CySEC on September 27th 2019, published its National Product Intervention Measures (“NPIMs”) in relation to the marketing, distribution and sale of Contracts For Differences (“CFDs”) by issuing Directive DI87-09. The measures proposed by CySEC under CP-02-2019 were largely aligned with the European Securities and Markets Authority’s (“ESMA”) temporary product intervention measures.
To this end, CySEC adopted the following measures per category as presented below:
CySEC will adopt the same leverage limits as ESMA’s for all retail clients. Therefore retail clients will be required to pay at least the following initial margin protection of the notional value of the CFD (i.e. leverage limits):
|Type of Underlying|
|Initial Margin Protection||Leverage Limit|
|Major Currency Pair||3.33%||30:1|
|Non-major currency pairs, gold
and major indices
|Commodities other than gold and
non-major equity index
|For individual equities
and other reference
Clarifications for the initial margin percentages by type of underlying
a) 3,33% of the notional value of the CFD when the underlying currency pair is composed of any two of the following currencies: US dollar, Euro, Japanese yen, Pound sterling, Canadian dollar or Swiss franc;
b) 5% of the notional value of the CFD when the underlying index, currency pair or commodity is:
(i) any of the following equity indices: Financial Times Stock Exchange 100 (FTSE 100); Cotation Assistée en Continu 40 (CAC 40); Deutsche Bourse AG German Stock Index 30 (DAX30); Dow Jones Industrial Average (DJIA); Standard & Poors 500 (S&P 500); NASDAQ Composite Index (NASDAQ), NASDAQ 100 Index (NASDAQ 100); Nikkei Index (Nikkei 225); Standard & Poors / Australian Securities Exchange 200 (ASX 200); EURO STOXX 50 Index (EURO STOXX 50);
(ii) a currency pair composed of at least one currency that is not listed in point (a) above; or
c) 10% of the notional value of the CFD when the underlying commodity or equity index is a commodity or any equity index other than those listed in point (b) above;
d) 50% of the notional value of the CFD when the underlying is a cryptocurrency; or
e) 20% of the notional value of the CFD when the underlying is:
(i) a share; or
(ii)not otherwise listed in this Section.
MARGIN CLOSE-OUT PROTECTION
CySEC will proceed with a Margin-Close Protection requirement as the one adopted by ESMA, which is a margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which CIFs are required to close out one or more retail client’s open CFDs;
In general, the margin close-out rule applies on an account basis across all open CFD positions in a client’s account based on 50% of the initial margin required. This includes positions with a guaranteed stop loss order or limited risk protection.
NEGATIVE BALANCE PROTECTION
CySEC proposed under CP-02-2019 to adopt the same requirements as provided for in the ESMA Decision on CFDs in relation to NBP.
CySEC reiterates that NBP means the limit of a retail client’s aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in that CFD trading account (the “NBP Requirement”). The NBP Requirement must be triggered whenever margin close-out protection cannot be effectively applied due to extreme market events affecting the underlying of the CFD in question.
RESTRICTION ON THE INCENTIVES OFFERED TO TRADE CFDs
In order to address the risks emanating from incentivising retail clients to trade in CDFs by means of monetary or certain types non-monetary benefits, CySEC proposed under CP-02-2019 to adopt the same restrictions as ESMA on the incentives offered to clients.
To this end, CySEC believes that the CFD providers should not directly or indirectly provide the retail client with a payment, monetary or excluded non-monetary benefit in relation to the marketing, distribution or sale of a CFD, other than the realised profits on any CFD provided.
CySEC reiterates that “excluded non-monetary benefit” means any non-monetary benefit other than, insofar as they relate to CFDs, information and research tools.
STANDARDISED RISK WARNINGS
CySEC will proceed with adopting the same risk warning as ESMA’s, except for the case of new firms that do not have 12 months of retail client trading data where we request that the percentage range is replaced with a reference stating that “The vast majority of retail client accounts lose money when trading in CFDs” in the durable medium and webpage standard risk warning and in the abbreviated standard risk warning and with a reference stating that “‘CFD-retail client accounts generally lose money” in the reduced character standard risk warning.
In particular, the CFD provider should not send directly or indirectly a communication to or publish information accessible by a retail client relating to the marketing, distribution or sale of a CFD unless it includes the appropriate risk warning specified by and complying with the conditions:
Risk warning conditions
- The risk warning shall be in a layout ensuring its prominence, in a font size at least equal to the predominant font size and in the same language as that used in the communication or published information.
- If the communication or published information is in a durable medium or a webpage, the risk warning shall be in the format specified in Section B.
- If the communication or published information is in a medium other than a durable medium or a webpage, the risk warning shall be in the format specified in Section C.
- By way of derogation to paragraphs 2 and 3, if the number of characters contained in the risk warning in the format specified in Section B or C exceeds the character limit permitted in the standard terms of a third party marketing provider, the risk warning may instead be in the format specified in Section D.
- If the risk warning in the format specified in Section D is used, the communication or published information shall also include a direct link to the webpage of the CFD provider containing the risk warning in the format specified in Section B.
- The risk warning shall include an up-to-date provider-specific loss percentage based on a calculation of the percentage of CFD trading accounts provided to retail clients by the CFD provider that lost money. The calculation shall be performed every three months and cover the 12-month period preceding the date on which it is performed (‘12-month calculation period’). For the purposes of the calculation:
- an individual retail client CFD trading account shall be considered to have lost money if the sum of all realised and unrealised net profits on CFDs connected to the CFD trading account during the 12-month calculation period is negative;
- any costs relating to the CFDs connected to the CFD trading account shall be included in the calculation, including all charges, fees and commissions;
- the following items shall be excluded from the calculation:
- any profits or losses from products other than CFDs connected to the CFD trading account;
- any CFD trading account that did not have an open CFD connected to it within the calculation period;
- any deposits or withdrawals of funds from the CFD trading account
- By way of derogation from paragraphs 2 to 6, if in the last 12-month calculation period a CFD provider has not provided an open CFD connected to a retail client CFD trading account, that CFD provider shall use the standard risk warning in the format specified in Sections E to G, as appropriate.