Online Rolling Spot Forex and Derivative Trading Services

Malta has become an attractive jurisdiction for the licensing and operation of businesses dealing in rolling spot forex and/or derivative contracts. The basis for such attractiveness lies in a combination of several factors, including an attractive corporate tax regime, a solid regulatory framework, and access to the whole European market in virtue of the passporting rights available in terms of the EU Markets in Financial Instruments Directive (‘MIFID’), which was adopted in 2004 with the primary objective of ensuring a harmonised regime for the authorisation and operation of investment firms within the EU.

Licensing - Primary Considerations

Trading in contracts for difference, derivatives in relation to foreign exchange, and/or rolling spot forex in Malta or from Malta is a licensable activity in terms of the Maltese Investment Services Act.

Online trading in contracts for difference, derivatives in relation to foreign exchange, and/or rolling spot forex is typically undertaken in one of the two following ways:

1. the operator acting as a riskless principal (often as a ‘white label partner’), with each trade or position being offset by a corresponding trade or position being entered into by the operator with another principal at the same time and price, and the operator acting as counterparty to both transactions. Such a model would require a Category 2 Investment Services Licence, covering execution of orders on behalf of clients; or
2. the operator dealing on its own account, against its proprietary capital. Such a model would require a Category 3 Investment Services Licence.

The main difference in the requirements which are applicable to Category 2 and a Category 3 Investment Services Licences relates to the capital requirements which must be satisfied in either case.

A Category 2 investment services licence holder is required to have a minimum initial capital of Euro 125,000 and “own funds” which are higher than either: (i) initial capital; or (ii) the sum of all the risk components calculated in terms of the rules but excluding the operational risk component; or (iii) the fixed overheads requirement.

A Category 3 investment services licence holder, on the other hand, is required to have an initial capital of Euro 730,000 and “own funds” which are higher than either: (i) initial capital; or (ii) the sum of all the risk components calculated in terms of the rules including the operational risk component.

Should you require any assistance or advice in connection with obtaining an investment services licence for such business models, or should you require any further details in connection with the application procedure, kindly contact us on info [at] zammit-law [dot] com