Entities intending to provide online forex trading in Malta must obtain a licence under the Investment Act, (“ISA”). Such licence is passportable under MiFID, if the service relates to contracts for difference, derivatives in relation to foreign exchange, and rolling spot forex. Providing a service with respect to foreign exchange which is acquired for held for investment purposes is also licensable under the ISA, however this is not considered a MiFID service and cannot therefore be passported under this EU Directive.
Online forex trading is generally provided in one of two forms, either by dealing on own account or by acting as a riskless principal (often as a ‘white label partner’). With respect to the latter, the entity would be involved in executing two matching trades (one with the client and one offsetting trade with another principal) entered at the same time and price, with the entity acting as counterparty to both transactions. This is considered as execution of orders on behalf of clients. In order for an entity to execute orders on behalf of clients, a category 2 investment services licence is required. On the other hand, an entity which would like to deal on its own account is required to have a Category 3 investment services licence.
The main difference in the requirements which are applicable to a category 2 and a category 3 investment services licence holder relates to the capital requirements which must be satisfied. It is therefore, advisable to review such requirements prior to completing the applications process.
An applicant intending to provide online forex trading, should complete the application process and it is advisable for the applicant to review the capital requirements applicable to Category 2 and Category 3 investment services licence holders.