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#1 25-11-2019 14:31:04

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 2626
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Canada imitates the ESMA, adopts new rules for leveraged products

Canada imitates the ESMA, adopts new rules for leveraged derivative products


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The first phase of the proposed rule changes will require that brokers obtain approval from the Investment Industry Regulatory Organisation of Canada (IIROC) before they can market highly leveraged products.

The ban on binary options and the restrictions on the supply of CFDs to retail customers in Europe are also shaping the regulation of Canada's online trading industry, as evidenced by IIROC's proposed changes to online derivative trading rules.

Frankly, the changes will result in new requirements for over-the-counter derivatives (such as CFDs and currency pairs), with reforms to be implemented in two stages. The second phase will affect margins, but consultation on this has not yet been made public. For now, IIROC has released the proposed changes to the first phase.

The proposals include a requirement that all new complex and highly leveraged products and accounts available to retail clients and changes to existing products and accounts offered to retail clients must be approved in advance by the IIROC.

Note that this requirement already applies in Quebec for OTC derivatives. Exemptions have recently been granted to BBS Securities Inc.; Interactive Brokers Canada Inc; CMC Markets Canada Inc; Oanda (Canada) ULC Corporation; Friedberg Mercantile Group Ltd.

IIROC proposes the coding of the requirement for approval prior to offering such highly leveraged products.

This new requirement, according to IIROC, seeks to align IIROC's requirements with the approval requirements for products introduced in Europe, resulting in the ban on binary options and the introduction of restrictions on the supply of CFDs.

On the positive side, IIROC has already been granted this authority by certain Canadian Securities Administrators (CSA) authorities for CFD products offered to retail traders. The codification of this power and the extension of its scope to all highly leveraged products introduces important regulatory control that can help ensure that highly leveraged products have little or no likelihood of being profitable are not offered to retail traders.

While it is expected that the IIROC will rarely use this power, they argue that it is important that they have this power to intervene, particularly in situations where no other national regulator has the power to intervene (as when a broker proposes to offer a foreign product with high financial leverage to its traders).

IIROC is in the process of developing a tool to prevent, in extremely rare cases, the supply of a highly leveraged investment product that has been deemed inadequate.

Phase 2 will include proposed changes to current margin requirements to adequately limit leverage. Phase 2 will be released for public comment at a later date.

Comments on the Phase 1 proposals must be received by 19 February of next year.

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