eToro and Brokers
eToro’s klanten genieten van de financiele diensten van gerespecteerde en gereglementeerde brokers in de hele wereld. Wij eisen de hoogste standaards zodat onze klanten zeker kunnen zijn dat zij traden via betrouwbare en professionele liquiditeitsverschaffers die binnen strikte officiele regelgeving werken. Ieder van onze brokers moet voldoen aan strikte en uitgebreide compliance termen die opleggen hoe zij gelden van klanten behandelen, financiele transacties beveiligen en die periodische financiele rapportage onder nationale en internationale wet opleggen.
eToro’s brokersdiensten worden geleverd door eToro (Europe) Ltd. – een Cypriotisch Investeringsbedrijf (CIF) geregistreerd bij de Cypriotische Securities & Exchange Commission (CySEC) onder licentienummer 109/10. eToro (Europe) Ltd. opereert onder de Markets in Financial Instruments Directive (MiFID) en is geautorizeerd in 40 Europese landen te werken.
In Asia Pacific, worden eToro’s brokersdiensten geleverd door IC Markets dat gereglementeerd is onder ASIC (AFSL 335692) de regelgevende autoriteit voor financiele diensten in Australie.
In de VS, worden eToro’s brokersdiensten geleverd door FX Solutions. FX Solutions is gereguleerd onder de Commodity Futures Trading Commission (CFTC) en de National Futures Association (NFA).
eToro’s brokers zijn geregistreerd onder de volgende regulerende autoriteiten:
|United Kingdom||Financial Services Authority (FSA)|
|Germany||Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin)|
|Italy||Commissione Nazionale per le Societa e la Borsa (CONSOB)|
|Spain||Comision Nacional del Mercado de Valores (CNMV)|
|France||Banque de France|
|Denmark||Finanstilsynet (The Danish FSA)|
|Greece||Capital Markets Commisions (CMC)|
|Luxemburg||Commission de surveillance du Secteur financier (CSSF)|
|Netherlands||Netherlands Authority for the Financial Markets (AFM)|
|Portugal||Comissão do Mercado de Valores Mobiliários (CMVM)|
|Belguim||Commission Bancaire, Financiere et des Assurances|
|Estonia||Finantsinspektsioon / Estonian Financial Supervision Authority|
|Lithuania||Lietuvos respublikos vertybiniu popieriu komisija|
|Romania||Romanian National Securities Commission (CNVM)|
|Slovakia||Národná Banka Slovenska|
|Australia & Asia Pacific|
|Australia||Clients from Asia Pacific can trade through IC Markets Ltd licensed by The Australian Securities and Investments Commission (ASIC)|
|USA||Operating through eToroUSA, an introducing broker to FX Solutions. Both eToroUSA and FX Solutions are regulated by The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).|
The law which provides for the provision of investment services, the exercise of investment activities, the operation of regulated markets and other related matters following the implementation of the Markets in Financial Instruments Directive (MiFID) governing all EU member states, requires the categorization of clients.
eToro (Europe) Ltd. has proceeded with the new categorization of clients as retail clients, professional clients or eligible counter parties in accordance with the Law. All Clients are categorized as Retail Clients when opening a trading account and have the highest level of protection (such as eligibility to the Investor Compensation Fund, Best Execution, and Safeguarding Clients Assets etc). Clients are allowed to request to be reclassified in writing or eToro (Europe) Ltd. may categorize them otherwise, according to the specifications, conditions, and procedures of MiFID.
“Retail Client” is a client who is not a professional client or an eligible counter party.
“Eligible Counter party” is a professional client or legal entity who provides investment services that involve the reception and transmission or the execution of orders. Clients under this category have the lowest level of protection.
“Professional Client” is a client who possesses the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that they incur. In order to be considered a professional client, the client must comply with the following criteria:
Α. Categories of clients who may be considered to be professionals:
The following shall be regarded as professionals in relation to all investment services and activities and financial instruments:
- Entities which are required to be authorized or regulated to operate in the financial markets. The list below should be understood as including all authorized entities carrying out the characteristic activities of the entities mentioned: entities authorized by a member state under a European Community Directive; entities authorized or regulated by a member state without reference to such Directive; and entities authorized or regulated by a non Member State
(a) Credit institutions;
(b) Registered Investment Firms;
(c) Other authorized or regulated financial institutions;
(d) Insurance undertakings;
(e) Collective investment schemes and management companies of such schemes;
(f) Pension funds and management companies of such funds;
(g) Commodity and commodity derivatives dealers;
(h) Other institutional investors.
