Saxo Bank Weighs in on ESMA’s Leverage Decision, Strongly Endorses Measures

"For the benefit of its long-term survival, the industry should welcome the move away from competition on leverage."

Several days after the verdict by the European Securities and Markets Authority (ESMA) brokers are continuing to weigh in. This includes Danish multi-asset brokerage Saxo Bank, which has strongly welcomed the new measures and leverage decision by ESMA.

Earlier this week, ESMA released its decision to prohibit marketing, distribution, and sale of binary options and introduce tiered leverage for different instruments. All Contracts for Differences (CFDs) that are allowed on offer will also need to adhere to strict requirements and are temporarily restricted to a set of additional rules.

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The decision has sent shockwaves throughout the retail industry drawing both endorsements and disappointment from brokers. For Saxo Bank’s part, the brokerage welcomes the caps on leverage, and considers the measures fair and justly proportionate. Additionally, Saxo expects these measures to yield a positive impact for clients, ultimately resulting in a more level playing field among EU providers offering margin trading.

This stance was echoed from ESMA’s Chairperson, Steven Maijoor, who earlier this week noted: “a pan-EU approach is required given the cross-border nature of these products, and ESMA’s intervention is the most appropriate and efficient tool to address this major investor protection issue.”

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While largely anticipated, the measures are not exactly uncalled for, given the sizable proportion of traders suffering losses. Still, the decision came despite months of feedback from clients and brokers. Many brokers have downplayed the potential impact of the new rules as well, portending a shift to reclassifying clients as professional.

Kim Fournais, Founder and CEO, Saxo Bank, commented on the decision: “Saxo strongly welcomes and supports the measures set forth by ESMA and believes that consistent, harmonised regulation at a European level will be positive for clients and the industry as a whole. Through these measures, ESMA is creating better alignment between leverage levels and market conditions which is very important and we find the proposed caps on leverage fair and proportionate.”

Saxo Bank remained upbeat on the decision from ESMA, which has already opted not to compete on high leverage. Consequently, the verdict is somewhat less impactful as this was not a core strategy of the brokerage.

Kim Fournais

“CFDs and FX instruments have a number of uses for traders, such as allowing them to trade the full global macro cycle and hedge their market exposure in a flexible and efficient way. However, with excessive leverage, the risks of trading these products can outweigh the benefits. It is important to note that this is a leverage problem – not a product problem. Responsible caps on leverage are therefore key to consumer protection,” explained Fournais.

“Our approach and business model clearly show that running a profitable business and being a responsible market participant are not mutually exclusive. For the benefit of its long-term survival, the industry should welcome the move away from competition on leverage and embrace competition on quality of platform, price, product and service,” he added.

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