ESMA to renew restrictions on CFDs for a further three months from 1 May 2019


The European Securities and Markets Authority (ESMA) has agreed to renew the restrictions on the marketing, distribution or sale of contracts for differences (CFDs) to retail clients, in effect since 1 August, from 1 May 2019 for a further three-month period.

ESMA has carefully considered the need to extend the intervention measures currently in effect. ESMA considers that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist. It has therefore agreed to renew the measures from 1 May 2019 on the same terms as the previous renewal decision that started to apply on 1 February 2019.

Renewal of restrictions on CFDs

The renewal was agreed by ESMA’s Board of Supervisors on 26 March 2019 and includes renewing the following:

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:

o   30:1 for major currency pairs;

o   20:1 for non-major currency pairs, gold and major indices;

o   10:1 for commodities other than gold and non-major equity indices;

o   5:1 for individual equities and other reference values;

o   2:1 for cryptocurrencies;

2.    A margin close out rule on a per account basis. This standardises 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 provides 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 the renewal measure in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website. The measure will then be published in the Official Journal of the EU and will start to apply from 1 May 2019 for a period of three months.

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