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FXCM, IG Group support ESMA's restrictions on leverage, binary options, but also voice concern

Dec 19 2017
By
Jonathan Smith

Some of the largest regulated forex brokerages in the world – FXCM, IG Group, Gain Capital, CMC Markets, Plus500 - have expressed their general support for the intentions of the European Securities and Markets Authority (ESMA)  to impose new restrictions on the industry in order to better protect retail clients, but also voiced their concerns.


 

We remind you that last Friday ESMA issued an interim update, in which it outlines its intentions to cap the leverage on forex and CFDs to anything between 1:5 and 1:30, depending on the volatility of the underlying product. Additionally, ESMA is planning a blanket ban on the distribution and marketing of binary options products across the EU. Furthermore, ESMA is also planning to introduce a close-out margin rule, negative balance protection, a restriction on trading incentives, i.e. trading bonuses and a standardized risk warning. ESMA said it will hold a public consultation in January 2018.


 

As one can possibly imagine, the latest regulatory twist was received with mixed feelings by the largest forex and CFD brokerages operating in the EU. Although most of the large players on the market have said they are welcoming the proposals and will comply with the new requirements (as if they have another option), some have also expressed concern.


 

FXCM, for example, have noted that the proposed leverage cap is very restrictive, more restrictive than in the US and Australia and that this might drive clients to use the services of unregulated offshore brokers. Otherwise, FXCM said, it “supports measures that will result in better customer outcomes and bring uniformity to the European regulatory landscape for the FX and CFD industry”.


 

Another major player, IG Group, voiced similar concerns that the retail clients will turn to unregulated brokers and called the restrictions “disproportionate”. In its statement the company noted that “go beyond what is needed to protect consumers from poor outcomes associated with excessive leverage.”


 

Gain Capital, which operates the brand Forex.com, said that even though it supports more restrictive regulatory requirements, its experience shows “that mandating excessively low leverage levels will have negative unintended consequences, including driving retail investors offshore to brokers that do not offer the level of investor protections present in strongly regulated markets.”


 

On the other hand, CMC Markets and Plus500 avoided using strong words and clearly expressing concerns regarding the possible leverage caps, but rather welcomed ESMA's intentions and said they hoped they will have a positive effect. Both brokerages noted that either binary options are “immaterial to company profits” in the case of CMC Markets, or that they have never offered this product, in the case of Plus500.


 

At the same time, all major European forex brokerages said they will actively participate in the ESMA consultation and will await the end result.


 

TAGS: esma  ig  fxcm  forex.com  cmc markets  plus500  leverage cap  binary options 
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