+++ (BBG) Crypto Trades Restricted by EU Markets Cop in Retail Crackdown


…In my several hats…

(Bloomberg) — The European Union’s markets regulator moved
to rein in the sale of risky investment products to retail
clients, with cryptocurrency derivatives set for the toughest
The European Securities and Markets Authority used new
powers under MiFID II to temporarily ban binary options and
restrict the distribution of so-called contracts for difference
to retail investors. The products allow investors to bet on the
price of stocks, currencies, and commodities without owning
them, and gains and losses are often increased with the use of
“The combination of the promise of high returns and easy-
to-trade digital platforms in an environment of historical low
interest rates has created an offer that appeals to retail
investors,” ESMA Chairman Steven Maijoor said in a statement
Tuesday. “However, the inherent complexity of the products and
their excessive leverage – in the case of CFDs – has resulted in
significant losses for retail investors.”
The measures are the most far-reaching step so far by
European regulators to target CFDs. They include leverage
limits, meaning investors have to provide a certain minimum
amount of their own funds to trade the products. The limits
range from 30:1 for major currency pairs to 2:1 for virtual
currencies, reflecting the volatility of the underlying assets.
Why Contracts for Difference Are Under Scrutiny: QuickTake
The restrictions by ESMA follow its January “call for
evidence” and will apply for three months, at which point they
can be renewed, the Paris-based authority said. They take effect
after they’re published in the EU’s official journal, with a
delay of one month for binary options and two months for CFDs,
ESMA said.
Among shares of CFD brokers, IG Group Holdings Plc slid 9.5
percent as of 9:47 a.m. in London. The company said the measures
will hurt 2019 revenue, given demand for crypto trades is likely
to weaken from this year’s level.
“IG is disappointed that ESMA has chosen to proceed with
its proposal to impose disproportionate leverage restrictions
which will unduly restrict consumer choice, and risk pushing
retail clients to providers based outside of the EU or to use
other products which allow the leverage clients seek,” the
company said. “This may result in poor client outcomes.”
CMC Markets Plc dropped 2.6 percent. Plus500 Ltd., a Haifa,
Israel-based CFD brokerage, rose 1.1 percent.
The U.K.’s Financial Conduct Authority said in a separate
statement that it supports ESMA’s actions, and will “consult on
whether to apply these measures on a permanent basis to firms
offering CFDs and binary options to retail clients.”