Consob Issues Warning On Proprietary Trading Firms

Consob, Italy’s securities regulator, has warned investors about the dangers of retail prop trading. It said that they are online trading that claims to offer profits but may result in financial losses.

The Italian market regulator explains the prop trading industry in a very different way from the firms operating within it.

The regulator noted that these services, advertised online and on social media, are like finance video games where users take skill tests to earn profits. Named “financed trading accounts,” “funding trading,” and “shadow investment game,” users often need to enroll in paid training before trading.

These Schemes Promise Profits And Attract Users To Invest With Prop Firms

Consob stated that users in these schemes typically go from simulated trading to what is claimed to be real trading using funds from “prop firms.” These firms attract users by promising to share some profits.

The regulator noted that these simulations present severe risks for savers and could lead to the loss of invested resources.

Consob has received multiple reports from users who have enrolled in these offers. Complaints include the difficulty of the tests, which some claim are designed to encourage participants to retry, and the failure to distribute promised profits,” the regulator noted

The Financial Market Watchdogs Aim To Regulate Proprietary Trading Activities

Regulators started looking closely at proprietary trading in February. This caused the popular trading platform provider MetaQuotes to pull out from some parts of the market. It also made it harder for investors from the USA to access certain services and led to some companies temporarily stopping their operations.

Financial market watchdogs in Belgium (FSMA) and Spain (CNMV) have issued similar alerts, showing that European regulators are increasingly worried about this trend.

In late May, a report revealed that the European Securities and Markets Authority (ESMA) held talks about prop trading rules. Remonda Kirketerp-Møller, founder and Chief Executive Officer of Muinmos, a regulatory compliance firm, expressed his view about the discussion. He stated that “regulators have been studying, collecting data, and talking with industry people to learn more about prop trading.”

Right now, prop trading firms follow laws like rules for protecting consumers, keeping data safe, and obeying international sanctions. Most of these companies are based in the UAE, the UK, the US, and Saint Vincent and the Grenadines. Some are also registered in the EU.

In early June, the Czech regulator suggested that prop trading firms “might have to follow MiFID rules.” The models prop trading firms, technically funded trader services, can vary, and some might need to follow the MiFID rules. One of the major prop trading firms, FTMO, is in the Czech Republic.