ESMA to extend CFD restrictions for further three months

Maria Nikolova

The measure will start to apply from February 1, 2019 for a period of three months.

The European Securities and Markets Authority (ESMA) today announces that it will renew the restriction on the marketing, distribution or sale of contracts for differences (CFDs) to retail clients from February 1, 2019 for a further three-month period.

The EU regulator explains that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist. It has therefore agreed to renew the measure from February 1, 2019 on the same terms as the previous renewal decision that got into effect on November 1, 2018.

The renewal includes renewing the following:

  1. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:
  • 30:1 for major currency pairs;
  • 20:1 for non-major currency pairs, gold and major indices;
  • 10:1 for commodities other than gold and non-major equity indices;
  • 5:1 for individual equities and other reference values;
  • 2:1 for cryptocurrencies;

2. A margin close out rule on a per account basis. This will standardise 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;

3. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4. A restriction on the incentives offered to trade CFDs; and

5. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts. The standardised risk warning will continue to allow use of the additional abbreviated risk warning introduced in the previous renewal decision for cases where the standard terms of a third party marketing provider have a character limit which is lower than the number of characters comprising the full or the abbreviated risk warning, provided that the advertisement also links to a webpage of the provider on which the full risk warning is disclosed.

ESMA plans to adopt the renewal measure in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website.

Let’s note that the UK Financial Conduct Authority (FCA) has earlier this month opened a consultation on permanent restrictions on the offering of CFDs to retail clients. The FCA’s proposals are, in their essence, the same as the ESMA’s existing, EU-wide temporary restrictions on these products, but they differ in some important aspects. First off, the proposed measures by the UK body are set to be permanent. Second, the restrictions would apply to a wider range of products. The FCA is proposing to extend the rules to closely substitutable products, including so-called turbo certificates. The regulator is also envisaging 30:1 leverage limits for CFDs referencing certain government bonds (compared to 5:1 under ESMA’s measures).

Read this next

Metaverse Gaming NFT

Astar Network’s ad features 329 top brands to support Web3 in Japan

Blockchain innovation hub Astar Network is making strides in promoting the Web3 adoption worldwide. In yet another milestone, the smart contracts platform has run a national newspaper ad in Japan that set a new global record with participation from 329 blue-chip firms.

Digital Assets

Pyth Network welcomes onchain data from crypto market maker Auros

“By sharing our high-frequency trading data with a truly onchain decentralized network, we aim to foster innovation that will lead to better financial solutions for all participants.”

Digital Assets

Tokeny integrates Ownera to boost liquidity of tokenized assets

“The adoption of FinP2P will result in higher liquidity and better access to capital and assets by providing regulated firms with one secure point of connection to multiple digital asset networks across the globe.”

Digital Assets

BingX launches subsidy vouchers to cover user losses in copy trading

“With the introduction of copy trade subsidy vouchers, new users can easily try out trading strategies without incurring losses.”

Digital Assets

Talos expands sales team: Frank van Zegveld, Matt Houston, Hillary Conley

“The extensive leadership and industry expertise of these new hires will enable us to build long-lasting relationships as we continue to build out our global presence in EMEA and beyond.”

Executive Moves

FX and CFD broker Emporium Capital hires industry veteran Robert Woolfe as COO

His past experience within the FX and CFD industry includes top roles at Capital Index, London Capital Group, GKFX, ETX Capital, and IG.  “I’m delighted to be part of the Emporium Capital team and spearheading the brokerages global expansion plans”, he said about the appointment.

Retail FX

Hantec Markets wins six categories at Global Retail Forex Awards 2022

Hantec Markets has recently rebranded with a new website and a renewed growth strategy that features the #TimeToStrike hashtag to signify a time of renewed growth for the broker.

Industry News

Nexo sued for operating crypto brokerage without license and lying about it

“Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. Nexo must stop its unlawful operations and take necessary action to protect its investors.”

Industry News

Apex Group launches EU Taxonomy Solution as part of ESG offering

“Enabling our in-scope clients to demonstrate alignment with the EU Taxonomy is only the beginning – with over twenty green taxonomies in place, in development or under discussion worldwide it is crucial that investors act to understand and report taxonomy alignment data sooner, rather than later.”

<