Netherlands Regulator AFM Impose Restrictions on Turbo Certificates


Dutch financial regulator, the AFM has initiated a public consultation to impose restrictions on the retail sale of turbo certificates.

December 10, 2020, | AtoZ Markets – The Netherlands Financial Markets Authority (AFM) has initiated a public consultation to impose restrictions on the retail sale of turbo certificates, a popular investment vehicle in some European markets. Public consultations on the restriction will end on January 24, 2021.

According to the regulator, retail investors are currently not adequately protected from the risks associated with such derivatives. In this regard, the department is considering the possibility of introducing restrictions on its advertising, distribution, and sale.

Are turbo certificates alternative to CFD restrictions?

Turbo certificates are a lot like Contracts for Difference (CFDs): both are leveraged investment products. However, turbo certificates have a built-in stop loss, and positions are automatically closed when a predetermined price level is reached.

If CFDs are very similar to futures, then turbo certificates are closer to options with limited losses.

In general, turbo certifications are less popular, but they are widely used in the markets of the Netherlands, Germany, Belgium, and Austria. According to a survey of regulators, 68% of retail investors in turbo certificates lose money, an average of 2,680 euros.

The Dutch regulator already restricted the sale of CFDs last year in accordance with the rules of the European Securities and Markets Authority (ESMA). He now proposes to introduce some of these restrictions on the turbo certification market. Notably, AMF has also banned binary options, citing risks and fraud.

The regulator proposes to limit leverage, introduce a mandatory display of warnings about trading risks, and a ban on trading bonuses.

Before posting a question for public discussion, the regulator consulted with industry participants. However, this did not give any result due to diametrically opposed opinions.

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