Sources with knowledge of the matter have exclusively shared with Finance Magnates that the French advertisement ban is still far from official. Meanwhile the French financial regulatory body, the Authorite des Marches Financiers (AMF) is still some time away from defining what is the adequate level of leverage for retail trading products.
In another related matter, Dutch lawyers confided to Finance Magnates that the advertisement ban in the Netherlands may be on the cards. According to Bas Jongmans who has exclusively commented to Finance Magnates, the law which is being prepared by the Dutch government is in contradiction with current MiFID rules.
Should a precedent be set in The Netherlands, other regulated European brokerages can use the ruling to negate the advertisement ban in other countries, i.e. France. That said, sources from the industry stated that while the current MiFID framework is favorable, once the MiFID II regulatory regime is enacted in the beginning of 2018, different countries will have the authority to ban certain products.
After a period of consultation announced by the French AMF has expired at the end of September, the regulator has received a number of submissions from clients and brokers alike and is currently reviewing its stance towards leveraged products.
The main issue which is crucial to the industry in France is what is going to be the level deemed as safe by the French regulatory authorities. For the time being there is no specific information about the numbers that are being discussed, with the initial level that was considered by French authorities being as low as 1:5.
Retail Banks vs Retail Brokers
With a number of structural products that are offered by retail banks in the country, as well as in other jurisdictions like Austria, Germany, The Netherlands and Switzerland to name a few, offering up to 1:300, the stance of the AMF is unclear.
If retail foreign exchange and CFDs offerings are to be banned for consumers because of high leverage, the AMF should surely consider to ban turbos, derivatives products that have become widely popular across Europe and have been introduced in Germany by Goldman Sachs in 2004.
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Turbos are an instrument that is connected to the value of an underlying asset. These assets can be options, which makes them even more risky and leveraged. Some banks are providing leverage of up to 1 to 35 on such products which if tied to option values are becoming extremely volatile and dexterous for retail investors.
Turbos are available on both exchange and over-the-counter traded products and are highly appealing to retail investors because of the leverage. Should the French regulator decides to go draconian with a cap on leverage of 1:5, the AMF should also have a close look at the products that are offered by retail banks in the country.
With the instruments being very popular across the continent, a ban on such products becomes very difficult under the current regulatory framework.
Dutch Advertising Ban
Looking at The Netherlands, one recent case brought up by a company that is offering binary options, OptionClub has been that if the product is regulated in Cyprus, it should also be allowed for regulation in The Netherlands. One of the company’s lawyers Bas Jongmans has confided to Finance Magnates reporters that the firm is strongly committed to defending its client.
The Dutch regulator has been mandated to license the activities of OptionClub, with any prospective ban being in direct contradiction with pan-European MiFID law, which is overruling national legislation.
According to Jongmans, the current version of MiFID is favoring the brokers which should be permitted to offer their products and advertise those since they have been licensed to do so.
At the same time some legal experts deciding to remain off the record have confided to Finance Magnates that while the current regulatory framework is indeed in favor of the brokers in this case, starting from 2018 when MiFID II is entering into force and will allow local regulators to ban certain products of their choosing.
Nevertheless if the goal of regulators is to restrict access to leverage, they should be looking at retail brokers in the same way as they are looking at retail banks. Limiting competition in the sector is surely to result in worse trading conditions for European traders.