2. Large undertakings meeting two of the following size requirements, on a proportional basis:
(a) balance sheet total at least: 20.000.000 euro
(b) net turnover at least: 40.000.000 euro
(c) own funds at least 2.000.000 euro
3. National and regional governments, public bodies that manage public debt, central banks, international and supranational institutions such as the World Bank, the Internal Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organizations.
4. Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitization of assets or other financing transactions.
They must however be allowed to request non professional treatment and eToro (Europe) Ltd. may agree to provide a higher level of protection.
It is the responsibility of the client, considered to be a professional client, to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved. This higher level of protection will be provided when a client who is considered to be a professional enters into a written agreement with eToro (Europe) Ltd. to the effect that it shall not be treated as a professional for the purposes of the applicable conduct of business regime.
Β. Clients who may be treated as professionals on request:
Clients other than those mentioned above, including public sector bodies and private individual investors, may also be allowed to waive some of the protections afforded by the conduct of business rules of eToro (Europe) Ltd..
eToro (Europe) Ltd. is therefore allowed to treat any of the above clients as professionals provided the relevant criteria and procedures are fulfilled.
Such as that the client is capable of making his own investment decisions and understanding the risks involved (fitness test). The company reserves the right to decline any of the above requests for different categorization
Requests for more information and re-categorization shall be submitted to http://www.etoro.com/application/help/contact.aspx.
Best Execution and Order Handling Policy
1.1 eToro (Europe) Ltd. (“the Company”) is an Investment Firm regulated by the Cyprus Securities and Exchange Commission (“CySEC”) with license number 109/10.
1.2 This Policy is issued pursuant to, and reflects Compliance with, the European Directive 2004/39/EC Of 21 April 2004 on Markets in Financial Instruments (MiFID) and with the implementation in Cyprus legislation on Investment Services and Activities and Regulated Markets Law of 2007 – Law 144(I)/2007 (the “Rules”) that apply to the Company. It is not intended to create third party rights or duties that would not already exist if the policy had not been made available and it does not form part of any contract between the Company (or any of its affiliates) and any client or prospective client.
1.3 What follows is an overview on how trades and orders are executed, the factors that can affect an execution’s timing and the way in which market volatility plays a part in handling orders when buying or selling a financial product.
1.4 Upon acceptance of a client order and when there is no specific client instruction regarding the execution method, the Company will endeavor to execute that order in accordance with the Best Execution policy.
1.5 Nevertheless, whenever there is a specific instruction from a client, the Company shall execute the order following the specific instruction. In fact, any specific instructions from a client may prevent the Company from taking the steps that it has designed and implemented in the execution policy to obtain the best possible result for the execution of those orders in respect of the elements covered by those instructions.
1.6 This Policy is available to clients upon request and is also made available on our Website. The Company reserves the right to amend or supplement this Policy at any time.
2. FINANCIAL PRODUCTS TO WHICH THIS POLICY APPLIES
2.1 The financial products to which this Policy applies are all of the products offered by the company.
2.2 The trading conditions of the above products are available on the Company’s official web site at www.etoro.com
3. COMPANY’S APPROACH TO BEST EXECUTION
3.1 The Company identifies and seeks to obtain the most favorable terms reasonably available when executing an order on behalf of a client.
3.2 To do this, the Company relies on three basic components:
- state‐of‐the‐art technology for routing, monitoring and executing orders;
- careful consideration of the elements of order execution;
- regular and rigorous examination of the overall execution quality.
3.3 When executing a buy or sell order, the Company always considers:
- the classification of the client as retail or professional;
- the nature of the client order;
- the characteristics of the financial instruments that are subject to that order;
- the characteristics of the execution venues to which that order can be directed.
4. THE ROLE OF TECHNOLOGY IN EXECUTING CLIENTS’ ORDERS
4.1 The Company uses automated systems to route and execute client orders. When clients’ orders are received by the Company, it is automatically executed
4.2 For OTC financial instruments, the Company may trade against its own proprietary desk or will route the orders to other market maker firms. Many of these firms also provide automated executions of orders.
5. THE ELEMENTS OF OUR BEST EXECUTION POLICY
5.1 Routing determinations are based on five main criteria and are regularly reviewed by the Company. Hence to determine the best way to execute an order for a client the Company takes into consideration:
(1) Speed and Likelihood of the Execution. Due to the levels of volatility affecting both price and volume, the Company seeks to provide client orders with the fastest execution reasonably possible.
(2) Price Improvement and Overall Consideration of Costs. Orders are routed to market makers and/or market centers where opportunities for price improvement exist.
