ESMA Renews CFDs Restrictions for Retail Clients

The widely expected renewal on the restrictions of marketing, distribution, and sale of CFDs is confirmed

The European Securities Markets Authority (ESMA) has agreed to extend its restrictions on the sale, distribution, and marketing of CFDs. The measure which was implemented in August 2018 will be extended until the end of January 2019.

The news doesn’t come as a surprise and reaffirms ESMA’s commitment to reshape the retail trading market in the EU. Brokers have been losing UK and EU clients in recent weeks as the new leverage caps squeeze the market.

The rationale which the pan-European regulator is providing is that “significant investor protection concern related to the offer of CFDs to retail clients continues to exist.” The renewal measure will be renewed from the 1st of November and will last three months.

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Marketing Changes

Aside from the familiar text of the conditions to which brokers need to adhere when offering CFDs to retail clients, the ESMA made one small change. According to information obtained by the regulator, brokers have had a hard time fitting in the percentage of winning deals within third-party ad platform providers.

To address the issue, the ESMA has revised the mandatory disclosure text to the following:

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“[insert percentage per provider] % of retail CFD accounts lose money.”

Brokers can use the new format only if the third party provider of ads has a character limitation which prevents the CFDs provider to fit the previous risk warning format. The advertisement has to link to a page where the full message is displayed in a visible location.

Familiar CFDs Trading Conditions

The ESMA has not changed any of the provisions which it initially announced in March this year. Leverage for major FX pairs is still capped at 30:1. Non-major FX, gold, and CFDs on indices are capped at 20:1.

Commodities and non-major indices are restricted to a maximum of 10:1. Individual shares require 20 percent margin or 5:1, and finally, cryptocurrencies can be offered only with a 2:1 gearing.

ESMA’s renewal measure is going to be adopted in the coming weeks. After the official translation to all EU languages, the regulator will publish the measure in the Official Journal of the EU.

Back in August, the ESMA has already renewed its three months ban of binary options.

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