Vanuatu is a small country located in the South Pacific. Made up of a series of islands, it was once famous for playing host to a tribe that believe Prince Philip was a god and a Romanian-Israeli guy that won the lottery 14 times.
More recently it has become one of the ‘go-to’ locations for CFD providers looking to get an offshore licence. At least 80 companies from the sector now have an entity of some description there, with plenty of major players, including Fineco and CFI, among them.
Most brokers have done so because Vanuatu has low taxes and it doesn’t prohibit them from offering things like high leverage or inducements to trade. In simple terms, the regulator is more lax so you can operate in a way that would not be viable under an EU or ASIC licence.
That being the case, it was interesting to see the regulator in Vanuatu saying it intends to revoke the licence issued to Vantage Group’s entity in the country. A statement put out by the Vanuatu Financial Services Commission on October 24th said that they intend to revoke Vantage’s licence in 14 days, unless the company can justify its actions before then.
What were its actions? According to the document published by the regulator, Vantage was…
“Providing false and misleading information in regards to the Professional Indemnity Insurance Cover.”
So possibly the company was providing some incorrect information as to how funds are stored and how those funds would be compensated for if they were lost due to the actions of Vantage (as opposed to a trader just losing money).
Whatever the case, there is something very funny about a broker going to Vanuatu, ostensibly so they can behave in a more cavalier way. And then instead of losing their ASIC or CySEC licence, they end up being penalised by the Vanuatu regulator and losing that one. Onwards to St Vincent and the Grenadines!
Is XTB going to launch crypto + stocks in the UK?
Rumours circulating this week indicate XTB’s UK division will be announcing a “major product launch” in January of next year. What could it be?
The broker already offers cash equities through one of its European entities (via Saxo Bank) but has not yet launched the service in the UK. It seems plausible that it will do the same soon though.
However, another interesting detail is that the company hired a head of product for crypto in its London office last month. Said person spent almost a decade with IG Group, followed by several product roles in crypto at a few different companies.
Nothing was mentioned about this in the company’s latest financial report, although one interesting tidbit of information there is that they are going to launch an entity in South Africa next year as well.
If XTB are going to launch crypto and stocks, it would fit with some sentiment (albeit anecdotal) that I’ve heard over the past few months. Three senior broker executives have now told me, all in separate conversations, that having crypto, stocks and CFDs is effectively the ‘baseline’ set of products you need to operate with today.
Stock trading to me seems useful purely for marketing purposes. For example, I am now greeted by a massive IG billboard at my tube stop when heading to work in the morning. As it is for investments, it features no cigarette pack style risk warning about client losses. There is also probably less competition on advertising, given that the average CAC for a stock trading client can be <3% of what it is for CFD customers (or at least it was in the past).
The question that’s more interesting to me here is what the level of crossover is into CFDs. Presumably companies aren’t making much money on stocks, unless they really go for it, so they have to rely on this process for it to work. If you factor in the costs of adding stocks + marketing expenses, is it worth it?
It’s probably similar for crypto, although the spreads and fees on crypto are so insane that I imagine you could end up just printing money with it. On the other hand, I think cryptos are worth 0 and that this will unravel in the next couple of years. I accept I could be completely wrong about this though.
Wise launches investing in Europe
One thing that happened last week which seems interesting was Wise launching its investment product in Europe. I wasn’t aware that this was a thing they do in the UK already so forgive me if this is old news to you.
Wise seems to have two ‘investment’ options. One is in a standard index fund (open-ended, not an ETF) and another in money market funds. You can hold your cash balance with the company in these funds but then spend it as well.
There are a few things that make this interesting.
One is that the fund is an iShares World Equity Fund. It is denominated in euros but then has about 70% of its AUM in dollars because of the US’s massive weighting in the MSCI World Index, which the fund seeks to track.
So presumably this means that if you are investing in the UK, you have to factor in the performance of the Euro against GBP and then also the Euro’s performance against the dollar.
Then you have to wonder how Wise is managing the risk that comes with allowing people to instantly spend holdings held as units in an OEIC. There seem to be a couple of potential problems here. One is if there is a big rush to redeem holdings or transfer cash. Will Wise have the cash holdings to manage this if it can’t redeem units in the fund at that point in time?
Another potential problem may be a kind of funding gap, which could arise if your balance is based on the fund’s net asset value (NAV). So imagine Wise states that your balance is £100. You then go and spend £50. But then the NAV is updated and it turns out your ‘true’ balance was only £80. What happens? I guess this is less likely given that you could monitor market movements via an ETF with live pricing or just looking at the index but still.
What’s also striking about this set up is that it’s very close to what Ant Financial was doing in China prior to them getting wrecked by the regulator and having their CEO Jack Ma disappeared. They gave users the option to hold cash balances in a money market fund via Alipay. The thing is, it wasn’t really clear to users that this is what they were doing as it was presented more as a type of savings account, as opposed to an investing one.
It’s unlikely that Wise’s fund option will pose the same sort of systemic risk that Alipay’s did but the set up is similar. Offering the ability to spend money directly when it’s ostensibly held in fund units just seems like a bad idea.
The last point is whether Wise could expand their offering into other products. They already have a massive user base and could probably ‘switch on’ things like stock investing or crypto quite easily. There are no signs they will do this as of yet but it’s probably worth keeping an eye on.
Telegram usernames
This is not particularly CFD-related but a lot of people in the sector seem to use Telegram in some shape or form.
Many of you have likely seen this already but I thought it was cool that Telegram now has a marketplace to buy usernames, kind of like buying URLs via GoDaddy.
Some usernames you can bid for at the moment include…
- eToro
- CMCMarkets
- Capital or capital_com
Telegram has only listed names starting with the letters A-H but they’ll be adding more later this year. So anyone looking to troll a competitor may wish to buy ‘Plus500’ or ‘IGGroup’ when they come up for sale. In the meantime, CFDsWeekly is already taken by yours truly (so feel free to send any tips my way).
