Regulation of OTC derivatives intermediaries

BACKGROUND OF THE STUDY

The Financial Markets Association of Vanuatu (the “FMA”) has engaged me to conduct a study into over-the-counter derivatives (“OTC Derivatives”) regulation across various jurisdictions. The FMA is a self-regulatory body for Vanuatu financial dealers license (“FDL”) holders which provide traders with platforms to buy and sell financial instruments and securities online. The study was commissioned to assist the FMA in formulating suggested improvements to Vanuatu’s present regulatory regime under the FDL scheme. The final report of the study aims to provide a high-level comparative study of regulatory regimes for financial intermediaries providing online, cross-border trading of OTC Derivatives. We have already done the research on the legislative frameworks of about 10 comparable jurisdictions, and were hoping that your inputs can add value to the report.

SCOPE

SUBJECT:

The study is focused on the legislation regulating intermediaries (such as dealers, brokers and market makers) of OTC Derivatives.

PRODUCTS:

OTC Derivatives would include options, contracts for differences, futures etc, whose value may be derived from anything from commodities prices, equities, stock indices, interest rates, cryptocurrencies and more. “Over-the-counter” would exclude exchange-traded products.

JURISDICTIONS:

The jurisdictions surveyed are: Australia, Bahamas, Belize, BVI, Cyprus, Labuan, Mauritius, Seychelles, Singapore, and Vanuatu.

REGULATORY MEASURES:

The regulatory measures undertaken by the jurisdictions covered in this study generally fell under the following heads:

(i) Licensing standards (Subsidiary measures include: Initial capital requirements, Security deposits, Track record requirements, Fit and proper requirements, Incorporation, domicile and physical presence requirements, Requirement to submit AML / CFT and/or business plans, Fees and duration of application process)

(ii) Prudential standards (Subsidiary measures include: On-going capital requirements, Margin requirements, Insurance requirements)

(iii) Business Conduct standards (Subsidiary measures include: Prohibitions against certain advertising or marketing tactics, Marketing standards, Customer due diligence requirements, Safeguards against market misconduct such as best execution requirements, Conflicts of interest requirements, Segregation of customer moneys / assets, Provision of statements of accounts to clients)

(iv) Business supervision standards (Subsidiary measures include: Annual audited accounts requirements, Annual AML / CFT audit requirements, Other periodic reporting requirements to the regulator)

(v) Record-keeping standards (Subsidiary measures include: Document retention requirements)

(vi) Investor-specific grievance-handling mechanisms (Subsidiary measures include: Complaints tribunals for investor-customer disputes, separate from the courts)

(vii) Regulatory Treatment of Cryptocurrency Derivatives and Payments Using Cryptocurrencies (e.g. permitted but unregulated, vs outright banned)

We hope you could provide your views on the following:

  • 1. In your view, which are the 3 most attractive jurisdictions for offshore OTC derivatives intermediaries (e.g. brokerages and dealers) to obtain licensing, and, very briefly, what makes them attractive?

    Please order the juridiction: the first one is the most attractive, the last one the less attractive. Your response does not need to be limited to the 10 jurisdictions we have surveyed.

  • (1)
  • (2)
  • (3)
  • 2. When OTC Derivatives intermediaries (such as online brokerages) are choosing a jurisdiction obtain a license, which of the regulatory subsidiary measures from the examples in (i) to (vii) above do they look to have / avoid??
  • Let us know the top 3 subsidiary measures, with brief elaboration on why. For this question, please only consider the regulatory factors. This study is interested in regulatory and legislative factors, so factors such as low taxes, educated workforce, access to banking etc should be ignored when answering this question.

  • 3. If possible, kindly provide a short (3 or 4 lines each) summary of your views on the OTC derivatives intermediary regulatory environment for each of the 10 jurisdictions surveyed.

    Is it too lax? Is it too strict? Have recent changes made it unpopular with intermediaries thinking of getting licensed there?

  • (1) Australia
  • (2) Bahamas
  • (3) Belize
  • (4) BVI
  • (5) Cyprus
  • (6) Labuan
  • (7) Mauritius
  • (8) Seychelles
  • (9) Singapore
  • (10) Vanuatu
  • 4. In jurisdictions which are attractive to OTC Derivatives intermediaries, what do you see as the most likely medium-term (3 to 5 years) future trends for the regulation of such intermediaries?
  • (e.g. economic substance requirements being adopted, compliance with EU / OECD / G20 / IOSCO or other standards etc)

  • 5. Can you please put in order 1 to 10 the 10 jurisdiction in regard of these criteria bellow keeping in mind the strength of the legislation and the balance with the open to business mindset of the Jurisdiction

    • Admission Standards
    • Prudential Standards
    • Business Conduct Standards
    • Business Supervision Standards
    • Record Keeping Standards
    • Investor-specific Grievance Handling Mechanisms (e.g. a complaints tribunal for investor-customer disputes, separate from the courts)
    • Regulatory Treatment of Cryptocurrency Derivatives and Payments Using Cryptocurrencies
    • Quality of Service company on the ground
    • Australia
    • Bahamas
    • Belize
    • BVI
    • Cyprus
    • Labuan
    • Mauritius
    • Seychelles
    • Singapore
    • Vanuatu

  • Information about you

  • (eg consultant, dealer, broker etc)

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