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New ESMA & its meaning for IBs(Introducing Brokers)
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post Dec 22 2018, 04:30 PM
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You might all be aware of the new ESMA & MIFID 2 introduced in 2018 but let's see what it means for Introducing Brokers and how it changes things with all European Brokers & UK.

Before the new ESMA it was a whole different world where high leverages and bonuses were provided and the clients could open huge volumes generating more profits for the IBs working on the split of the spreads.

However with the introduction of the new ESMA & MIFID 2 EU brokers now have more rigorous requirements for submitting financials, transparency of profits, providing best execution and more, ultimately resulting in tighter spreads. The IB therefore has a lot less commissions since low leverage and no bonuses with more strict framework means less volume traded by the clients. Brokers can’t entice IBs with ongoing commission splits unless that IB goes through the process of continually providing additional services and then needs conditional approval, their only option is to offer to pay a small introduction fee (CPA) as a one off which likely isn’t a sustainable living for big IBs with high end clientele..

Certain conditions in the new ESMA make it nearly impossible to on board new clients of low to medium potential. Because of these restrictions many retailers have even stopped caring about this category of investors.

The new ESMA of course is there to safeguard the small investors which were largely deceived by marketing promotions promising huge returns but also makes it impossible for them to invest making the Financial markets less approachable by the ESMA compliant regulators.

The new measures do not apply to professional clients, that is, those who demonstrate:

Have carried out at least 10 operations with a value of at least € 20,000 in the last quarter.
Have an equity equal to or greater than € 500,000
Have a position as a professional in the financial sector with at least one year of seniority.

But not all investors can provide this service. Due to these reasons you might notice a lot of brokers shifting towards offshore regulations to provide the same flexibility to retail clients.

Have a look at our Recommended Brokers list to look for the most secure brokers which are multi regulated and provide flexibility for IBs & Partners.

Visit Stratton Academy to check out the resources we have for beginner and advanced traders
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