A critical examination of the MiFID requirements applicable to FOREX trading platforms

Abstract

This dissertation discusses whether the MiFID requirements provide sufficient investor protection to retail investors against forex risks. Many Authorities of different Member States in EEA are proposing and implementing requirements, restrictions and prohibitions that go beyond the MiFID requirements, to address areas that MiFID does not tackle or areas that need improvement. Hence, this study aims to assess the reasoning behind some of the new proposals and requirements. Also, this dissertation focuses on the benefits and drawbacks of achieving regulatory harmonisation between all Member States to diminish opportunities of regulatory arbitrage that are currently present on the forex market under the MiFID passporting rights. A critical analysis on the MiFID requirements and the new requirements was carried out through the gathering and analysis of existing literature, and through primary data that was collected from the online surveys answered by the Maltese Regulator and forex brokers. This study shows that ideally forex traders are educated on the nature and risks of forex products to increase investor protection against big and unpredictable losses. Also, this study questions the integrity and necessity of the MiFID requirements and the new requirements implemented by Authorities to achieve investor protection. Furthermore, it suggests some requirements that all Authorities should implement, such as slippage boundaries that were implemented by the MFSA and even introduces the idea of implementing some form of latency restrictions on forex brokers to protect retail investor against the risks that latency imposes on them. Finally, this dissertation concludes that the MiFID requirements are a step in the right direction, however there are a number of forex risks that retail investors have to face that are not addressed by this directive, and there are also a number of other investor protection concerns that Authorities have, which again MiFID does not address.