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CySEC sets leverage, volume limits on cyrptocurrencies CFDs, cancels EU passporting rules on those instruments

Oct 13 2017
By
Jonathan Smith

The Cyprus Securities and Exchange Commission (CySEC), which probably has the largest number of forex and CFD brokers under its regulation in Europe, has set limitations on the trading conditions of CFDs on cryptocurrencies, offered by its charges.

 

Probably the most significant part of the document dated October 13, concerns the banning of exercising of EU passporting rules when offering CFDs on cryptocurrencies. “CIFs are not permitted to exercise passporting rights afforded by the Law when offering such services in European Union or third countries”, CySEC said. The reason being that the legal status of digital currencies and financial instruments with them is not universal for the entire EU, so the companies should check for each country the egal status of virtual currency activities applicable in the country concerned and whether specific authorisation is required.

 

This suggests that if trading in cryptocurrencies or products with them is forbidden in a given EU or third country, the broker should not offer those products in it. To our best knowledge, cryptocurrencies are still a grey area and on country has explicitly forbidden trading in them.

 

Furthermore, the brokers must warn their clients that trading in cryptocurrencies (such as Bitcoin, Ethereum, Litecoin, Ripple, Monero, etc.) and the products with them are not EU regulated and that rading in such products is not covered by MiFID and therefore falls outside the scope of the CIFs’ MiFID regulated activities. Besides, CySEC notes, digital currencies are very risky and the dangers of trading with them should be stipulated in a specific risk warning. Clients should also be made aware that trading in such products does not entitle them to any protection under the Investors Compensation Fund and they have no rights to report to the Cyprus Financial Ombudsman in case of a dispute with the firm.

 

Also, under the new rules, the brokers must not offer to retail clients a leverage of more than 1:5 on those instruments and the volume of crypto CFDs should not exceed 15% of the total turnover of the broker per quarter.

 

The brokers offering CFDs on digital currencies should give access to more than one price feed provider (virtual currency exchanges, liquidity providers) and cross-check to ensure the following of best execution principles. Furthermore, the price feed providers must be duly registered and regulated and must undergo a due diligence check by the broker.

 

The new rules will affect a significant number of the forex and CFD brokers who are offering such instruments. Some of them, like FXTM, HotForex, LiteForex, FxPrimus, Fibo Group and UFX, for example, have a license from CySEC only. Others, like easyMarkets, HYCM, Plus500 and Admiral Markets, have more than one license, but their Cyprus-regulated units would still have to abide by the new rules.

 

In the recent months, an ever growing number of forex brokers have started offering CFDs on cryptocurrencies for speculative trading, responding to the rising global interest in those tokens. This week, for example, the Bitcoin reached a new all-time all high of $5800.

 

 

 

TAGS: cysec  cryptocurrency  cfd  limit  bitcoin  ethereum 
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