ESMA publishes updated Q&A on CFDs and other speculative products

The European Securities and Markets Authority (ESMA) has published today an updated version of its question and answer document (Q&A) on the application of the Markets in Financial Instruments Directive (MiFID) to the marketing and sale of financial contracts for difference (CFDs) and other speculative products to retail clients (such as binary options and rolling spot forex).

The Q&A includes 5 new questions and answers in sections 6 to 9, which address the following topics:

  • the use of trading benefits when offering CFDs or other speculative products;
  • the withdrawal of funds from trading accounts;
  • the use of leverage when offering CFDs or other leveraged products to retail clients; and
  • best execution obligations for firms offering CFDs or other speculative products to retail clients.

The complexity of CFDs and other speculative products means it may be difficult for the majority of retail investors to understand the risks involved although they are widely advertised to the retail mass market by a number of firms, often via online platforms. There is also a considerable degree of cross-border activity across Europe in these products. Many competent authorities have concerns about the protection of investors in this area and the purpose of the Q&A is to promote common supervisory approaches and practices in the application of MiFID and its implementing measures to key aspects that are relevant when CFDs and other speculative products are sold to retail clients.

Next steps

In addition to these Q&As, ESMA will also consider the need for any further work in light of MiFID II requirements that will enter into application in 2018.
The Q&As are targeted at competent authorities. However, the answers are also intended to help firms by providing clarity on MiFID rules.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

Posted in UncategorizedTagged ,

Leave a Reply

Your email address will not be published. Required fields are marked *