(3) Size Improvement. In routing orders, the Company seeks markets that provide the greatest liquidity and thus potential for execution of large orders.
(4) Overall Execution Quality. When determining how and where to route or execute an order, the Company’s traders draw on extensive day‐to‐day experience with various markets and market makers, focusing on prompt, sequential and reliable execution.
(5) Clients’ specific instructions. The Company will always execute client orders in accordance with the instructions given by that client or on its behalf. Consequently, if a client requires an order to be executed in a particular manner and not in accordance with the Company’s best execution principles set forth herein, the client must clearly state his/her desired method of execution when he/she places the order. To the extent that a client instruction is not comprehensive, the Company will determine any non‐specified components of the execution in accordance with these best execution principles.
5.2 The Company invites the clients to bear in mind that the duty of best execution not only relates to price but also involves the consideration of various factors including cost, speed and likelihood of execution and settlement. Even if a trade appears not to have been executed at the best possible price, it does not necessarily constitute a violation of the duty of best execution.
6. REGULAR REVIEW OF EXECUTION QUALITY AND OF EXECUTION VENUES
6.1 The Company regularly evaluates the overall quality of its order executions. The Company studies the quality of executions for listed and OTC retail market orders.
6.2 The Company’s Management periodically evaluates the execution quality and makes recommendations regarding order routing practices.
7. EXECUTION VENUES CURRENTLY CHOSEN
7.1 Execution Venues are the entities with which the orders are placed or to which the Company transmits orders for execution. For the purposes for the financial instruments provided by the Company, the Company act as a principal or an agent on the Clients behalf; therefore the Company is not always the sole Execution Venue of the Client orders. The Company might transmit the Client order in the external market (other liquidity providers) if the order is for the financial instrument provided by the Company.
7.2 The Company acknowledges that the transaction entered in Financial Instruments with the Company are not undertaken on a recognized exchange, rather they are undertaken through the Company’s Trading Platform, and accordingly, they may expose the Client to greater risks that regulated exchange transactions. Therefore the Company may not execute an order, or it may change the opening (closing) price of an order in case of any technical failure of the trading platform or quote fees. The Client is obliged to close an open position of any given Financial Instruments during the opening hours of the Company’s Trading platform. The Client also has to close any position with the same counter party with whom it was originally entered into, thus the Company.
7.3 The Company places significant reliance to the above execution venue(s) based on the above mentioned factors and their relevant importance. It is the Company’s policy to maintain such internal procedures and principles in order to act for the best interest of its client and provide them the best possible result ( or “best execution”) when dealing with them.
8. PRICE VOLATILITY
8.1 Volatility is one factor that can affect order execution. When clients place a high volume of orders with brokers, order imbalances and backlogs can occur. This implies that more time is needed to execute the pending orders. Such delays are usually caused by the occurrence of different factors: (i) the number and size of orders to be processed, (ii) the speed at which current quotations (or last‐sale information) are provided to the Company and other brokerage firms; and (iii) the system capacity constraints applicable to the given exchange, as well as to the Company and other firms.
8.2 In order to minimize such a risk, the Company has in place procedures and arrangements which to the furthest extent possible provide for the prompt, fair and expeditious execution of client orders.
9. EFFECTS ON ORDER EXECUTION
9.1 Clients should be aware of the following risks associated with volatile markets, especially at or near the open or close of the standard trading session:
- Execution at a substantially different price from the quoted bid or offer or the last reported sale price at the time of order entry, as well as partial executions or execution of large orders in several transactions at different prices.
- Opening prices that may differ substantially from the previous day’s close.
- Locked (the bid equals the offer) and crossed (the bid is higher than the offer) markets, which prevent the execution of client trades.
10. ALTERNATIVE TYPES OF ORDERS
10.1 Given the risks that arise when trading in volatile markets, you may want to consider using different types of orders to limit risk and manage investment strategies.
(1) Market order. With a market order the client instructs a broker to execute a trade of a certain size as promptly as possible at the prevailing market price. Financial institutions are required to execute market orders without regard to price changes. Therefore, if the market price moves significantly during the time it takes to fill a client’s order, the order will most likely be exposed to the risks outlined above, including execution at a price substantially different from the price when the order was entered.
(2) Limit order. With a limit order, the client sets the maximum purchase price, or minimum sale price, at which the trade is to be executed. As a limit order may be entered away from the current market price, it may not be executed immediately. A client that leaves a limit order must be aware that he/she is giving up the certainty of immediate execution in exchange for the expectation of getting an improved price in the future. Limit orders may be routed to an exchange without human intervention.
