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#1 31-12-2018 08:21:13

johnedward
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From: Paris - France
Registered: 21-12-2009
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ESMA extends CFD restrictions - Germany makes them permanent

ESMA extends CFD restrictions - Germany makes them permanent


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Article by FinanceFeeds:

The European Securities and Markets Authority (ESMA) recently announced that it will renew the restriction on the marketing, distribution and sale of contracts for differences (CFDs) to traders from 1 February 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 1 February 2019 on the same terms as the previous renewal decision that went into effect on 1 November 2018.

The renewal includes the following:

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

2. A margin close out rule on a per trader 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 trader 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 warnings 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 broker webpage where the full risk warning is disclosed.

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

Let’s note that earlier in December, the UK Financial Conduct Authority (FCA) initiated 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).

CFD restrictions in Germany will become permanent in 2019

In the wake of the UK's Financial Conduct Authority and the ESMA, Germany's BaFin recently announced its intention to make the ESMA's CFD measures permanent.

The German regulator published its draft of a "general administrative act" on its website on Thursday morning. The law, which proposes a series of rules governing the sale of contracts for difference (CFD), is almost identical to ESMA's intervention measures. Companies have until next Thursday to comply with the rules.

Like France's AMF, BaFin has been much more opposed to the retail trading sector than some other regulators. Over the past two weeks, it published two lengthy documents to inform and advise individual traders so that they don't get scammed by forex brokers. The German regulator's decision to make ESMA's intervention measures permanent is therefore hardly surprising.


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