ESMA agrees on another three-month extension for CFD restrictions

Maria Nikolova

ESMA has agreed to renew the restrictions on the marketing, distribution or sale of CFDs to retail clients from May 1, 2019 for a further three-month period.

In an anticipated move, the European Securities and Markets Authority (ESMA) says today it has agreed to once again renew the restrictions on the marketing, distribution or sale of contracts for differences (CFDs) to retail clients. The measures will be renewed from May 1, 2019 for a further three-month period.

Regarding the rationale for the extension, ESMA explains that it considers that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist.

The measures will be renewed on the same terms as the previous renewal decision that started to apply on February 1, 2019.

This means that there will be leverage limits on the opening of a position by a retail client from 30:1 to 2:1, depending on the volatility of the underlying. Thus, the leverage cap is 30x for major currency pairs and 2x for cryptocurrencies.

The restrictions also include a margin close out rule on a per account basis. This standardises the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs. In addition, there has to be negative balance protection on a per account basis, as well as a restriction on the incentives offered to trade CFDs. Finally, CFD brokerages have to provide a standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

In the meantime, several EU countries have acted to implement investor protection measures similar to those advanced by ESMA. The latest example is France. Earlier this week, France’s financial markets authority AMF announced the opening of Consultation regarding measures restricting the offering of CFDs and banning the offer of binary options to non-professional investors at a national level.

The idea behind the proposals is to have rules for investor protection, analogical to those introduced by ESMA. These rules are set to work at a national level. Broadly speaking, the restrictions proposed by the French regulator are identical to those outlined by ESMA. The list includes negative balance protection and leverage restrictions for CFDs, for instance.

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