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The FCA considers banning binary options and restricting CFD trading permanently

Dec 07 2018
By
Jonathan Smith

 

The UK Financial Conduct Authority (FCA) has proposed permanent ban on binary options, as well as permanent restriction on the sale, marketing and distribution of contracts for difference (CFDs) and similar products to retail investors.

 

In fact, the FCA is suggesting to make the measures introduced by the European Securities and Markets Authority (ESMA) permanent in the UK. More specifically, the FCA is proposing that forex brokers must apply the following measures regarding the Contracts-for-Difference (CFDs) sold to retail clients: 

 

-leverage limitation of 1:2 to 1:30 by collecting minimum margin as a percentage of the overall exposure that the CFD provides;

-closing out a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account;

-providing negative balance protection;

-stop offering monetary and non-monetary inducements to encourage trading, such as bonuses;

-provide a standardized risk warning, which requires firms to tell potential customers the percentage of their retail client accounts that make losses;

 

The rules would apply to firms acting in or from the UK in order to prevent the harm to retail consumers and to tackle widespread concerns about the inherent risks of these products. FCA is also proposing to apply these rules to some closely substitutable products (including so-called turbo certificates).

 

In its essence, the measures proposed by the FCA are the same as those introduced by the pan-European regulator ESMA in March this year. As per the MiFIR, ESMA can only introduce temporary three-month measures, but it has already renewed the restrictions several times. However, the measures proposed by the UK financial watchdog would have permanent effect.

 

TAGS: FCA  binary options ban  CFD restrictions  leverage  ESMA 
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