ESMA have stated that it is reviewing the potential use of its product intervention powers under Article 40 of MiFIR to address investor protection concerns posed by the marketing, distribution and sale of Contracts for Differences (CFDs) and binary options to Retail Investors, including rolling spot forex.

ESMA is currently assessing the following restrictions:

• Leverage Limits on the opening of a position by a Retail Client, ranging from 30:1 to 5:1 to reflect the historical price behaviour of different classes of underlying assets. In particular:

I. for CFDs in major currency pairs (comprising two of the following, US Dollar, Euro, Japanese Yen, Pound Sterling, Canadian Dollar or Swiss Franc), a limit of 30:1 is being considered

II. for CFDs in non-major currency pairs and major equity indices (FTSE 100, CAC 40, DAX30, Dow Jones Industrial Average, S&P 500, NASDAQ, Nikkei 225, ASX 200), a limit of 20:1 is being considered

III. for CFDs in gold a limit of 20:1 is being considered; (iv) for CFDs in commodities other than gold

IV. for CFDs in commodities other than gold, and for CFDs in minor equity indices, a limit of 10:1 is being considered

V. for individual equities and for any underlying not otherwise listed above, a limit of 5:1 is being considered

• A margin close out rule on a position by position basis to standardise the margin percentage at which providers are required to close out a Retail Client’s open CFD
• Restrictions on incentivisation of trading provided directly or indirectly by a CFD provider
• Negative balance protection on a per account basis
• Standardised Risk Warnings by CFD providers. ESMA’s preferred option is that this would indicate the percentage range of Retail Investor Accounts having losses
• ESMA is also considering whether CFDs in cryptocurrencies should be addressed

On binary options, the potential measure under consideration is a prohibition on the marketing, distribution or sale of binary options to Retail Investors.

Further information:

To read more, please follow this link:

https://www.esma.europa.eu/sites/default/files/library/esma35-43-904_call_for_evidence_-_potential_product_intervention_measures_on_cfds_and_bos_to_retail_clients.pdf

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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.

Source and credit: Compliancy Services

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The Future of Currency brought together 25 players from the banking, digital and alternative currency worlds to explore the key changes we might see to currency over the next decade with technology taking its toll on banking and payment which could revolutionise the way we bank and transact.

Interestingly, trust was deemed as one of hurdles in the virtual currency space. Ironically, Satoshi Nakamoto’s proposal for a peer-to-peer electronic cash system had cryptographic proof, allowing online payments to be sent directly from one to another without going through a financial institution, at its core instead of trust. Although the need for a trusted third party is removed from the transaction by the blockchain model, it is still the technical trust of these new currency systems that needs to be overcome with a major barrier-to-adoption being the trust imbued in central banks.

Over the coming years we are likely to see the subject matter open up, with major disruption guaranteed to spark some interesting deliberations as virtual currencies continue to disrupt, and start-up challenging the banks, while trust is gained in the systems, regulations and currencies themselves.

Technology advances in recent years has increased the virtual status of currency and with continual innovations in digital networks, open platforms, mobile technologies and payment data analytics applications, the road ahead looks challenging.

For more on the subject check out the discussion at Future Agenda.

Image courtesy of Zach Copley.

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