More than a year ago, when writing about the repercussions of the Cyprus’ bailout on the forex and binary options industry that was established on the island we had predicted that the then emerging crisis would actually benefit the two industries as it would help them become more robust, flashing out the less fit and able participants and only allowing those worthy of surviving the chance to stay in play.
A few months back we explored why, after the shambles of March 2013, Cyprus continued to attract both forex and binary options firms and justified the decision of such firms to keep choosing Cyprus as their base. At that time we had also highlighted that the local regulator CySEC had been responsive both to calls from home and from pressure from abroad and had taken decisive measures to step up its gear and look as well as actually act more tough and strictly against brokers, insisting on the implementation of rules and regulations and imposing fines to those failing to do so.
More recently we have discussed how confidence is gradually returning to the Cyprus investment environment, both in general terms, but also with particular reference to the forex and binary options industry. Indeed, good news for Cyprus continues to pour in, as Capital Intelligence (CI), the international credit rating agency, affirmed late last week Cyprus` Long-Term Foreign Currency Sovereign Rating of `B-`, and its Short-Term Foreign Currency Rating of `B`. The outlook for the ratings is affirmed at `Stable`. At the same time, the economy of Cyprus is tentatively expected by CI to return to positive growth by the end of 2015. Apparently, the ratings given to Cyprus reflect declining short-term financing risks, underpinned by the good progress made by the government in delivering on the economic programme agreed with its international lenders.
The ratings also take into account better-than-expected fiscal and economic performance, with key outturns exceeding targets in 2013, as well as tentative signs that the banking sector is beginning to stabilise, and renewed – albeit limited – government access to international capital markets. It is noted that the reforms implemented so far in Cyprus have included large scale restructuring of the banking system (including the recapitalisation of the cooperative banks), measures to strengthen fiscal discipline, and the adoption of legislation enabling the privatisation of state owned entities.
Underpinned by this positive background developments are being recorded in the jurisdiction’s forex and binary options landscape. In a nutshell, while the number of firms obtaining CIF (Cyprus Investment Firm) status is on the rise, the forex sector appears to be shrinking in contrast with the binary sector which continues its boom and is in hand with the simultaneous expansion into other fields, both for the country’s investment scene as well as in particular for the local regulator CySEC and other institutions, such as the Cyprus Stock Exchange.
Since the start of 2014, the overall number of firms managing to get a CIF license has increased when compared to the same period last year. However, from those firms only a handful are into the retail online forex business, which was once booming in Cyprus, while some of the existing firms have announced that they are either leaving Cyprus altogether, such as in the case of Liquid Markets which abandoned its Cypriot license, while others have decided to keep their CIF status but at the same time obtain a license in other jurisdictions as well, the most popular destination proving to be the UK and the acquisition of an FCA license, in order to obtain the massive benefits being associated with having a license from the world’s largest financial centre.
The declining enthusiasm of forex brokers for obtaining a license in Cyprus might be a direct result of last year’s events which have meant problems for forex brokers in terms, for example, of difficulties in opening commercial bank accounts in Cyprus or it might be related to CySEC’s decision to exercise more stringent controls on the investment firms under its supervision, such as for example curtailing the ability of brokers to offer bonuses to clients, subject to the achievement of certain trading benchmarks, in terms of trading volumes.
In short, the CIF status is no longer seen as a “flag of opportunity” and CySEC is no longer regarded as too lenient with brokers, thus brokers feel that since the CIF status is becoming harder to obtain and even harder to maintain since rules are being enforced more effectively, they are more prone to opt for licensing from other jurisdictions, which are just as tough but come with a better reputation and perhaps with better opportunities, such as the FCA license.
In a recent development regarding the forex field in Cyprus, it has been announced that Jiffix Markets Limited (JFX), holder of CIF license 156/2011 has been acquired by TTCM Traders Trust Capital Markets Ltd, after operating from Cyprus for more than three years. What is relieving is that the transfer of customers from one company to the other appears to be smooth and all JFX clients have been assured that they will be able to continue on the same platform (Metatrader 4) and under the same conditions (account balances, spreads, stops, limits, etc.) with Traders Trust.
Contrary to the outlook in the forex sector, the binary options field in Cyprus continues its expansion and in 2014 numerous new brokers applied for and obtained licenses by CySEC in order to offer regulated online retail binary options services to their clients. As a result, even the attention of CySEC seems to be shifting and concentrating more on binary brokers rather than forex brokers, as revealed by the higher number of announcements being issued by the regulator cautioning potential investors about the activities of binary options brokers than those cautioning about those of Forex brokers.
Simultaneously, the declining interest in obtaining forex broker licenses seems to be offset by an increase in interest for licenses by others in the field, such as payment processors, insurance and pension firms, wealth managers, providers of consultancy services to financial firms, as well as technology providers for online trading, not to mention the field of alternative investment funds that is also on the rise in Cyprus under the auspices of CySEC.
Moreover, the Cyprus Stock Exchange, which was severely hit by the crisis last year and the fact that it lost its two biggest stocks, the Laiki bank, which collapsed, and the Bank of Cyprus, which has remained out of the market since March 2013, is desperately looking for new products and niche markets to enter in order to expand its operations and safeguard its future. A glimmer of hope had emerged with the launching of a Bitcoin marketer in Cyprus, but when that ventured failed dismally and under very controversial and obscure conditions the Stock Exchange was forced to look elsewhere for better prospects. Indeed, in a recent article in the local press the CEO of the Cyprus Stock Exchange admits that one of the industries that the Cyprus Stock Exchange has focused its efforts on, and was included in its strategic plans, is the development of the Funds sector, in order to extend the range of products offered to investors and consequently facilitate the further development of the financial market in Cyprus.
According to the same article, the Cyprus Stock Exchange has started examining, along with other interested authorities and market participants, the possible development of the Islamic Financial Instruments, with the aim of promoting Cyprus as an effective jurisdiction for Islamic Finance and for promoting their listing on the Cyprus Stock Exchange.