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Tough Rules for CFD & Spread Betters Continue

21 January 2019

Product intervention measures: CFD & Spread Betting

As we have stressed previously, there is intense scrutiny at present upon the CFD and Spread Bet market, with the European Securities and Markets Authority (ESMA) having introduced Product Intervention Measures last summer. Since August last year, the marketing, sale and distribution of CFDs, including rolling spot forex and financial spread bets to retail clients has been restricted. Leverage limits, as well as other measures, have all been introduced affecting how business may be carried out.  

And it seems this year the regulators continue to back tough rules for spread betters.

However, it is not only CFD and spreadbet firms that should now be paying attention. Last month the FCA issued a consultation paper (CP 18/38) that discussed the application of restrictive measures against other products of a similar nature to CFDs and Spread bets. This seems only fair, since where there are two or more products that can be used for the same purpose, it is surely unconscionable for the regulator to take action against one and not the other.  

Extending product restrictions to other retail derivative products:

The FCA commented last year that other derivative products can “create the same kinds of risks for retail consumers as CFDs.” These substitute products could be sold under a variety of labels but share similar features with contracts for differences.

The FCA mentions that some firms have even said that they will intend to offer these products, as they are currently not included under ESMA’s product intervention measures, which the FCA is looking to make permanent.

Such an example, are over the counter (OTC) forwards and exchange traded futures – derivative instruments that are of a similar complexity and give leveraged exposure to financial assets like CFDs do. Futures are the most likely derivative that firms could substitute for CFDs, since similar to CFDs, the value of futures moves ‘one-for-one’ with the change in price of the underlying asset. However, since these products are not covered by ESMA’s intervention, retail consumers trading these products do not have the same protections as those trading CFDs.

Regulatory changes:

It can only be right, since regulators are cracking down on CFD and spread bets, that other similar products, also be treated with the same restrictive measures, since for a regulator to apply them to one and not the other is unconscionable.

Extending these measures will go towards helping the regulator achieve their aims to reduce harm to retail consumers and improve transparency, as well as create a more even playing field for market providers.

All those wishing to have their say on the regulator’s considerations of extending the measures to other retail derivative products as discussed within CP18/38 should ensure they send their comments to the FCA by the closing date of 7th March 2019.

Related reading:

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Intervention measures for other products

“Where there are two products that can be used for the same purpose (i.e. to speculate on movements in the market), it is surely unconscionable for the regulator to take action against one and not the other.”

Compound Growth Ltd,

21st January 2019