Esma has announced it is to consult on rules for contracts for difference including rolling spot F/X and binary options, as it has concerns over retail investor safety.
The European Securities and Markets Authority is calling for evidence on proposals for intervening in the provision of CFDs. This comes after it earlier, on 15 December, announced that it was minded to intervene in the CFD market using powers under Article 40 of Mifir, the Markets in Financial Instruments Regulation, regarding investor protection concerns sparked by marketing, distribution and sale of CFDs and binary options to retail investors.
The specific potential measures under consideration are:
i. Leverage limits on the opening of a position by a retail client. These would range from 30:1 to 5:1 to reflect the historical price behaviour of different classes of underlying assets;
ii. A margin close out rule on a position by position basis. This would standardise the percentage of margin at which providers are required to close out a retail client’s open CFD;
iii. Negative balance protection on a per account basis. This would provide an overall guaranteed limit on retail client losses;
iv. A restriction on the incentivisation of trading provided by a CFD provider; and
v. A standardised risk warning by CFD providers. This would include an indication of the range of losses on retail investor accounts.
Esma is also considering whether CFDs in cryptocurrencies should be addressed in the measures.
Regarding binary options, the Authority said it is considering prohibition of the marketing, distribution or sale of binary options to retail investors.
Interested parties can submit responses until 23.59 Paris time on 5 February.