European Regulators Update Restrictions on Cryptocurrency Derivatives

The European Securities and Markets Authority (ESMA) has taken steps to update the restrictive measures imposed on the marketing, distribution and other aspects of CFDs for retail investors. According to the latest decision of the regulatory body, the updated restrictions will be implemented on August 1 and will be extended for another three months from November 1.

 

In a press release, ESMA has carefully considered the need to expand interventions. In addition, the issue of investor protection for CFDs to retail investors still exists. Therefore, the regulator said in a notice posted on its website last Friday that this is why on Wednesday, September 26, regulators have agreed to extend the restrictions.

 

These restrictions include the obligation to maintain leverage limits when retail customers open positions. The difference depends on the volatility of the underlying assets. 30:1 for major currency pairs; non-major currency pairs, gold and major indices are 20:1; commodities other than gold and non-primary stock indices are 10:1, individual stocks and other reference values are 5:1. For cryptocurrency-based products, the leverage is limited to 2:1. These restrictions will take effect before January next year.

 

According to news.Bitcoin.com, as early as March this year, ESMA has agreed to limit the leverage of cryptocurrency CFDs to 2:1. In the statement at the time, EU institutions referred to these restrictions as temporary product interventions that provide CFDs and binary options to retail investors. This ratio means that when the underlying asset is a cryptocurrency, such as eth coin, tron coin and ada coin, the trader is obligated to provide an initial margin of 50% of the nominal value of the CFD, which exceeds the initial margin required for any other CFD.

 

The agency promotes its ruling with a relatively immature asset class, which in its view poses a significant risk to investors. The ESMA suspects the integrity of the price formation process in the potential cryptocurrency market, making it difficult for retail investors to value these products.

 

Regulators say they need to closely monitor the financial instruments that provide cryptocurrencies alike ripple coin, the CFDs used in this case. It also promises to assess whether more stringent measures are needed.

 

In the latest decision on the matter, the agency confirmed updates to other related restrictions, including negative balance protection for each account, which provided a guaranteed limit for retail customers’ losses.

 

The ESMA stated in its press release that these new measures must be published in the official language of the European Union and official European Union journals before implementation on November 1, 2018.