business venture we undertake.

How do you see the M&A market in the Forex industry? Do you expect important corporative movements in the next months?

I think we will see some M&A activity in the industry, but more of strategic nature like Saxo Bank's purchase of Synthesis Bank. We are still in a very healthy growth stage and fairly early in the maturity stage of the margin FX business. So I think we are some years away from an actual consolidation for market share.

However, on the partnership side, we see a lot of things happening. Saxo Bank, as the world's leading provider of White Label Services with over 100 partners globally, made a very early bet on providing other financial institutions with infrastructure and a trading platform in their own branding. Synthesis which Saxo Bank acquired in September actually started out as a white label partner. White Labeling is a major part of the business and we see this business growing rapidly as more and more financial institutions recognize their roles as local distributors to their client base focusing on servicing their client with the best products provided by leading facilitators like Saxo Bank.

Many are asking themselves: why try and built your own trading platform when you can get an award winning platform like SaxoTrader with your own branding - and benefit from 15 years of expertise and development in this business?

"Clearly, there will be good companies which will not meet the new requirements and if the opportunity is right, we will evaluate like any business venture we undertake."

For many, the very business model of Forex brokerage firms that needs to be decided is whether or not such brokerage houses can take opposite trading positions to those held by their customers, i.e., trading 'against them', which contradicts traders' well-being. What is your company position on this? How do you hedge your customers' trades?

I think the question to ask is whether the broker you are trading with is growing customer assets under management? What is the company doing in terms of advice, education and tools on the platform to ensure the client has the best possible information and analytics to make a profitable trade.

In the end, you only grow your customer's asset under management significantly if you are able to facilitate happy and profitable clients.

If you look at Saxo Bank, we, year after year, have a significant increase in our customer assets under management. In addition, we have a strong focus on developing tools to help the investor. Moreover, Saxo Bank has a world class track record from our own Strategy Team. The Strategy Team shares with our clients which trades they are doing and why.

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Published on  Tue, Oct 9 2007, 06:58 GMT