ESMA to ban binary options, restrict CFDs for retail investors

[Brumby]

The European Securities and Markets Authority (ESMA) has agreed on measures on the provision of contracts for differences (CFDs) and binary options to retail investors in the European Union (EU).

The product intervention measures ESMA has agreed under Article 40 of the Markets in Financial Instruments Regulation include:
1. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:
· 30:1 for major currency pairs;
· 20:1 for non-major currency pairs, gold and major indices;
· 10:1 for commodities other than gold and non-major equity indices;
· 5:1 for individual equities and other reference values;
· 2:1 for cryptocurrencies;
2. A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;
3. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;
4. A restriction on the incentives offered to trade CFDs; and
5. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.
Next steps
ESMA intends to adopt these measures in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website. The measures will then be published in the Official Journal of the EU (OJ) and will start to apply one month, for binary options, and two months, for CFDs, after their publication in the OJ.

https://www.esma.europa.eu/press-ne...ns-and-restrict-cfds-protect-retail-investors

 

[Dowser]

Are there any rumblings of tighter regs in Oz too Brumby?

 

[barjon]

All the “consultation” was a waste of time then.

 

[timsk]

All the “consultation” was a waste of time then.

You sound like you're surprised Jon!


As you rightly say, a waste of time. However, if all those of us who commented on the proposals hadn't bothered and subsequently complained about the outcome, ESMA would have said 'we gave you the opportunity to respond to our proposals and you chose not to' - or something to that effect. Either way, it's a done deal from the get go.
Tim.

 

[Brumby]

Are there any rumblings of tighter regs in Oz too Brumby?

I am not aware of any similar measures currently being considered but I won't be surprised if Australia move in a similar direction.

 

[anon301501]

Alll USELESS INFORMATION

 

[barjon]

You sound like you're surprised Jon!


As you rightly say, a waste of time. However, if all those of us who commented on the proposals hadn't bothered and subsequently complained about the outcome, ESMA would have said 'we gave you the opportunity to respond to our proposals and you chose not to' - or something to that effect. Either way, it's a done deal from the get go.
Tim.

Well, CFDs maybe, but since spreadbetting is essentially a British thing maybe the blessed Theresa can just spread two fingers in the air. It’ll kill my pair trading.

 

[myattitude]

It's quite funny in a way. I really think the powers that be need to start treating people like adults and not some poor helpless creatures who need to be saved from the cruel world by a white knight or two.

Anyway, this seems not THAT bad, all in all. If we want to keep our £pp the same, we'll have to just deposit more money into the account balance. And if you can't afford to deposit more money into your account, should you have been trading with such high margins in the first place? I merely ask the question. When I started out, I put £100 into my broker and traded with high margins, and that way if I blew my account, it's only £100. Again, I think that should be down to our own responsibility.

I'm not sure about some comments that we'll need a six figure account balance to place £5pp trades. That can't be right, can it? If my maths is correct, if £1pp on the Dow is £600 odd margin as IG's page says, maybe brokers will reduce the minimum to say, 50p or 25p pp and leave a £300 or £150 odd margin. But surely the required margin is also dependent on your stop loss levels too? Shorter term trading with smaller stops until your margin allowance is large enough again would help offset this.

The pain in the bum is that some sensible traders like to take their winnings out of their broker account at regular intervals, but now we're forced to keep the money in there, to continue to be gambled on! Did ESMA account for that?!

Anyway, I'm sure IG will fight our corner as best they can. In the meantime, we better get ready to adapt, I suppose.

 

[Dowser]

My main concern is: if they started widening the spreads to try and claw back money from clients. Spreads have steadily reduced over the years (competition? economy of scale? efficiency of operation?) there's a danger they may start going the other way!

 

[kalott]

I dont think leverage is a problem for the winners (profitable)

the problem is if ESMA stop the "losers" from trading, probably with high leverage

who is going to pay the profit to the profitable traders?

i dont think the shops will

maybe draghi:whistling

 

[NVP]

The pain in the bum is that some sensible traders like to take their winnings out of their broker account at regular intervals, but now we're forced to keep the money in there, to continue to be gambled on! Did ESMA account for that?!

This is the frustration regarding the sledgehammer decision here ...it has always made sense to retain minimum margin balances with brokers using leverage to do it .....intelligent and informed traders are not being protected but punished heavily for the behaviour of the masses

Such is life

N

 

[Morris]

I think the introduction of ESMA may be something of a shock for the Spread bet & CFD brokers.

 

[Morris]

My broker says that margin required on a £10 position on the FTSE 100 will increase from £380 to £3800.

 

[Isaac_FX]

I think the introduction of ESMA may be something of a shock for the Spread bet & CFD brokers.

Only EU based brokers are "shocked".. other brokers based elsewhere are laughing about ESMA's poor and silly decision of "better customer protection" and make a killing with a flood of new customers from the EU..