A couple of points before beginning this week’s post.
- Some readers have been complaining that they’re either not getting emails or it’s going into junk. Unfortunately this seems to be a feature of Substack (and other email service providers). All I can suggest is moving emails into your main inbox and marking them as not spam – and of course telling all your friends to sign up and do the same.
- A friend of mine (former editor at major UK outlet) set up a news site a little less than a year ago. They have a large audience, which is heavily skewed towards hedge funds, family offices and pro traders. If you are interested in advertising with them (may suit a PoP or company capable of offering pro service) then get in touch by replying to this email or on LinkedIn. They have a couple of features which I think would make them attractive to brokers particularly.
St Vincent and the LLCs
If you’d been talking about St Vincent & the Grenadines a few years ago, most people wouldn’t have even been able to point to it on a map. Today they still can’t point to it on a map but they do know it’s a good place to set up a CFD broker.
In fact, the country is probably the easiest place in the world from which to set up and run a broker. The local financial authority also doesn’t regulate the sector which probably requires no further elaboration.
But according to consultancy firm FiveComply, the Financial Services Authority, SVG’s local regulator, issued a statement on January 6th saying that companies operating from SVG…
- Will have their application to be incorporated in SVG rejected if they do not show regulatory licences for the jurisdictions they intend to operate in.
- Existing companies have 45 days to produce these documents.
Why do this?
I’m sure many of you are big fans of the St Vincent Times, an outlet that helps you keep up to date with all the goings on in that fabled country.
In November of 2022, the St Vincent Times reported on a company that had taken clients from the US (you can guess where this is going) and then abruptly shut down, without handing back their clients’ cash. This was not a unique incident – to paraphrase a former US president, there have been many such cases.
We can’t say definitively what has happened. However, it seems plausible that lots of people around the world are complaining and the FSA in SVG is feeling the heat from other countries as a result.
Speaking to a couple of people, it’s not entirely clear whether these measures are serious or a ruse to make it appear as though the FSA is doing something to tackle scams but business will continue as before.
For instance, what happens if you don’t comply? You will face “sanctions”. What are these sanctions and what happens if you face them? No one seems to know.
Another alternative may be that brokers say something like…
“Dear FSA, thanks for your notice. Fortunately we only operate in regions where you don’t need a licence so we’re not submitting anything to you. Sincerely, Faceless Broker Owner.”
It’s hard to believe this can continue indefinitely and the likelihood is that changes will be forced upon the local regulator at some point in the future, as has arguably already happened in Vanuatu.
Assuming that does happen it means life is going to be very hard for unregulated brokers. Not only will it become tougher, perhaps even impossible, to set up in SVG, it is also much harder to get access to MT4/5. In short, it seems like it will be increasingly difficult for these companies to set up a company and get access to trading platforms.
In the meantime, SVG continues to be a very popular place to set up a broker. Of the 65 companies set up there in December, I would estimate that at least 40 of them are in the online trading industry.
Why didn’t Saxo SPAC?
At the end of last year we learnt that Saxo Bank had cancelled plans to go public via a special purpose acquisition company (SPAC).
That deal was cancelled in December, with the parties involved citing “challenging market conditions”.
So what was the actual reason? We can’t say for sure but it’s fun to speculate.
SPACs are peculiar in that investors in their IPOs are able to redeem their shares and get their principal back once a merger agreement has been made.
When this happens, and sometimes >90% of them do so, then the SPAC managers essentially lose a large proportion of the cash they need to complete their acquisition. To make up for this, they typically arrange for further capital raising to take place at the same time as the merger.
But as research from Bloomberg Law published in February of last year notes…
“[As] the SPAC market became more crowded heading into 2021, and more complicated by regulatory developments, accounting-related issues, aftermarket performance issues from completed transactions, and other factors, every new deal announcement was no longer assured to result in a stock price bump.”
What may have happened with Saxo’s listing is that Disruptive Capital, the SPAC which it was supposed to merge with, was probably going to get a lot of redemptions. As markets have fallen off a cliff in the past year, they would then probably have struggled to secure the additional capital needed to complete the deal.
As I said above, this is all speculation and there could be other reasons why the deal ultimately didn’t go through.
Saxo is still keen to go public though. Reports from Reuters this week indicate the company is weighing up a listing in Copenhagen.
Apparently the company is valued at 2bn euros. Based on 2021’s profits, which are likely higher than 2022’s were, that would be about 20x profits, which is pricey but definitely not in the same ballpark as some of the other massively inflated valuations we saw during the pandemic.
A positive point here is that Saxo’s CEO and founder Kim Fournais was allegedly going to up his stake in the business at roughly that valuation when the SPAC merger happened. Most SPACs felt like a way for existing shareholders and others to cash out at massive valuations but it’s hard to argue that’s the case if the founder is buying shares. So who knows? Maybe expansionary efforts are underway at Saxo.
Microsoft and the LSE
Something I’ve been meaning to write about for a while here now is Microsoft’s investment in the London Stock Exchange Group at the end of last year.
The tech company acquired a 4% stake in the LSE, but the deal was structured so that the exchange group had to commit to spending $2.8bn on Microsoft cloud products over the next 10 years.
Google made a similar deal with derivatives exchange operator CME Group last year. Interestingly, the press release that went out with that deal noted (bolding is mine) that…
“CME Group will migrate its technology infrastructure to Google Cloud beginning next year with data and clearing services, and eventually moving all of its markets to the cloud.”
I’m not a tech infrastructure person so if any readers have thoughts on this it would be interesting. if everything moves to the cloud, would that make latency less of a thing? Would you be able to co-locate servers if all infrastructure sits on Google / Microsoft cloud?
Assuming the answer to the latter question is no, that seems like it would represent a big shift in market infrastructure. Again, happy to have comments on this.
