ESMA is Done with CFDs; Ceases Renewal of Intervention Measures

This move by the ESMA does not come as a surprise as most of national regulators have made restrictions permanent.

The European Securities and Markets Authority (ESMA) has announced that will not renew its restrictions on selling contracts for difference (CFDs) to retail clients in Europe.

Europe’s markets watchdog began to clamp down on trading brokers offering access to highly leveraged products to retail investors back in August 2018. Since then, the ESMA extended its tough limitation four times, most recently until the end of July 2019 when the latest extension was scheduled to expire.

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This move by the ESMA does not come as a surprise as twelve months after it initially introduced its time-limited rules, most of the national regulators have already made these restrictions permanent.

The decision also mirrors the watchdog’s move earlier this month when it ceased renewal of its temporary ban on binary options.

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However, the ESMA has not lost interest in the situation, adding that it will “continue to monitor activities in relation to these and other related speculative products to determine whether any other EU-wide measures may be needed.”

Brokers’ profits slumped on ESMA restrictions

Several European regulators pushed to come up with country-level permanent restrictions against CFDs and binary options even as every EU member has the right to implement its own rules tailored to their national markets.

The rules also mandate negative account protection, ensuring that customers can’t lose more than their trading stake, avoiding a repeat of the debacle following the 2015 Swiss Franc collapse. Finally, the rules forbid bonuses and other incentives, whether monetary or non-monetary, that may have encouraged overtrading in recent years.

For brokers, the biggest blow has been ESMA’s decision to limit how much leverage they can offer to their clients to juice up bets. Regulated firms have been forced to limit the leverage they offer to a maximum of 30:1, with limits of as little as 2:1 on cryptocurrencies. Revenues and profits at XTB, Plus500, IG Group, and similar CFDs brokers have slumped since the rules came in force.

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