New ESMA Regulations on CFD Trading/Spread Betting
Effective 1st August 2018, the European Securities and Markets Authority (ESMA) introduces certain restrictions on trading of Contracts for Differences (including Forex and Financial Spread Bets) by Retail Clients that are being aimed at securing greater investor protection.
ESMA has in this instance acted in line with its product intervention powers referred to in Art. 40 of the Markets in Financial Instruments Regulation (MiFIR).
What this means to Clients
The new regulations will result in changes to the trading conditions for Retail Clients to a great extent, while Professional Clients will only be slightly impacted.
The measures are as follows:
- Maximum leverage limits ranging between 30:1 (3.33% margin) and 2:1 (50% margin) on all positions - see details in the tables below – to apply to Retail Clients only;
- A standardised 50% Margin Close-Out Rule on a per account basis – to apply to both Retail and Professional Clients;
- Negative balance protection on a per account basis – to apply to Retail Clients only;
- No offering of monetary and non-monetary benefits (excluding research and information tools) – to apply to Retail Clients only;
- A standardised risk warning, including firm-specific specific figures on the percentage of client accounts that have lost money trading CFDs/Spread Bets.
Please note that DF Markets will implement these changes on Monday, 29 July 2018 at 22:00 UK Тime.
We will be amending our Terms & Conditions to reflect these changes and will notify you once the updated version has been published on our website.
You may be able to register as a Professional Client – check the qualifying criteria below:
Electing to become a Professional Client means that we will be able to tailor our products and trading conditions to meet your trading needs outside of the ESMA restrictions.
Trade Volume: Over the previous 4 quarters, you have carried out an average of 10 trades per quarter, of significant size.
Portfolio Size: The value of your investment portfolio, defined as including financial instruments and cash deposits, exceeds €500,000.
Professional Experience: You work or have worked in the financial sector for at least one year in a professional position that requires knowledge of the relevant transactions or services.
Note: To qualify as a Professional Client, you need to meet at least two of the three criteria listed above. We are required under FCA rules to undertake an adequate assessment of your expertise, experience and knowledge that would give us reasonable assurance, in light of the CFD/Spread Betting transactions and services, that you are capable of making your own investment decisions and understanding the risks involved.
Information you may need to provide
In addition to submitting an application to be re-classified as an Elective Professional Client (from Retail Client), if we can’t verify the criteria above from your account history and trading activity, you may need to provide proof of these requirements.
The following documents are acceptable and can be scanned and provided to us once you log in via the link below:
- Bank, Broker or investment portfolio statement OR letter from a notary confirming net worth;
- LinkedIn screenshot, FCA register screenshot, payslip or letter from employer;
- Trade statement from another broker/financial institution.
Elective Professional Client vs Retail Client comparison, before and after the new regulations
The table below highlights the new limits on leverage and account features for Retail Clients and Professional Clients:
|Prior to 29 July 2018 at 22:00 UK Тime||After 29 July 2018 at 22:00 UK Тime|
|All Clients||Retail Clients||Elective Professional Clients|
|Currencies||Major FX pairs1||0.25–15%||3,33–15%||0.25–15%|
|Minor FX pairs2||1–15%||5–15%||1–15%|
|Minor FX pairs3||5–20%||5–20%||5–20%|
|50% margin close out rule / close out level||/ 35%||/ 50%7||/ 50%8|
|Negative balance protection|
|FSCS (Financial Services Compensation Scheme) protection*|
|Client Money remains segregated|
|Key Information Documents|
|Monetary and non-monetary benefits|
|Rights to complain to the Financial Ombudsman Service (FOS).*|
|Note: Under Clause 14.17 of its Terms and Conditions of business, DF Markets is entitled to make changes to the required margin for any financial instrument, trade, or client account, subject to you being notified of any such change by DF Markets.|
* Elective Professional Clients:
- Remain eligible for the protection under the Financial Services Compensation Scheme (FSCS) if they are a private individual.
- Retain rights to complain to the Financial Ombudsman (FOS) if they are a private individual OR a ‘micro-enterprise’ (an EU term covering smaller businesses) as long as they have an annual turnover of up to 2,000,000 EUR and fewer than 10 employees.
