ESMA will not renew restriction on CFDs, keeping them under observation 

The European Securities and Markets Authority had been renewing CFDs and binary options’ restrictions every three months since it was first introduced on the European trading market in August 2018. However, this week the EU authority has ceased the renewal of product intervention measures related to a contract for difference (CFDs).

August 1, 2019, | AtoZ Markets - The European Securities and Markets Authority ESMA will not renew restriction on CFDs in the European Union (EU).

ESMA will keep an eye on CFDs - related activities

The pan-EU authority tightened rules for trading brokers offering access to highly leveraged products, like CFDs, to retail investors in early August 2018. Since then, ESMA extended its restriction four times, most recently until the end of July 2019 when the latest extension was scheduled to expire.

For the entire period of the temporary restriction on CFDs and binary options, there have been only minor violations of the new regime, as the national regulators have reported.

Furthermore, the number of retail customers, trading volumes and equity have declined significantly. In addition, regulators did not observe any changes in profitability over the three-month period until October 2018 compared with the same three months in the previous year.

In addition, ESMA ceased renewal of its temporary ban on binary options, earlier this month.

According to the official announcement, ESMA will not renew their restriction on CFDs but will monitor activities in relation to these and other speculative products, including binary options, in order to determine whether any other EU-wide measures may be needed. 

Most of the EU regulators adopt market restrictions similar to ESMA’s 

It is worth mentioning, that despite ESMA's decision to cease its time-limited rules renewal, twelve months after, most of the national regulators have already made the restriction on CFDs permanent.

The Central Bank of Ireland imposed a ban on binary options and confirmed CFD’s restrictions across the country last June. The same initiative toward binary products and CFDs has already been taken in the UK, Holland, Denmark, Germany, Austria, and others.  

The current product intervention measures mandate negative account protection, ensuring that customers can’t lose more than their trading stake. 

Furthermore, the new restrictions forbid bonuses and other incentives, whether monetary or non-monetary, that may have encouraged overtrading in recent years.

ESMA also decided to limit how much leverage brokers can offer to their clients to juice up bets. Regulated firms are also required to limit the leverage they offer to a maximum of 30:1, with limits of as little as 2:1 on cryptocurrencies. 

Most of the restrictions on CFDs introduced by European regulators are very similar to ESMA's, although, every EU member has the right to implement its own rules tailored to their national markets.

However, Cyprus Securities and Exchange Commission (CySEC) and Komisja Nadzoru Finansowego of Poland (KNF) have taken different direction regarding CFDs restrictions, offered by the pan-European financial authority. In its response to KNF's proposal on product intervention measures, ESMA stated that it does not consider it appropriate.

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