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 Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term and CFDs trading stance. The watchdog is focusing on brokers that are not providing clients with Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place Read this Term 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.
SNB Crisis Continues to Haunt the Industry
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.
“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
The German financial regulator BaFin has issued an announcement that introduces more specifics about its retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term and CFDs trading stance. The watchdog is focusing on brokers that are not providing clients with Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader place Read this Term 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.
[gptAdvertisement]
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.
SNB Crisis Continues to Haunt the Industry
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.
“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