Belgiums fsma complaints and enquiries about binary options fx and cfds rise 50 in 2016
It may far exceed the client's initial margin payment and does not have any upper limit. If the difference is positive, the retail investor is paid the difference amount by the CFD provider; if, however, the difference is negative, it is the investor who must pay the difference to the CFD provider. This category includes, in particular, those retail clients who may be categorised as professional clients upon request pursuant to section 31a 7 of the WpHG. These platforms typically include a whole range of visual signals, the intention of which is to indicate the relevant price developments to the client.
CFDs are primarily advertised and sold across national borders online. Where there is a higher degree of volatility and where a larger margin payment has been made, the additional payments obligation can involve unforeseeable risks of loss for the investor even if the leverage is limited. This spreading of risks means that the de facto leverage for the investor's total assets is very significantly reduced. According to this CFD provider, during market fluctuations leverage means that the client can share in the losses of the underlying to a disproportionate extent. Contrary to belgiums fsma complaints and enquiries about binary options fx and cfds rise 50 in 2016 submissions made by some petitioners during the consultation procedure, the threshold for categorisation as a professional client is also not too high, since only two of the criteria set out in section 31a 7 sentence 3 of the WpHG have to be satisfied in each case.
BaFin's observations and studies carried out by European supervisory authorities 3 show that the average amount of time spent as a client of a CFD provider is rather short. It can be ruled out with high probability that the General Administrative Act will have any effect on the financial sector as a whole. If the difference is positive, the retail investor is paid the difference amount by the CFD provider; if, however, the difference is negative, it is the investor who must pay the difference to the CFD provider. The investor would therefore receive an incentive to not apply the limitation on the additional payments obligation.
This breakdown is appropriate, since it can be assumed that such an investor, based on their experience, knowledge and expertise, is able to adequately assess and bear the unforeseeable financial risks that are attached to a CFD. With due consideration of a potentially necessary adaptation of the business models of CFD providers to the restriction which is the subject of this General Administrative Act, it is reasonable to expect that the CFD providers fulfil the obligation within three months of the General Administrative Act being disclosed. Through the limitation on the additional payments obligation, leverage essentially remains a sought after product feature for providers and clients alike. Welcome to BaFin …. According to ESMAthese conflicts of interest were particularly apparent in business models of the providers whose profits directly correlate with the investors' losses.
It cannot be ruled out that the measure will lead to modifications in CFD accounts, since CFD providers will more than likely hedge themselves against the market risk taken on equal to the amount of the additional payments obligation. In relation to market makers or liquidity providers, CFD providers which execute client orders within the context of principal broking services constitute a special category of professional clients so-called eligible counterparties within the meaning of section 31a 4 of the WpHG. The aggregated client losses feed into the CFD providers' profits.
The investor is therefore exposed to the financial consequences of the speculation with an investment amount, of which they actually only have to put up a small percentage themselves. Some of the petitioners also commented on the implementation period of three months, saying that it was too short. The same applies to the use of demo accounts, where the client trades using a virtual account balance.
The extent of the retail investor's risk of loss cannot be limited in all instances through the use of guaranteed stop-loss orders. On 8 DecemberBaFin published the draft General Administrative Act and gave participants the opportunity to comment on the matter by 20 January pursuant to section 28 1 of the VwVfG. Adaptation of the business models to the planned prohibition would take far longer than this, they claimed. The mathematical value of the corresponding position in underlyings can even exceed the value of the investor's total existing assets. Retail clients can therefore benefit from the product's cash-flow advantages without having to accept unforeseeable risks of loss arising from the additional payments obligation.
The measure would also cover quasi-institutional investors such as foundations, for which treatment as a professional investor was not an option for a number of reasons. This spreading of risks means that the de facto leverage for the investor's total assets is very significantly reduced. Through this restriction, the investor can be aware at all times what percentage of their total assets they would like to expose to the risk. Furthermore, the significant concerns outlined above affect a large number of retail clients. I reserve the right to revoke this General Administrative Act in particular in order to be able to prevent this product intervention measure from contradicting any future uniform regulation of CFDs at the European level.