With China’s recent ban on cryptocurrency trading, whose popularity had been skyrocketing in the country, we didn’t think we were in store for another policy shock from the Chinese authorities. Apparently, we were wrong.
As it turns out, the Chinese have another surprise up their sleeves for the global financial world. Over the course of the new year’s first two weeks, a period traditionally set aside for holiday vacations in the Chinese corporate world, a retinue of financial brokerage players with foreign origins was called into meetings with top regulatory officials. The thrust of their meetings – exit the Chinese market within two weeks, or else.
An interview with one of the foreign exchange brokers (BMFN CEO Luis Sanchez) called into one of these meetings sheds some light on the recent developments and what this might mean for the future of foreign exchange and leveraged financial product trade in the country.
Note: BMFN, after three years operating in four Chinese cities, shut down its entire China operation within a month of meeting with the regulators.
A: The financial retail sector in China experienced a boom period in the past three years. About two years ago, the stock exchange grew stale. Forex trading quickly became the trading mode of choice for many local investors as leveraged options lost their luster.
After jumping from one platform to another in quick succession, investors landed on questionable financial products, with the cryptocurrency and ICO phenomenon being a prime example, and the government quickly followed to regulate or shut them down just as quickly. Forex remained, and everyone migrated there.
Q: Will Forex brokerage be faced with the same fate as cryptocurrency and ICOs?
A: The Forex industry in China will never be the same as we have known it in the past. The abrupt call to meet with the regulatory agencies was completely unexpected and alarming, and my alarm was justified when I was presented with a list of new regulations demanding that we exit the market within a certain time frame. Whether the FX market will survive in some way or move underground is hard to predict, but I can say for sure that things will never be the same.
A: Not necessarily, but after the preliminary inquiries into our operations the tone of the discourse became decidedly stern on their end, at which point they went on to outline what they required of us. There was no overt threat, per se, but it was clear that this was not a negotiation but a decree being communicated to us.
Q: What was your reaction to all this?
A: There was only one reaction to make – compliance. We consulted with the board of BMFN afterward and came to the only reasonable conclusion to be made – that Forex in China was now illegal. We had closed our doors within two weeks and began to wind up our extensive operational network in the country.
A: Speaking realistically, I’m inclined to believe it will go underground. Technology has made it easier to participate in the market, as software such as Metatrader can be acquired as easily as one does with online gaming and gambling. There is still money to be made, and somebody is going to go for it.