The Treasury has introduced a regulatory fee on online forex brokers, opening an extra revenue stream for the Capital Market Authority(CMA).
In changes to online forex trading regulations, Treasury Cabinet Secretary Njuguna Ndung’u said brokers would now be required to remit an annual fee to the regulator.
“The Capital Markets (Online Forex Exchange Trading) Regulations, 2017, hereinafter referred to as the “principal Regulations”, are amended by inserting the following new regulation immediately after regulation 25,” Prof Ndung’u said.
“An online forex broker shall pay to the Authority an annual fee based on the gross trading revenue which shall include the commissions and rebates from third-party related service providers for that year, at the rate specific in the Third Schedule,” he said.
According to the new regulations, both dealing and non-dealing online forex brokers will remit an annual three percent fee to the CMA, based on their gross revenue and including commissions and rebates.
A dealing forex broker or market maker is a broker that takes the other side of a client’s trades, by setting the bid and ask price and waiting for a trader who would like to take advantage of these set terms.
Dealing desk brokers profit by buying at lower prices and selling at higher prices, and by taking advantage of the spreads between the bid and ask prices.
On the other hand, non-dealing brokers work with liquidity providers to give their clients variable spreads and to match traders with other traders who would like to take the other side of a trade.
Non-dealing desk brokers also tend to have lower spreads than dealing desk brokers.
The charge on online forex brokers in the wake of enhanced protection offered by the CMA to currency traders/clients.
The capital markets regulator has established a working group comprising the licensed Forex brokerage community and other stakeholders to develop standards to further protect consumers.
CMA is for instance seeking to ensure that licensed forex brokers make appropriate disclosures and that they roll out a comprehensive investor education program.
The review seeks to mitigate the risks and losses associated with investments in Contract for Differences (CFDs) products.
CFDs refer to contracts between buyers and sellers which stipulate that a buyer must pay a seller for the difference between the current value of an asset and its value at contract time with the asset portfolio including currencies.
CMA’s move to enhance the protection of Forex traders comes amidst sustained interest in forex trading among the investing public.
“In an effort to foster and deepen growth in the online forex trading industry, CMA has facilitated setting up of a Technical Working Group comprising of the licensed online foreign trading brokers as well as other stakeholders including peer regulators to assess the state of the market and propose recommendations to mitigate the challenges faced by investors, traders and licensed players,” noted CMA CEO Wycliffe Shamiah.
Currently, online Forex trading is guided by the 2017 Capital Markets (Online Forex Trading) Regulations.
The rules require brokers and money managers to seek information from clients about their circumstances and investment objectives.