Breaking: New European Retail Broker Leverage Rules Kick Off in August

The ESMA has just announced the publication of its measures in the EU’s Official Journal

After months of waiting, it is finally official: we now know the exact dates when the forex and CFDs businesses in Europe will have to adhere to the new regulatory framework announced by the ESMA earlier this year. Today the pan-European financial regulator announced that the measures against binary options and CFDs brokers have been published in the Official Journal of the European Union.

As we already know, this triggers two terms. Binary options will be prohibited a month from now, and according to the ESMA, this event will get triggered from the 2nd of July. Forex and CFD brokerages will continue operating as usual until the 1st of August when the new regulatory framework will get activated.

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Measures Are as Expected

The binary options product will be fully prohibited, while CFDs are going to get restricted for retail investors. There is no news in with regards to the restrictions which the ESMA is imposing on brokers who are willing to provide their services to retail clients.

The leverage limits will be 30:1 for major FX pairs, 20:1 for non-major pairs, gold, and major indices, 10:1 for other commodities and non-major indices, 5:1 for stocks and 2:1 for cryptocurrencies.

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In addition, brokers will need to adhere to a 50 percent margin closeout rule and provide negative balance protection. Any type of trading incentives will be prohibited for use by the brokers with a new standardized warning for retail clients including the percentage of clients who are losing money.

Three Months Term

Commenting on the news the Chair of ESMA, Steven Maijoor, said: “The measures ESMA has taken today are a significant step towards greater investor protection in the EU. The new measures on CFDs will, for the first time, ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide understandable risk warnings for investors.”

“ESMA’s prohibition on the marketing, distribution or sale of binary options to retail investors addresses the significant investor protection concerns caused by the characteristics of this product,” Maijoor elaborated.

The period of the measures is three months, with the regulators being able to extend the validity of the restrictions for another three months after the initial expiration date at the end of October 2018.

The national financial regulators will be responsible for the enforcement of the measures, while the ESMA assesses, what are the next steps which are required.

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