Breaking: BaFin Gives CFDs Brokers Three Months to Add Negative Balance Protection

The German regulator is using the ‘intervention option’ to protect retail clients from negative balances.

The German financial regulator BaFin has issued an announcement that introduces more specifics about its retail forex and CFDs trading stance. The watchdog is focusing on brokers that are not providing clients with negative balance protection and therefore are exposing clients to unlimited losses.

BaFin says that it is intervening in the marketplace in order to safeguard the interests of retail clients. The regulator issued a General Administrative Act, which elaborates on the rationale behind its decision. The document can be read in full (in German) at the bottom of this article.

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Commenting on BaFin’s decision, the Executive Director of the regulator, Elisabeth Roegele, said: “By restricting trading in CFDs we are making use for the first time of the product intervention option.”

The announcement comes a little less than 5 months after the German regulator suggested that it is preparing to take measures to address negative balance protection for clients.

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The regulator is outlining its concerns about increased risks to clients because of the probability of ending up with a substantial negative balance due to the high leverage used by retail clients. During the Swiss National Bank induced crisis in the FX market, a number of traders ended up owing brokers amounts that exceeded the value of their total assets.

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“For consumer protection reasons, we cannot accept that. The restriction of CFD trading is therefore a necessary step to protect retail investors,” explains Roegele.

The German watchdog is limiting marketing, distribution and sale of forex and CFDs for brokers that do not introduce negative balance protection. BaFin is providing companies that wish to continue operating in the country with three months to comply with the requirement.

Concluding its announcement, the regulator explains that some providers of retail forex and CFDs are already offering negative balance protection or have pledged to introduce it in the near future. The announcement of the German regulator is now putting a term on the issue, giving brokers time to implement the necessary changes until the end of July.

  BaFin – Verfügungen by TorVik on Scribd

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