(3) Stop order. Different from a limit order, a stop order allows selling below the current market price or buying above the current market price if the stop price is reached or breached. A stop order is therefore a “sleeping” order until the stop price is reached or breached. When the stop price is reached or breached, the stop order is converted to a market order. See section 10.1(1) for market orders.
(4) Trailing Stop Order. The trailing stop order is a stop order as described in 10.1(3) but the trailing stop price moves according to parameters set by the client. This way the trailing stop can be used to sell if price drop more than a specified distance from the highest price traded, or to buy if the price trades above a set level form the lowest traded price.
Complaint Handling Policy
An investment firm must deal with any expression of dissatisfaction about any financial services activity provided by the Company.
eToro (Europe) Ltd. predefined Complaint Handling Policy sets out the process employed by eToro (Europe) Ltd. when dealing with complaints received by clients.
Your queries should be addressed to our Customer Support Department to http://www.etoro.com/application/help/contact.aspx or on the phone 00 357-250-25060, by fax 442-030-311-342 or to the Client’s assigned Account Manager.
Your query should be in writing and should include at least your identifying information including your full name, username, the nature and description of the complaint, including the date and time the issue arose. Please note that complaints which fail to contain all the relevant information may not be handled within our regulator response time. Typically, your query will be handled by our support department or by your account manager. Any complaint shall be thoroughly examined and reviewed by our support department, applicable account manager and our compliance officer with the aim of resolving the compliant in a fair and professional manner. Clients will be informed on the time frame of the investigation and the response will be given as soon as practical.
We encourage you to contact us if you have any questions regarding our Complaint Handling Policy.
Conflicts of Interests Policy
This Policy is issued in accordance with and reflects compliance with the EU directive 2004/39/EC on Markets in Financial Instruments (MiFID) and the implementation in Cyprus legislation on Investment Services and Activities and Regulated Markets Law of 2007 – Law 144(I)/2007 that apply to eToro (Europe) Ltd..
This Policy is only for informational purposes and is not intended to, and does not create third party rights or duties that would not already exist if the Policy had not been made available. The Policy does not form part of any contract between eToro (Europe) Ltd. (or any of its affiliates) or any Client or prospective Client.
This Policy demonstrates that eToro (Europe) Ltd. is taking all reasonable steps to identify and avoid conflicts of interest situations that may arise between eToro (Europe) Ltd. and its employees and its Clients or among its Clients during the course of the provision of investment services.It is the duty of the Compliance Officer to develop and maintain this Policy so as to prevent and resolve potential conflicts of interest.
For the purposes of identifying the types of conflict of interest which may arise in the course of providing investment and ancillary services or a combination thereof and whose existence may damage the interests of a Client, eToro (Europe) Ltd. need to take into account, by way of minimum criteria, the question of whether eToro (Europe) Ltd. or a relevant person, or a person directly or indirectly linked by control to eToro (Europe) Ltd., is in any of the following situations, whether as a result of providing investment or ancillary services or investment activities or otherwise:
a) eToro (Europe) Ltd. or that person is likely to make a financial gain, or avoid a financial loss, at the expense of the Client
b) eToro (Europe) Ltd. or that person has an interest in the outcome of a service provided to the Client or of a transaction carried out on behalf of the Client, which is distinct from the Client’s interest in that outcome
c) eToro (Europe) Ltd. or that person has a financial or other incentive to favour the interest of another Client or group of Clients over the interests of the Client
d) eToro (Europe) Ltd. or that person carries on the same business as the Client
e) eToro (Europe) Ltd. or that person receives or will receive from a person other than the Client an inducement in relation to a service provided to the Client, in the form of monies, goods or services, other than the standard commission or fee for that service
eToro (Europe) Ltd. shall maintain policies, controls and procedures to manage the identified conflicts of interest. eToro (Europe) Ltd. shall undertake ongoing monitoring of business activities to ensure that internal controls are appropriate, some of which are detailed below:
a) Effective procedures to prevent or control the exchange of information between relevant persons engaged in activities that may cause a conflict of interest where the exchange of that information may harm the interests of clients.
b) The separate supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services to, clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of eToro (Europe) Ltd..
c) The removal of any direct link between the remuneration of relevant persons engaged in one activity and the remuneration of, or revenues generated by, different relevant persons principally engaged in another activity, where a conflict of interest may arise in relation to those activities.
d) Measures to prevent or limit any person from exercising inappropriate influence over the way in which a relevant person carries out investment services or activities.
e) Measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate investment or ancillary services or activities where such involvement may impair the proper management of conflicts of interest.
eToro (Europe) Ltd. shall also have in place Chinese Walls procedures: No communicating of information and data between the various business units of eToro (Europe) Ltd. and especially, whether eToro (Europe) Ltd.’s officers and employees have access to data in the possession of business units to which such access is not permitted, so that to prevent the flow of confidential information in a way that which adversely affect the interest of the Clients.
