1. What is the average percentage of notional exposure that you hedge as an overall market risk position?
|FX overall in previous calendar quarter*
|CFD Indices in previous calendar quarter
Why this is important: This describes average amount of net client exposure that is fully hedged at any point in time during a trading day, either internally by matching opposing interest from different clients or externally with the market. The higher the percentage, the less potential conflict of interest that a broker may have when acting as principal versus its client. A responsible broker should not take client profitability into account when determining a hedging strategy.
2. What is your net revenue and how does net revenue compare in relation to total client assets under management (AUM)?
Saxo’s 2016 revenues were EUR 400 million (DKK 3 billion), which represents only 3.5% of revenue in proportion to client AUM.
Why this is important: The lower the percentage, the more likely a broker fosters an environment that encourages responsible trading habits, and nurtures their clients for success. In addition, it’s important to explore and compare the relationship between leverage and profitability, given that Saxo has made the strategic decision not to offer clients what we would consider to be irresponsibly high leverage. We ensure that the leverage offered to clients is in line with dynamic market conditions respecting volatility levels and liquidity availability which, from time to time, may require responsible caps on leverage to protect our clients from adverse market conditions.
3. What is your current AUM and how has client AUM trended over the last 5 years?
Saxo’s current AUM is approximately EUR 13.5 billion (DKK 100 billion) and we have seen this figure more than double over the last five years with an annualised average rate of increase of nearly 25% YoY.
Why this is important: AUM generally changes according to the flow of money in to and out from a broker. It also fluctuates based on changes in the value of the underlying investments in client accounts. Increases in AUM demonstrate that consumers trust a broker with their funds and also highlights a broker’s desire and ability to foster a client base that is profitable, or otherwise satisfied with their performance.
4. Do you, or any related Group company, take proprietary positions?
Why this is important: Proprietary trading creates a conflict of interest that a broker may have when acting as principal versus its clients. This may include, but is not limited to, the misuse of client orders, positions and other information, along with the increase in the amount of risk on the balance sheet that could result in a lack of security of client funds if the broker were to fail.
5. Do you, or any related Group company, make hedge execution decisions based on client trading behaviour or account profitability?
Why this is important: Client trading behaviour and account profitability should not be a factor in deriving a broker’s hedging strategy.
6. Do you, or any related Group company, receive any form of P&L share from an FX hedging counterparty that relates to the post trade position P&L of the volume you hedge with them?
Why this is important: A responsible broker should not contravene any regulation that restricts payment for order flow, or hide behind any opaque undisclosed third party relationships which effectively result in the broker indirectly profiting from position taking based on its clients trading activity.