New BaFin CFD Trading plans pressure markets further


The German regulator follows the recent regulatory trend, issuing new BaFin CFD Trading plans. How the new CFD trading rules will apply?

9 December, AtoZForex The German Federal Financial Supervisory Authority, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) has decided to limit the promotion, distribution and sale of the contracts for difference (CFDs) across the country.

New Bafin CFD Trading plans

Moreover, the German regulator is not the first to limit the activity of the firms, selling CFDs. Earlier this week, the Financial Conduct Authority (FCA) has proposed stricter rules in relation to the firms selling CFD products.

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Also, on the 30th of November, the Cyprus Securities and Exchange Commission (CySEC) has banned the Retails Brokers bonuses across the region. CySEC stated that CIFs must stop offering bonuses which are designed to motivate clients to trade in complex products such as CFDs, rolling spot forex, and binary options.

Following the same pattern, BaFin attempts to limit the promotion, distribution, and sale of CFDs. Additionally, the regulator’s initiative is aiming the negative balance risks. Thus, BaFin is restricting the promotion of the CFDs with an additional payments obligation.

In addition, the German regulator believes that worries about investor protection are lying at the core of its actions. The regulator stresses that brokers can not expect retail clients to cover additional payments obligations. Also, BaFin’s Chief Executive Director, Elisabeth Roegele, has stated:

”In the case of CFDs with an additional payments obligation, the risk of loss for the investor is incalculable. For consumer protection reasons, we cannot accept that.”

How the new rules will apply?

It is necessary to highlight that new limitations are valid only if a broker is not providing a negative balance protection. The IG Group has also commented on the new framework. The firm representatives have stated that the new measures can only apply if the client is not at risk of losing more than the value of their account.

Furthermore, it is vital to stress that the risks of negative balance cannot be eased by the use of stop losses and/or a margin call, according to BaFin. Moreover, force closing of investor’s position might result in significant losses.

BaFin notes that the problems arising from the execution at the next available price are increasing the risks for traders. Further, the BaFin stresses that with financial CFDs, investors play on the performance of underlying instruments. These instruments include commodities, shares, indices, interest rates of currency pairs. The official statement from BaFin is as follows:

“Such products came to the public’s attention primarily as a result of the “Swiss franc shock” at the beginning of 2015, when the Swiss National Bank abandoned the cap on the Swiss franc’s value against the euro and many CFD investors suffered major losses as a result of having to subsequently make additional payments.”

The German watchdog welcomes brokers and traders to comment on the new framework till 20th of January 2017.

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