Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Recently, the CFD trading industry has been faced with major changes in regulations. These changes are expected to have a substantial impact on online trading platforms and traders alike. What are the new regulations and how can they affect brokers and clients? Let’s take a quick look at the basic points.
Three main regulatory changes

There are different forces working to further regulate the CFD trading arena, and other financial services. Here are some of the main ones.

Markets in Financial Instruments Directive (MiFID II)

MiFID II, which followed – what a surprise, MiFID – is an extensive regulatory reform that aspires to provide traders with enhanced protection. It attempts to offer greater transparency into all instrument classes and furthermore, to place a ban on inducements. What does that mean? It means an end to promotions aiming to draw clients into a specific trading platform.

The European Securities and Markets Authority (ESMA)

ESMA is a new European Supervisory Authority created within the European System of Financial Supervisors. It recently announced new measures that aim to enhance the protection of CFD traders. These measures include a major restriction on the sale and marketing of CFDs to various retail investors. What does this include? A mandatory Negative Balance Protection, strict leverage caps, margin calls and – like MiFID II – a restriction of incentives. CFD platforms are also required to feature clear risk warnings.

ESMA’s measures, which will go into effect on August 1st, are only implemented for three months and need to be reviewed and updated at the end of every period.

The General Data Protection Regulation (GDPR)

GDPR is very different from the other two regulatory policies previously mentioned because it is not directed at CFDs or even the financial industry. GDPR is a regulation in EU law dealing with privacy and data protection for people residing within the EU and the EEA (European Economic Area). It also deals with the export of personal data outside of these regions. The main aim of the GDPR is to provide individuals with better control over their private data. GDPR also demands online services attain the agreement of visitors and clients regarding the usage and recording of their private information.
Possible Impact

These new regulations, most notably MiFID II and ESMA, are likely to have a substantial impact on the CFD trading industry, most particularly the cap on leverage and the restrictions on incentives, which will probably affect many future marketing materials. CFD brokers will need to find a new language to use with clients, and make the transition to less competitive trading conditions, where leverage offers of 400:1, or even higher, are no longer acceptable.

Is this bad? Of course not. Clients will enjoy better protection. Regulated sites will need to adapt, but those who do, could enjoy the benefits of more trusting clients, as they abide by even stricter legal regulations. Some of the leading names in the online trading industry are already working hard to comply with the new demands. One example is, the new brand name of iCFD Limited from the iFOREX Group, which was launched earlier this month and is expected to strictly comply with the various regulatory measures, once they are enacted.
There is no doubt that some brokers will struggle to comply with the new regulations more than others and it will be very interesting to see how the industry’s landscape will appear once the new regulations become the norm.

For more information visit Vestle :
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.