Forex online trading is a dynamic industry where flexibility, agility and innovation are of key importance to success. This was highlighted in

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2 Forex online trading is a dynamic industry where flexibility, agility and innovation are of key importance to success. This was highlighted in January 2015 when the Swiss National Bank decided unexpectedly to give up the 1.20 EUR/CHF cap. The impact of this decision is far-reaching. One of the biggest global brokers required a bailout in the hundreds of millions of dollars. Many smaller brokers are also on the edge of surviving due to their open positions and lack of liquidity.

3 Key differentiation factors of online FX brokers include speed of execution, smart order routing, customizable algorithms, highly scalable low-latency technology, multiple platforms (up to 5 for some brokers), good customer service, mobile solutions and provision of social trading capabilities etc. While some of these will continue to play a vital role for future brokers, recent developments suggest that there is an urgent need for change in order to stabilize the industry. The online FX trading industry has not been affected by regulations as much as other financial services branches. However, this is already changing. The first step, which we hope will be supported by brokers, is to reduce the leverage levels. Leverage of 1:100 or even 1:200 is simply not sustainable. Each shock or intervention, such as the one from the SNB, reveals systemic vulnerabilities. One of the options is to considerably reduce the applied leverage levels as soon as possible via investor protection regulations. It is widely acknowledged that the majority of the online FX broker s clients are inexperienced. Statistics also show that more than 80% of them lose money or have lost their whole equity capital at least once during their investment process. These resemble the statistics of a casino - far from the regulator s vision for investor protection. Clients need to understand fee and mark-up structures and how their transactions are executed. Some brokers struggle to justify the price levels at which they close out their client positions in the moments of extremely high volatility. Since such market turbulences will not disappear, there needs to be a framework in place to demonstrate that the broker has applied their best effort to defend the client s interests. This will avoid adjusting closed positons based on ambiguous criteria on following days. Tier 1 banks offer online trading platforms of some of the bigger brokers to their customers on a WLP (White Label Partnership) basis. The risks that such an agreement for cooperation might impose on the bank s image are likely to trigger an ongoing review. It is imperative to ensure that appropriate controls and procedures are put in place to protect clients. In addition, the ongoing dissatisfaction with the return on investment of traditional asset classes is reinforcing the trend to consider FX as its own asset class. More should be done to understand the long-term impacts of this trend. In the context of the expected tighter regulations, online FX brokers should try to adjust their public image in order to target a different client segment more risk-averse, disposing more equity capital, perhaps with fewer transactions but a higher trade volume, having more expertise and experience in managing the risks involved. As a consequence, the client retention and incoming funds rate should rise and the rate of account closures due to stop out should decrease. This change of client type together with additional value-added services will help the industry stabilize and evolve. In addition to facilitating speed and cost effectiveness, technology is necessary to support transparency and regulatory compliance. With so many proven solutions already in the market, the need to build in-house capabilities requires evaluation. Costs and time-to-market can be considerably improved by using an existing package, either as an inhouse hosted solution or on a WLP basis. Specifically, mobile tools are not considered as nice to have any more, but rather mandatory in order to remain competitive. Recent market events have unveiled vulnerabilities within the online FX broker community. One of the main impacts of these events will be further consolidation of the market, with smaller and unprofitable players being bought out or closed down. The future belongs to companies that dare to change the image of the industry and focus on client sustainability, seeking professional investors as longer term clients rather than short term traders or speculators.

4 Provide proven knowledge and project support from a flexible in-house pool of expertise in the area of online trading strategy and operations. Define and/or validate and implement strategy in regard to business model, vendors, user interface, digital tooling and platform features, operations, liquidity, pricing etc. Manage vendor relationship, including expectations and priorities management, vendor selection and RfP process, negotiating agreements, building collaborative partnerships with vendors, performance evaluation and management. Conduct targeted online trading market studies and analysis. Develop and implement White Label Partnership concepts and strategy.

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6 Christine Mar Ciriani Natasha Leigh Giles Martin Salutski Capco an FIS TM company is a global business and technology consultancy dedicated solely to the financial services industry. We work in this sector only. We recognize and understand the opportunities and the challenges our clients face. We apply focus, insight and determination to consulting, technology and transformation. We overcome complexity. We remove obstacles. We help our clients realize their potential for increasing success. The value we create, the insights we contribute and the skills of our people mean we are more than consultants. We are a true participant in the industry. Together with our clients we are forming the future of finance. We serve our clients from offices in leading financial centers across North America, Europe, Africa and Asia Amsterdam Antwerp Bangalore Bratislava Charlotte Chicago Düsseldorf Frankfurt Geneva Hong Kong Johannesburg London New York Orlando Paris San Francisco Singapore Toronto Vienna Washington DC Zürich To learn more, contact us in the UK on , in Continental Europe on , in North America on or visit our website at CAPCO.COM 2015 The Capital Markets Company NV. All rights reserved. T EU

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