ESMA issues positive opinion on Cypriot restrictions for CFD offering to retail investors

Maria Nikolova

ESMA’s opinion is published shortly after it became clear that CySEC is abandoning the risk-based approach to CFD leverage caps.

MiFID II implementation likely to be set back even further

The European Securities and Markets Authority (ESMA) has published an opinion on product intervention measures taken by Cyprus Securities and Exchange Commission (CySEC). The opinion is published shortly after it became clear that the Cypriot regulator is abandoning its risk-based approach to CFD leverage caps, thus leaving its restrictions for offering CFDs to retail clients broadly the same as those once introduced by ESMA.

Hence, there is nothing astonishing in the fact that ESMA’s opinion issued today is supportive of CySEC’s actions. ESMA’s opinion concludes that the proposed measures are justified and proportionate.

Let’s recall that, CySEC had proposed to introduce stricter leverage limits for those retail clients falling within the grey area of the target market and slightly higher leverage limits for the retail clients falling within the upper tier of positive target market. Put simply, various leverage caps would have been applied to various categories of retail clients. But CySEC has abandoned this plan.

Last week, however, CySEC said it received feedback from 15 respondents comprised of Investment Firms, one Industry Association, one National Competent Authority (“NCA”) of another Member State and one retail investor. The retail investor requested CySEC to reconsider its approach and to refrain from introducing any measures particularly in relation to leverage. The NCA raised concerns in relation to the proposed divergence from ESMA measures under CP-02-2019, particularly in relation to whether such divergence will create confusion amongst residents of the specific Member State as to the content of restrictions that are applicable to them.

In relation to the position of the NCA, CySEC said it shared the concerns in relation to the cross-border application of measures and the confusion that might be created by the adoption of different measures across the European Union by the NCAs. To this end, CySEC said it believes that the most appropriate way forward is to structure its measures in a way that incorporates the content of the measures taken by other NCAs when firms falling under its remit market, distribute or sell CFDs in the territory of such Member States.

As a result, the Cyprus National Product Intervention Measures (‘CyNPIMs’) now envisage the adoption of the same leverage limits for all retail clients, with ranges from 2:1 to 30:1 dependent on the type and volatility of the underlying asset:

  • 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.

ESMA’s opinion also concludes that it is necessary for the national competent authorities of other Member States and the Central Bank of Cyprus to take product intervention measures that are at least as stringent as ESMA’s measures.

Read this next

Retail FX

ThinkMarkets expands CFDs lineup to over 4000 ETFs and shares

ThinkMarkets has expanded its service offering by incorporating 2500 new CFDs on shares and ETFs on its ThinkTrader platform.

Retail FX

France regulator warns investors of Omega Pro, Businessempire.fr

France’s financial markets regulator alerted investors that scams related to Omega Pro Ltd are beginning to circulate, with the blacklisted firm capitalizing on the situation to run a range of “unrealistic” offers.

Digital Assets

Web3 platform Grand Time paid $2 million in token earnings to date

Community-driven Web3 platform Grand Time said its offering – which includes a multifaceted platforms and its native token – has been gaining significant traction highlighted by impressive operational metrics.

Institutional FX

FX volumes at MOEX halved in April as ruble gains gorund

Currency trading at Moscow Exchange (MOEX) halted its upward route in April as monthly volumes nearly halved from a month earlier.

Digital Assets

FTX US adds stock trading, fractional shares to crypto platform

FTX US, the American subsidiary of crypto exchange FTX has kicked off stock trading feature to its customers in an effort to compete with popular platforms such as Robinhood and eToro.

Industry News

UK FCA empowered to remove brokers’ permissions in 28 days

Businesses with permissions they don’t need or use, risk misleading consumers. These new powers will enable us to take quicker action to cancel permissions that are not used or needed.

Industry News

CFTC charges $44m Ponzi scheme but millions may have fled to foreign crypto exchange

The CFTC alleged that defendants transferred millions of dollars to an off-shore entity that, in turn, may have transferred funds to a foreign cryptocurrency exchange. None of these funds were returned to the pool.

Technology

Saxo Bank deploys Adenza to address Basel and EBA requirements

The integration of ControllerView will enhance Basel-driven capital calculations and reporting at Saxo Bank in support of the bank’s multijurisdictional capital and liquidity reporting requirements throughout Denmark, Switzerland and UK, with plans to expand into the Netherlands.

Executive Moves

ComplySci appoints CTO, CPO, and CLO to further regtech’s product expansion

ComplySci offers compliance software used by more than 1400 global institutions to identify risk and address regulatory compliance challenges.

<