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:
- 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 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.