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Financial spread betting brokers responded in masses to requests to join in consultations with the European Securities and Markets Authority (ESMA) over plans to introduce leverage limits and risk warnings on CFDs. Broker views were also solicited with regards to binary options and whether their sale should be prohibited. The consultation closed on February 5 2018 and it’s understood from a story in the Financial Times that the European regulator was deluged with responses.
What are the ESMA proposals?
The ESMA have proposed a new set of rules governing trading online, including a 30x leverage cap to CFDs. Other proposals include a ban on binary options trading and protection for negative balances, neither of which seemed to create as much controversy as the CFD leverage cap proposals. An insider at ESMA revealed they had received unprecedented numbers of responses to their call for consultation, the story was broken in the Financial Times on February 5. Seemingly, most feedback was against the proposals, particularly the 30x leverage cap on CFDs, which brokers prefer to see at 50x, or higher.
IG Index has conducted its own survey of clients and feedback, which has been passed to the ESMA. The IG feedback illustrated that their clients would consider registering with potentially unlicensed offshore brokers if the cap is imposed. The IG client feedback site received over 11,000 unique client responses and these were passed over to the ESMA for review.
Concerns over client moves to unlicensed brokers were reiterated by GAIN Capital Holdings Inc of New York (owner of City Index) who warned the move to place a 30x cap on CFDs could cause unintended consequences and advised the ESMA accordingly. GAIN Capital obtains less than 20% of its revenues from investors based in the UK or the EU, so if the new rules are implemented they don’t stand to cause too much adverse impact to the company.
The news wasn’t so great for IG, Plus 500 or CMC Markets , however, as they all saw share prices plummet when the ESMA issued their proposals. The final decision of the ESMA is expected shortly as they are operating under fairly tight deadlines.
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