On 23 October 2018, the European Securities and Markets Authority (“ESMA”) adopted a Decision under Article 40 of Regulation (EU) No 600/2014 to restrict the marketing, distribution or sale of Contracts for Difference (“CFDs”) to retail clients. The Decision renews and amends ESMA Decision (EU) 2018/796.
Under Article 2 of the above, the marketing, distribution or sale to retail clients of CFDs is restricted to circumstances where at least all of the following conditions are met:
(a) the CFD provider requires the retail client to pay the initial margin protection;
(b) the CFD provider provides the retail client with the margin close-out protection;
(c) the CFD provider provides the retail client with the negative balance protection;
(d) the CFD provider does not directly or indirectly provide the retail client with a payment, monetary or excluded non-monetary benefit in relation to the marketing, distribution or sale of a CFD, other than the realised profits on any CFD provided; and
(e) the CFD provider does not send directly or indirectly a communication to or publish information accessible by a retail client relating to the marketing, distribution or sale of a CFD unless it includes the appropriate risk warning specified by and complying with the conditions in Annex II.
Firms that offer CFDs should ensure that the above provisions are all in place.