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CySEC New Forex Leverage levels await comments of brokers

Amandeep Sonewane | May. 30, 2019
CySEC New Forex Leverage levels await comments of brokers

May 30, 2019, | AtoZ Markets - Cyprus financial market watchdog - Cyprus Securities and Exchange Commission (CySEC) has today published its proposals for a different level of leverage options for its retail clients. It reflects the product intervention measures introduced by ESMA about a year ago. Such a move has been expected as other national competent authorities (NCAs) in the EEA have already taken similar steps.

However, today's announcement by CySEC provides a twist. The forex regulator wants to vary leverage caps for CFD trading depending on the type of retail investors. Some retail investors will see even worst leverage restrictions than the ones introduced by ESMA. On the other hand, others may see the ease in restrictions.

CySEC New Forex Leverage levels explained

According to CySEC, the ESMA's decision on CFDs doesn't vary between different subcategories of retails clients. Also, MiFID II does not distinguish between different subcategories of retail clients, however, it introduced the idea of the target market.

Moreover, CySEC expects CFD providers will not sell such products to clients falling within the negative target market. However, the regulator can not rule the possibility that sales of such products might appear in the case of retail clients falling within the grey area of the target segment of the market. 

Demetra Kalogerou, Chair of CySEC, commented that:

"Following over four years of intense regulatory action by CySEC, the standard, and conduct of Cyprus Investment Firms marketing, selling and distributing retail contracts for difference has increased significantly. Temporary product intervention measures set across Europe have supported CySEC’s own efforts to enhance investor protection."

Read more: Demetra Kalogerou: CySEC personnel department will be tripled by 2021

CySEC also mentioned that the term “retail client” consists of different kinds of investors, with different levels of knowledge, experience, and financial position. Thus, the individual falling within those leverage level does not necessarily have the same level.

CySEC explained that, in determining the suitability of CFD products during the customer due diligence process, each retail client must be categorized by the forex broker within a specific target market. Retail clients who fall in the grey area of target market might be vulnerable to offered leverage that exceeds their knowledge, financial position, and risk appetite.

CySEC's proposal for different level of clients 

CySEC has proposed to introduce stricter leverage limits for retail clients falling within the ‘grey area’ of the target market. For those clients who are affording slightly higher leverage limits have been falling within the upper tier of the positive target market.

Retail clients falling within the 'grey area' target market should pay the following initial margin protection of the notional value of the leverage limit. 

Type of Underlying AssetCySEC ProposalESMA’s Threshold
Initial Margin ProtectionLeverage LimitInitial Margin ProtectionLeverage Limit
Major Currency Pairs5%20:13,33%30:1
Non-major currency pairs, gold and major indices10%10:15%20:1
Commodities other than gold and non-major equity index20%5:110%10:1
For individual equities and other reference values;50%2:120%5:1
Crypto assets100%1:150%2:1

Retail clients falling within the upper tier of the positive target market should pay the following initial margin protection of the notional value of the leverage limit. 

Type of Underlying AssetCySEC ProposalESMA Limits
Initial Margin ProtectionLeverage LimitInitial Margin ProtectionLeverage Limit
Major Currency Pairs3,33%30:13,33%30:1
Non-major currency pairs, gold and major indices5%20:15%20:1
Commodities other than gold and non-major equity index10%10:110%10:1
For individual equities and other reference values;20%5:120%5:1
Crypto assets100%1:150%2:1

Retail clients falling within the upper target market should pay the following initial margin protection of the notional value of the leverage limit. 

Type of Underlying AssetCySEC ProposalESMA Limits
Initial Margin ProtectionLeverage LimitInitial Margin ProtectionLeverage Limit
Major Currency Pairs2%50:13,33%30:1
Non-major currency pairs, gold and major indices3,33%30:15%20:1
Commodities other than gold and non-major equity index5%20:110%10:1
For individual equities and other reference values;10%10:120%5:1
Crypto Assets50%2:150%2:1

CySEC has made it open to submit comments for forex brokers no later than 14 June 2019 via their official email address. 

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Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.