CySEC to reach decision on CFD restrictions by end of July

Maria Nikolova

CySEC will then inform ESMA on the content of the national product intervention measures in order for ESMA to issue an Opinion on the proportionality of the restrictions.

Following the launch of the Consultation Paper on Imposing National Product Intervention Measures (“NPIMs”) to Restrict the Marketing, Distribution and Sale of Contracts for Difference (CFDs), and the closure of the Consultation on June 14, 2019, the Cyprus Securities and Exchange Commission (CySEC) today announces that a decision on the content of the national intervention measures is expected to be reached by the end of July.

CySEC will then inform ESMA and other National Competent Authorities (NCAs) on the content of the measures so that ESMA may conduct its examination and issue an Opinion on the proportionality of the intended restrictions.

The ESMA restrictions on the CFD offering will expire on August 1, 2019. However, all Cyprus Investment Firms (CIFs) are told to continue applying the content of the measures under the ESMA Decision on CFDs irrespective of its deadline lapsing, until such time when the Cypriot measures are introduced – a process which is likely to take up to two months following the publication date of this Circular.

In particular, CIFs should comply with the content of the national product intervention measures adopted by other EU NCAs when marketing, distributing or selling CFDs in the territory of the respective Member State. Further, where a CIF markets, distributes or sells CFDs in the Republic of Cyprus or in the territory of a Member State that has not adopted national product intervention measures yet, or in a Third Country, it must abide by the content of the ESMA measures as if the measures were in force.

Let’s recall that, the Cypriot regulator wants to vary leverage caps for CFD trading depending on the type of retail investors. Put otherwise, some retail investors will see even harsher leverage restrictions than the ones introduced by ESMA, whereas others may see the restrictions relaxed.

According to CySEC, the ESMA Decision on CFDs does not distinguish between different subcategories of retails clients. MiFID II does not distinguish between different subcategories of retail clients either, but introduced the notion of target market. CySEC expects CFD providers will not sell such products to clients falling within the negative target market. However, CySEC cannot rule out the possibility that sales of such products might appear in the case of retail clients falling within the grey area of target market (i.e. those not falling neither within the positive target market nor within the negative target market).

CySEC also acknowledges that the term “retail client” encompasses different types of investors, with different levels of knowledge and financial position and the persons falling within the positive target market does not necessarily share the same level of knowledge and financial position.

For example, CySEC is proposing to introduce stricter leverage limits for retail clients falling within the ‘grey area’ of the target market, and affording slightly higher leverage limits for retail clients falling within the upper tier of the positive target market.

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