FCA to change license requirements for STP forex brokers

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UK’s Financial Conduct Authority (FCA) is looking into forcing the straight-through processing (STP) forex brokers to upgrade their licenses to those for full market makers, reports Finance Magnates.

FCA has apparently sent a letter to a number of its charges to inform them of prospective changes to the regulatory environment. According to the document, the watchdog is planning to force the STP brokers to upgrade their licenses in order to ensure better negative balance protection from losses of their clients in case of extreme market volatility.

The main changes would be in regard to the capital requirements for the brokers and they would most likely be raised in order to be able to cover a large negative balance.


Re: FCA to change license requirements for STP forex brokers

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Usually, the STP brokers have higher Margin Call and Stop Out levels to protect any client's account of reaching the negative balance. This is a measure also for them to cover themselves, because if the client account goes to negative balance, the broker covers the negative value with real money. Then the broker needs to ask the client to cover that negative balance as in most cases such clause is included in the contracts.
On the other side, the market makers are happy when client goes to negative balance and does not ask that amount to be covered, but just simply nullify the negative value and the client may feels happy that no need to owe that negative funds :)

Re: FCA to change license requirements for STP forex brokers

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I see the explanation for doing this as a bit weak really and I don’t see much logic into it.
As FrancoisT said, STPs are already doing their best in this field, because in the event of negative balance they should cover the difference to 0 and pay to the LPs out of their own pockets in order to cover their client’s losses. So, it is already in their best of interest to implement as best negative balance protection policy as possible.


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