ESMA adopts final product intervention measures on CFDs and binary options

The European Securities & Markets Authority (ESMA) has formally adopted new measures on the provision of contracts for differences (CFDs) and binary options to retail investors. The measures were published in the Official Journal of the European Union on 1 June 2018 and will start to apply from 2 July 2018 for binary options and from 1 August 2018 for CFDs.

ESMA states that this notice period should be used by firms to fully implement the product intervention measures, which will apply for at least three months from the commencement date.

The restrictions on the marketing, distribution or sale of CFDs to retail investors consist of the following measures:

Leverage limits on opening positions

Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which will 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.
Margin close-out protection 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.

A negative balance protection on a per account basis

This will provide an overall guaranteed limit on retail client losses.

Preventing the use of incentives by a CFD provider

A restriction on the incentives offered to trade CFDs.

A firm specific risk warning delivered in a standardised way

A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

Next steps

Firms who offer CFDs will need to ensure that they are in a good position to comply with these new, temporary product intervention measures by 1 August 2018.

How can we help?

Moore Stephens has a wealth of experience helping firms thrive in this rapidly changing industry. Our sector specialists can help you implement regulatory requirements and establish good governance frameworks, processes and procedures. We can provide the support and guidance clients need to deal with these new risks and opportunities.

For more information, or if you would like to discuss how the new rules will affect your business, please contact the Regulatory Consulting team.

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