What Do ESMA Regulations Mean for Self-Trading Brokers

Since its establishment in 2011, the European Securities and Markets Authority (ESMA) has been a highly active body. It wouldn't be wrong to call it a watchdog of the financial markets across Europe. This body was formed under the ESMA regulations, the main objectives of which are to alleviate any risks to the financial stability of the region and to ensure transparency in trading.


Although some of its provisions are restrictive for the trading industry, there are benefits to be reaped as well. One of the biggest advantages of being compliant with such regulations, according to Tradesocio, a provider of tailored fintech solutions for the financial services sector, is that it fosters greater trust amongst investors.


Here’s a look at some of the positive outcomes resulting from the ESMA regulations.


Single EU Rulebook


The implementation of consistent regulations across Europe is bound to set a level playing field and create an orderly securities market. This supervisory convergence will harmonise the law and lead to a uniform interpretation by national authorities. Such coherence will remove uncertainties and make it easier for brokers and fund managers to comply with the requirements.


Improved Reputation of the Trading Industry


Regulation of the trading industry by the ESMA will clear its name in the hearts of people who still doubt its ways. This, in turn, will bring trading to the mainstream, even for conservative investors. The result will be an increase in business for self-trading brokers.


Separating Credible Brokers from Unreliable Ones


In the online space, it has become quite difficult to distinguish bad actors from genuine service providers. However, with the recently updated regulations, well-established brokers will have the advantage of being recognised for their ESMA compliant practices. At the same time, clients will benefit from investing with a dependable self-trading broker.


Informed Investors


The ESMA regulations require that brokers inform investors about the risks involved in trading, regardless of the instrument chosen. This will ensure that the potential trader is better prepared for the outcomes. Moreover, being aware of the risks, they won’t just give up after the first loss they suffer. Rather, they will be in for the long haul.


Market Stability


One of the main objectives of the regulations is to check for potential threats to market stability. This will facilitate a suitable environment for trading, as the highs and lows will be balanced. The key factors of supply and demand will play the main role, making it easier for brokers to determine the profitability of their endeavours. This will help prevent over-speculation.


Unified Data Collection


One of the functions of ESMA is to collect and process data from the European financial markets. This would mean that the entire data will be integrated at one place, thereby reducing the cost of reporting. Brokers will also benefit, since they will no longer have to go through inefficient processes by delegated authorities.


Tradesocio offers fintech solutions to private investment banks, investment management firms, hedge funds, asset managers and brokerage houses. Tradesocio’s fintech solutions comply with ESMA, CySEC, MiFID II and many more. They also offer KYC and compliance modules to ease the administrative burden ESMA placed on large financial services companies.


To arrange a product demo or enquire about our solutions please email sales@tradesocio.com