The Dutch Authority for the Financial Markets (AFM) has confirmed that its proposed restrictions on the retail sale of Turbo certificates will come into effect on October 1st, 2021.
The regulatory restriction on the derivative product will bring leverage limitation, mandatory risk warning and a prohibition of bonuses. These restrictions, according to the AFM, will bring better protection for retail investors against the risks of trading Turbos.
“The restrictions will apply to the offering of turbos in the Netherlands, regardless of the Member State in which the provider is located and will enter into force on 1 October 2021,” the AFM stated. “This gives providers time to make the necessary adjustments.”
“The restrictions do not apply to turbos offered from the Netherlands in other Member States.”
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Popular Leveraged Product in Europe
Turbo certificates are leveraged investment products, similar to contracts for differences (CFDs). However, turbos have a built-in stop loss, and positions are automatically closed once a predetermined price level is reached.
Though these products are not so popular internationally, they have a significant market share among other derivative products in the Dutch, German, Belgian and Austrian markets.
The Dutch regulator, which already imposed restrictions on CFDs in line with ESMA’s recommendations, revealed its plans to impose similar restrictions on Turbos last December. The decisions were backed by a regulatory survey that revealed 68 percent of the retail turbo investors lost their money with an average loss of €2,680.
The confirmation of imposing the restriction came after the AFM received the consent of the European Securities and Markets Authority (ESMA) for the same. The pan-European regulator termed Turbos as ‘high-risk’ and encouraged other local regulators to monitor Turbos on their respective markets and assess the risks of these instruments to retail traders.