Where a conflict of interest arises, eToro (Europe) Ltd. will, if made aware of it, disclose it to a client or potential client prior to undertaking investment business for that client. If eToro (Europe) Ltd. does not believe that disclosure is appropriate to manage the conflict, we may choose not to proceed with the transaction or matter giving rise to the conflict.
eToro (Europe) Ltd. reserves the right to review and/or amend its Policy whenever if deems this necessary/appropriate.
Investors Compensation Fund
eToro (Europe) Ltd. is a member of the Investor Compensation Fund for Customers of Cypriot Investment Firms (CIFs) and other Investment Firms (IFs) which are not credit institutions (the “Fund”).
The Fund was established under the Investment Firms (IF) Law 2002 as amended (the “Law”) and the Establishment and Operation of an Investor Compensation Fund for Customers of CIFs Regulations of 2004 (the “Regulations”), which were issued under the Law.
The object of the Fund is to secure any claims of Covered Clients against members of the Fund and the Fund exists to compensate Covered Clients for any claims arising from the failure by a member of the Fund to fulfill its obligations regardless of whether that obligation arises from legislation, the client agreement or from wrongdoing on the part of the member of the Fund.
A failure to fulfill its obligations consists of the following:
- A failure to return to a Covered Client funds owed to them or funds which belong to them but are held by a member of the Fund, directly or indirectly, in the framework of the provision by the member of the Fund to the client of a covered service and which the client has requested that the member of the Fund returns in exercise of their relevant right; OR
- A failure to hand over to a Covered Client financial instruments that belong to them and which the member of the Fund holds, manages or keeps on its account, including the case where the member of the Fund is responsible for the administrative management of the said financial instruments.
The payment of compensation which will be initiated where:
- The member of the Fund is unable to meet client claims provided that this inability is resultant from its financial circumstances which show no realistic prospect of improvement in the near future; OR
- A judicial authority has on reasonable grounds directly related to the financial circumstances of the member issued a ruling with the effect that investors’ ability to lodge claims against it are suspended.
A well founded claim by the client against the member must exist.
Covered Services: Covered Services are the services listed on eToro (Europe) Ltd.’s license (109/10) issued by CySEC (Cyprus Securities and Exchange Commission).
The fund does not cover institutional or professional investors and the total payable compensation to each covered client may not exceed EUR 20,000, irrespective of the number of accounts held, currency and place of offering the investment service.
Covered Clients All eToro (Europe) Ltd. clients are covered by the Fund unless they fall within the following categories
1. The following categories of institutional and professional investors:
(a) Investment Firms
(b) Legal entities associated with eToro (Europe) Ltd. and, in general, belonging to the same group of companies
(d) Cooperative credit institutions
(e) Insurance companies
(f) Collective investment organizations in transferable securities and their management companies
(g) Social insurance institutions and funds
(h) Investors characterized by eToro (Europe) Ltd. as professionals
2. States and supranational organizations.
3. Central, federal, confederate, regional and local administrative authorities
4. Enterprises associated with eToro (Europe) Ltd. Managerial and Administrative staff.
5. Shareholders of eToro (Europe) Ltd. whose participation directly or indirectly in the capital of the member of the fund amounts to at least 5% of its share capital, or its partners who are personally liable for the obligations of the member of the Fund, as well as persons responsible for the carrying out of the financial audit of the member of the Fund as provided by the Law, such as qualified auditors.
6. Investors having in enterprises connected with eToro (Europe) Ltd. and in general of the group of companies to which eToro (Europe) Ltd. belongs, positions or duties corresponding to the ones listed in paragraphs 4 and 5 above.
7. Second-degree relatives and spouses of the persons listed in paragraphs 4, 5 and 6 as well as third parties acting for the account of these persons.
8. Apart from investors convicted of a criminal offence pursuant to the Prevention and Suppression of Money Laundering Activities Law of 1996 -2000, investor-clients of eToro (Europe) Ltd. responsible for facts pertaining to eToro (Europe) Ltd. that have caused its financial difficulties or have contributed to the worsening of its financial situation or which have profited from these facts.
