Mr Jonathon Boyd
Providers of CFD and spreadbetting services could be forced offshore because of MiFID best execution rules.
Ash Saluja , partner at law firm CMS Cameron McKenna, says its 20-strong team working on MiFID and other regulations has interpreted the best execution rules set to be applied to the three different types of clients – consumer (retail), professional (intermediary) and market counterpart – as meaning it will no longer be possible to do business from within the UK.
This is because the FSA – in its recent discussion paper on the issue of best execution – has suggested providers of CFDs and spread betting services should try to work according to a system of price benchmarking.
The problem with this solution is it would, for example, tie spread betters to a single price.
This does not recognise practical realities of the market, Saluja says, such as the fact spread betting takes place around the clock not just during stock market hours of operation, which would make it nigh on impossible to operate against a single benchmark price.
On the issue of CFDs (contracts for difference), Saluja says CMS Cameron McKenna has noted an increasing number of financial services clients looking to them as an alternative to shares.
It is an attractive market now, but will become more difficult to operate in post-MiFID because the products may simply not be offered.
The FSA has backed off somewhat from its initial stance, Saluja says, however: “I don’t think there’s a solution the FSA can come up with on its own.”
Best execution is an EU issue, which means the FSA’s hands are tied, he says.
If the industry does move offshore, the FSA would not be able to stop people taking advantage of the fact many, if not most, CFD and spread betting products are available electronically.
The situation is being driven by so-called “regulatory arbritrage”, which rests on the fact different member states interpret EU rules and regulations differently. Post-MiFID the FSA will not be able to stop CFD and spread betting firms from offering services if passported into the UK from other EU member state, Saluja states.