Currently, Germany has one of the strongest economies in the Eurozone, and drives many events in European financial markets. There is great depth in the country’s financial markets, with regards market capitalization and transaction size. The German financial market is regulated very robustly by the Federal Financial Supervisory Authority. This authority is better known by its abbreviation BaFin, which stands for Bundesanstalt fur Finanzdienstleistungsaufsicht.
BaFin is an independent federal institution with headquarters in Bonn and Frankfurt. It falls under the supervision of the Federal Ministry of Finance and is responsible for overseeing the operations of around 2,700 banks, 800 financial services institutions and more than 700 insurance undertakings. The regulatory powers of BaFIN are extensive, and it also maintains a database of all trading accounts located in German brokerage houses. Brokers are obliged by law to give this information to BaFIN and keep the list up to date.
Current state of play for brokers and Forex traders in Germany
It was only ten years ago that forex trading was done via telephone. Orders were placed by calling a broker on the phone and instructing them to execute the order for you. Things have moved on in leaps and bounds since then and automation has changed everything. A large proportion of trade volume in the forex market is now done by Germany and most forex trading takes place online. Control of forex trading in Germany is exercised by Germany’s central bank, the Bundesbank, commercial companies, hedge funds, forex brokers, investment management companies and authorized banks.
Recent figures show that more than 19% of worldwide forex trading can be traced back to Deutsche Bank. One of the largest liquidity providers in the forex market. Growth of the forex market in Germany has been fuelled by multi-bank forex portals which are very popular.
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In 2013 an indication that the growth of the forex market and its speedy liberalization had been too much for Germany to bear, came in the form of the LIBOR scandal. Major players in the financial world were accused of rigging the LIBOR (London Interbank Offered Rate), Germany included. The head of BaFIN has commented that a number of criminal acts have been detected with relation to LIBOR manipulations, and is planning to prosecute wrongdoing traders and companies. BaFIN believes that radical changes are needed in the way forex trading is offered by Forex brokers in Germany and across the globe. And is the best way to safeguard the markets’ integrity.
What does the future hold for Forex brokers in Germany?
The scandal surrounding LIBOR rigging was a major news item in 2013, and seriously threatened the integrity of the forex market. Following from the event the German government has begun to push for changes in the way forex is offered to traders. Angela Merkel’s government now believes that currency and precious metal trading should be taken off trading platforms and moved to physical exchanges. It’s seen as a way of overhauling the global financial markets along with its partners.
The German finance minister, believes that stronger financial regulation is the only way to go, in order to counter the manipulation of other forex benchmarks, and will enhance the integrity of price-setting. The idea of moving away from spot markets to more regulated exchanges was first brought up by BaFIN. Elke Koenig, the head of BaFIN, has said that making forex and commodity trading exchange-mediated investments will help to uncover trading patterns that are manipulating prices But it was also admitted that such moves are still far fetched and any changes need to be taken in stages.
If the move is taken to its logical conclusion forex markets will experience major transitions. Change has already started but there is a long way to go. In 2010 CFTC introduced a series of measures that curbed retail participation in forex trading, by changing margin requirements for forex and option trading.
Germany stands at the forefront of reforms and austerity measures for failing EU states, so it comes as no surprise that the country is seriously considering taking regulation of German forex brokers to another level. It’s highly likely that there won’t be a long wait before German forex brokers are required to lead their clients into exchange-traded forex trading.
In the meantime, traders have to make do with trading currencies like everyone else on platforms. In Germany many of them are owned by German banks who operate through smaller subsidiaries. For the time being, forex traders in Germany have to be content with doing things the same way as everyone else. However, traders who participate using the services of German brokers can rest assured that BaFIN has their best interests at heart. The state of regulation in the country is very strong, because BaFIN has the conviction and courage needed to protect traders’ funds and maintain the integrity of the forex market.