1 The following currency pairs: CAD/CHF, CAD/JPY, CHF/JPY, EUR/CAD, EUR/CHF, EUR/GBP, EUR/JPY, EUR/USD, GBP/CAD, GBP/CHF, GBP/JPY, GBP/USD, USD/CAD, USD/CHF, USD/JPY
2 The following currency pairs: AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD, AUD/USD, EUR/AUD, EUR/NZD, GBP/AUD, GBP/NZD, NZD/CAD, NZD/CHF, NZD/JPY, NZD/USD, EUR/CZK, EUR/DKK, EUR/HKD, EUR/HUF, EUR/MXN, EUR/NOK, EUR/PLN, EUR/SEK, EUR/SGD, EUR/ZAR, GBP/CZK, GBP/DKK, GBP/HKD, GBP/HUF, GBP/NOK, GBP/PLN, GBP/SEK, GBP/SGD, GBP/ZAR, HKD/JPY, SGD/HKD, SGD/JPY, USD/CZK, USD/DKK, USD/HKD, USD/HUF, USD/MXN, USD/NOK, USD/PLN, USD/SEK, USD/SGD, USD/ZAR
3 The following currency pairs: CHF/TRY, EUR/ILS, EUR/TRY, GBP/TRY, TRY/JPY, USD/ILS, USD/TRY
4 Indices tracking a stock market index from one of the following stock market indices: UK100 Index-Tracker (UK100); EUGERMANY30 Index-Tracker (EUGERMANY30); US30 Index-Tracker (US30); US500 Index-Tracker (US500); USTECH100 Index-Tracker (USTECH100) and all relevant mini indices
5 Indices tracking a stock market index from one of the following stock market indices: JAPAN225 Index-Tracker (JAPAN225); AUSTRALIA200 Index-Tracker (AUSTRALIA200); EU50 Index Tracker (EU50) and all relevant mini indices.
6 Indices tracking a stock market index which is not a major stock market index: EUGERMANYMID50 (EUGERMANYMID50 Index-Tracker); EUGERMANYTEC30 (EUGERMANYTEC30 Index-Tracker); EUHOLLAND25 (EUHOLLAND25 Index-Tracker); UITALY40 (EUITALY40 Index-Tracker); EUSPAIN35 (EUSPAIN35 Index-Tracker); HONGKONG33 (HONGKONG33 Index-Tracker); SWITZERLAND30 (SWITZERLAND30 Index-Tracker) & all relevant mini indices.
7 Automatic position close-out upon 50% shortage of margin on a client account basis. If the account balance drops below 50% of the required margin, client position/s will be closed automatically. The current rules, i.e. prior to 29 July 2018 at 22:00 UK Тime, stipulate different close-out levels.
8 Automatic position close-out upon 50% shortage of margin on a client account basis will also apply to Professional Clients.
Margin Requirement Examples
The table below shows you how the new rules will affect the margin required to open/maintain a position when the changes take effect on 29 July 2018 at 22:00 UK Тime:
|Market||Trade Size||Opening Price*||Required Margin|
|Prior to 29 July 2018 at 22:00 UK Тime||After 29 July 2018 at 22:00 UK Тime|
|All Clients||Retail Clients||Professional Clients|
|EUR/USD||1 Stake||1.1600||£29.00 (0.25%)||£386.28 (3.33%)||£29.00 (0.25%)|
|EUR/AUD||1 Stake||1.5800||£158.00 (1%)||£790.00 (5.00%)||£158.00 (1%)|
|miniEUGERMANY30||1 Stake||12,000.00||£30.00 (0.25%)||£600.00 (5.00%)||£30.00 (0.25%)|
|miniEUSPAIN35||1 Stake||11,000.00||£110.00 (1.00%)||£1,100.00 (10.00%)||£110.00 (1.00%)|
|BMW/g||1 Stake||80.00||£4.00 (5.00%)||£16.00 (20.00%)||£4.00 (5.00%)|
* The above prices are for reference purposes only and do not reflect the current market situation.
Please don’t hesitate to get in touch with us should you have any questions about the new ESMA regulations.