Two months after CySEC issued a circular informing regulated CIF firms of the reduction of leverage to 50x and to halt offering bonuses, online forex broker HotForex today issued an announcement to its clients highlighting the company’s response to the proposed rules.
In line with CySEC guidelines, HotForex today announced that in addition to termination of trading bonuses and rewards, it will lower the default leverage ratio offered to clients to 1:50, effective 29 January 2017.
As reported by Finance Magnates, earlier in November the Cypriot financial regulator proposed a clampdown on CIF brokers offering bonuses designed to motivate retail clients to trade speculative products such as CFDs, binary options and spot forex. Since then, there has been a lot of back and forth of industry predictions of how the rule changes will affect brokers.
CySEC regulated brokers have until January 30, 2017 to implement all of these necessary changes.
HotForex presently holds licenses under the FSC and the Financial Service Authority (SVGFSA) as well as CySEC. It recently added the licensing of the Financial Services board (FSB) of South Africa via HF Markets (SA) Ltd.
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More specifically, CySEC-regulated HF Markets (Europe) Ltd has set its default leverage to 1:50 for new trading accounts. However, this requirement is not a ceiling on leverage as clients who explicitly request higher leverage will have to take an online ‘suitability test’ to determine if they are able to trade with lower margin requirements, or in other words a higher leverage. Clients who did not pass the test will only be allowed to use a leverage of 1:50 or lower.
The other important point in the circular that has been sent to the broker’s clients is regarding the bonuses and rewards offered to them. HF Markets will no longer offer any bonus programs and will remove any outstanding bonuses on January 28, 2017.
CySEC has informed Cypriot investment companies that they no longer have the right to use bonuses related to client’s trading activity, arguing that the practice exposes investors to unnecessary risks.
Concerning this point in particular, while the new rules if properly enforced should make it much harder for a CySEC regulated firm to offer trading rewards, some of them have already given the bonuses new names/labels and are still able to draw in clients with gimmicks and promotions.
Finally, since the new regulations required CIF firms to ensure that the maximum loss does not exceed the client’s available funds, HotForex informed its traders that it remains committed to providing negative balance protection so that they don’t have to worry about possible debts.