9. Investors in the form of a company which due to its size is not allowed to draw a summary balance sheet in accordance with the Companies Law or a corresponding law of a Member State.
Prerequisites for Initiating the Compensation Payment Procedure: The Fund initiates the compensation payment procedure when at least one of the following prerequisites is fulfilled:
(a) The Cyprus Securities and Exchange Commission has determined that eToro (Europe) Ltd. is for the time being unable to meet its obligations arising from its investors-customers’ claims, in connection with the covered services it has provided, as long as such inability is directly related to eToro (Europe) Ltd.’ financial position which has no realistic prospect of improvement in the near future; OR
(b) A Court, based on grounds directly related to the financial position of eToro (Europe) Ltd., has made a ruling which has the effect of suspending the investors-customers‘ ability to lodge claims against eToro (Europe) Ltd..
Upon issuance of a decision by the Cyprus Securities and Exchange Commission or by the Court on the commencement of the compensation payment procedure, the Fund publishes in at least three national newspapers an invitation to the covered customers to make their claims against eToro (Europe) Ltd. arising from covered services, designating the procedure for the submission of the relevant applications, the deadline for their submission and their content.
Calculating the Amount of Payable Compensation:
The amount of compensation payable to each Covered Customer is calculated in accordance with the legal and contractual terms governing the relation of the Covered Customer with eToro (Europe) Ltd., subject to the rules of setoff applied for the calculation of the claims between the Covered Customer and eToro (Europe) Ltd.. The calculation of the payable compensation derives from the sum of total established claims of the Covered Customer against eToro (Europe) Ltd., arising from all Covered Services provided by eToro (Europe) Ltd. and regardless of the number of accounts of which the customer is a beneficiary, the currency and place of provision of these services.
The Fund is obliged to pay to each Covered Customer – claimant the compensation within three months from sending to the Cyprus Securities and Exchange Commission the minutes with the compensation beneficiaries.
For any further information regarding the Fund, please refer to the offices of the Administrative Committee of the Fund, at the following address: Administrative Committee of the Investor Compensation Fund for Customers of CIFs and other IFs: 32 Stasikratous Street, 4th floor P.O. Box 24996, 1306 Nicosia E-mail address: email@example.com Fax no.: 22 375762
Anti Money Laundry Policy
Cyprus enacted the appropriate legislation and has taken effective regulatory and other measures by putting in place suitable mechanisms for the prevention and suppression of money laundering and terrorist financing activities. Moreover, Cyprus is committed to apply all the requirements of international treaties and standards in this area and, specifically, those deriving from the European Union Directives.
Under the current Law, which came into force on 1 January 2008, the Cyprus legislation has been harmonized with the Third European Union Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (Directive 2005/60/ΕC).
As a licensed Investment Firm, eToro (Europe) Ltd. shall follow the regulations therefore must ensure that appropriate measures are taken to combat money laundering.
With accordance to the CySEC’s regulations, every Investment Firm must have own funds, which are at all times more than or equal to the sum of its capital requirement, when there is a minimum requirement set forth by law, under which no Investment Firm can operate. An Investment Firm must have in place sound, effective and complete strategies and processes to asses and maintain on an ongoing basis the amounts, types and distribution of internal capital that they consider adequate to cover the nature and level of the risks to which they might be exposed. These strategies and processes are subject to regular internal review and to the CySEC’s review, to ensure that they remain comprehensive and proportionate to the nature, scale and complexity of the activities of the Firm.
Safeguarding of Clients Assets
For the purposes of safeguarding clients’ rights in relation to financial instruments and funds belonging to them, an Investment Firm must keep such records and accounts as are necessary to enable it at any time and without delay to distinguish assets held for one client from assets held for any other client, and from its own assets. Such separation of accounts is being supervised both internally and externally, by the CySEC. We operate only with reputable payment institutions and payment providers such as Barclays’, Commerzbank and other first tier banks.
Pillar 3 Disclosures
Risk Management Disclosures – 2010
Scope of application
The Management of eToro (Europe) Ltd. (hereinafter the “Company”), in accordance with the provisions of Chapter 7 (Sub-Chapter A, Paragraphs 34 – 38) of Part C and Annex XII of the Cyprus Securities and Exchange Commission (hereinafter the “CySEC”) Directive DI144-2007-05 – “Capital Requirements of Investment Firms of 2010”, has an obligation to publish information relating to risks and risk management on an annual basis at a minimum.
The Company obtained its license with number CIF 109/10, to act as a Cyprus Investment Firm, on 14 January 2010. The information provided in this report is based on procedures followed by the Management to identify and manage risks for the year ended 31 December 2010 and on reports submitted to CySEC for the year under review.
