On 28 September 2018, the European Securities and Markets Authority (ESMA) announced the renewal of the restriction on the marketing, distribution or sale of Contracts For Differences (CFDs) to retail clients, with effect from 1 November 2018 and for a further three-month period, citing “a significant investor protection concern”.

This follows the renewal by ESMA of the prohibition on binary options on 24 August 2018, for which further information can be found here.

The renewal includes the following measures:

  • leverage limits on the opening of a position by a retail client;
  • a margin close out rule on a per account basis;
  • negative balance protection on a per account basis;
  • a restriction on the incentives offered to trade CFDs; and
  • a standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

ESMA also introduced a reduced character risk warning in order to address issues faced by CFD providers because of character limitations imposed by third party marketing providers.

On the same day ESMA also published an updated version of its Questions and Answers (Q&As) on temporary product intervention measures on the marketing, distribution or sale of CFDs and binary options to retail clients, clarifying that rolling spot forex are in scope, and therefore the CFD restriction applies to rolling spot forex that do not qualify as options, futures, swaps or forward rate agreements.