1. Credit Risk
In the ordinary course of business, the Company is exposed to credit risk, which is monitored through various control mechanisms. Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date.
The Company has no significant concentration of credit risk. The Company has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables. Cash balances are held with high credit quality financial institutions and the Company has policies to limit the amount of credit exposure to any financial institution.
2. Market Risk
(1) Foreign Exchange Risk
The Company’s reporting currency is the United States Dollar. The Company is exposed to foreign exchange risk. Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Company’s functional currency. At the year-end the Company had certain receivables and cash balances denominated in foreign currencies. The main currencies, whose fluctuations may have an impact on the results of the Company, are the Euro, the British Pound, the Canadian Dollar and the Australian Dollar.
Management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
(2) Interest Rate Risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Company’s income and operating cash flows are substantially independent of changes in market interest rates. Other than cash at bank, which attracts interest at normal commercial rates, the Company has no other significant interest bearing financial assets or liabilities.
The Company’s management monitors the interest rate fluctuations on a continuous basis and acts accordingly.
(3) Liquidity Risk
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Company has policies and procedures with the object of minimizing such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.
3. Other Risks
(1) Operational Risk
Operational risk is the risk of loss arising from fraud, unauthorized activities, error, omission, inefficiency, systems failure or external events. It is inherent in every business organization and covers a wide range of issues.
The Company manages operational risk through a control-based environment in which processes are documented and transactions are reconciled and monitored. This is supported by a program of audits undertaken by the Internal Auditors of the company and by continuous monitoring of operational risk incidents to ensure that past failures are not repeated.
The Company calculates its operational risk using the basic indicator approach and takes the average over the last three years of the sum of its net income.
(2) Concentration Risk
This includes large individual exposures and significant exposures to companies whose likelihood of default is driven by common underlying factors such as the economy, geographical location, instrument type etc.
The Company’s experience in the collection of trade receivables has never caused debts which are past due and have to be impaired. Due to these factors, management believes that no additional credit risk beyond any amounts provided for collection losses is inherent in the Company’s trade receivables.
(3) Reputation Risk
Reputation risk is the current or prospective risk to earnings and capital arising from an adverse perception of the image of the Company on the part of customers, counter parties, shareholders, investors or regulators. Reputation risk could be triggered by poor performance, the loss of one or more of the Company’s key directors, the loss of large clients, poor customer service, fraud or theft, customer claims and legal action, regulatory fines.
The Company has transparent policies and procedures in place when dealing with possible customer complaints in order to provide the best possible assistance and service under such circumstances. The possibility of having to deal with customer claims is very low as the Company provides high quality services to clients. In addition, the Company’s Board of Directors are made up of high caliber professionals who are recognized in the industry for their integrity and ethos; this adds value to the Company.
(4) Strategic Risk
This could occur as a result of adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment. The Company’s exposure to strategic risk is moderate as policies and procedures to minimize this type of risk are implemented in the overall strategy of the Company.
(5) Business Risk
This includes the current or prospective risk to earnings and capital arising from changes in the business environment including the effects of deterioration in economic conditions. Research on economic and market forecasts are conducted with a view to minimize the Company’s exposure to business risk. These are analyzed and taken into consideration when implementing the Company’s strategy.
(6) Capital Risk Management
This is the risk that the Company will not comply with capital adequacy requirements. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Company has a regulatory obligation to monitor and implement policies and procedures for capital risk management. Specifically, the Company is required to test its capital against regulatory requirements and has to maintain a minimum level of capital. This ultimately ensures the going concern of the Company. Such procedures are explained in detail in the Internal Operations Manual of the Company.
The Company is further required to report on its capital adequacy monthly and has to maintain at all times a minimum capital adequacy ratio which is set at 8%. The capital adequacy ratio expresses the capital base of the Company as a proportion of the total risk weighted assets. Management monitors such reporting and has policies and procedures in place to help meet the specific regulatory requirements. This is achieved through the preparation on a monthly basis of management accounts to monitor the financial and capital position of the Company.
(7) Regulatory Risk
Regulatory risk is the risk the Company faces by not complying with relevant Laws and Directives issued by its supervisory body. If materialized, regulatory risk could trigger the effects of reputation and strategic risk. The Company has procedures and policies based on the requirements of relevant Laws and Directives issued by the Commission; these can be found in the Internal Operations Manual. Compliance with these procedures and policies are further assessed and reviewed by the Company’s Internal Auditors and suggestions for improvement are implemented by management. The Internal Auditors evaluate and test the effectiveness of the Company’s control framework at least annually. Therefore the risk of non-compliance is very low.
(8) Legal and Compliance Risk
This could arise as a result of breaches or non-compliance with legislation, regulations, agreements or ethical standards and have an effect on earnings and capital. The probability of such risks occurring is relatively low due to the detailed internal procedures and policies implemented by the Company and regular reviews by the Internal Auditors. The structure of the Company is such to promote clear coordination of duties and the management consists of individuals of suitable professional experience, ethos and integrity, who have accepted responsibility for setting and achieving the Company’s strategic targets and goals. In addition, the board meets at least annually to discuss such issues and any suggestions to enhance compliance are implemented by management.
(9) IT Risk
IT risk could occur as a result of inadequate information technology and processing, or arise from an inadequate IT strategy and policy or inadequate use of the Company’s information technology. Specifically, policies have been implemented regarding back-up procedures, software maintenance, hardware maintenance, use of the internet and anti-virus procedures. Materialization of this risk has been minimized to the lowest possible level.
4. Capital Management
The adequacy of the Company’s capital is monitored by reference to the rules established by the Basel Committee as adopted by the CySEC. In December 2007 the CySEC issued the Directive DI144-2007-05 for the calculation of the capital requirements of Investment Firms adopting the relevant European Union directive. The Directive was replaced in December 2010 by Directive DI144-2007-05 for the Capital Requirements of Investments Firms for 2010. Basel II consists of three pillars: (I) minimum capital requirements, (II) supervisory review process and (III) market discipline.
(1) Pillar I – Minimum Capital Requirements
The Company adopted the Standardised approach for Credit and Market risk and the Basic Indicator approach for Operational risk.
According to the Standardised approach for credit risk, in calculating the minimum capital requirement, risk weights are assigned to exposures, after the consideration of various mitigating factors, according to the exposure class to which they belong. For exposures with institutions, the risk weight also depends on the term and maturity period of the exposure. The categories of exposures the Company is exposed to with regards to credit risk, are deposits with banks, fixed assets and other current assets.The Sstandardised measurement method for the capital requirement for market risk adds together the long and short positions of foreign exchange risk according to predefined models to determine the capital requirement. The main sources of foreign exchange risk for the Company are certain bank balances in foreign currencies.
For operational risk, the Basic Indicator approach calculates the average, on a three year basis, of net income to be used in the risk weighted assets calculation.
(2) Pillar II – The Supervisory Review Process (SRP)
The Supervisory Review Process provides rules to ensure that adequate capital is in place to support any risk exposures of the Company in addition to requiring appropriate risk management, reporting and governance structures. Pillar II covers any risk not fully addressed in Pillar I, such as concentration risk, reputation risk, business and strategic risk and any external factors affecting the Company.
Pillar II connects the regulatory capital requirements to the Company’s internal capital adequacy assessment procedures (ICAAP) and to the reliability of its internal control structures. The function of Pillar II is to provide communication between supervisors and investment firms on a continuous basis and to evaluate how well the investment firms are assessing their capital needs relative to their risks. If a deficiency arises, prompt and decisive action is taken to restore the appropriate relationship of capital to risk.
(3) Pillar III – Market discipline
Market Discipline requires the disclosure of information regarding the risk management policies of the Company, as well as the results of the calculations of minimum capital requirements, together with concise information as to the composition of original own funds. In addition the results and conclusions of ICAAP are disclosed.
According to the CySEC Directive, the risk management disclosures should be included in either the financial statements of the investment firms if these are published, or on their websites. In addition, these disclosures must be verified by the external auditors of the investment firm. The investment firm will be responsible to submit its external auditors’ verification report to CySEC. The Company has included its risk management disclosures as per the Directive on its website as it does not publish its financial statements. Verification of these disclosures has been made by the external auditors and sent to CySEC.
(4) Capital adequacy ratio
The primary objective of the Company’s capital management is to ensure that the Company complies with externally imposed capital requirements and that the Company maintains healthy capital ratios in order to support its business and to maximise shareholders’ value.
The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions and the risk characteristics of its activities.
The CySEC requires each investment firm to maintain a minimum ratio of capital to risk weighted assets of 8%. The CySEC may impose additional capital requirements for risks not covered by Pillar I.
During 2010 the Company had fully complied with all externally imposed capital requirements
Under the Directive, Own Funds consists mainly of paid up share capital, retained earnings less any proposed dividends, translation differences and unaudited current year losses. Current year profits are not added to own funds unless they are audited.