1. What Is ESMA Product Intervention
ESMA applied new rules for trading financial instruments (see 2 below) by retail clients only, this does not apply for professional clients or eligible counter parties.
- We are re-categorizing our existing clients to professional clients who met the criteria defined in the directive: (Meeting at least two)
- That they have carried out operations in the last four quarters with a frequency of more than 10 operations per quarter.
- That they have equity in securities deposited in financial entities and in cash with a current value of over 500,000 Euros.
- That they currently hold, or have previously held for at least 1 year, a professional position in the financial sector that requires knowledge of the investment and auxiliary services and financial instruments that are referred to in the notification on the classification that I have received from the Company.
2. Financial Instruments affected:
CFDs (from 1 August 2018)
3. Restriction applied to CFDs trading are:
- I. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:
- 30:1 for major currency pairs;
- 20:1 for non-major currency pairs, gold and major indices;
- 10:1 for commodities other than gold and non-major equity indices; (For example Coffee)
- 5:1 for individual equities and other reference values; (For example Shares CFDs)
For example, if you have an open position of 1 lot in EURUSD (at an open price of 1.1670) you are currently required to hold $233.44 in margin. After this date, that will increase to $3,890.
- II. A margin close out rule on a per account basisi.e. when the sum of funds in the CFD trading account and the unrealised net profits of all open CFDs connected to that account fall to less than half of the total initial margin protection for all those open CFDs;
- III. Negative balance protection on a per account basis.I. This means the limit of a retail client’s aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in that CFD trading account;
Orbex does not allow clients going in negative balance.
- IV. A restriction on the incentives offered to trade CFDs. CFD providers will be required not to provide, directly or indirectly, retail investors with any form of monetary and non-monetary benefits that aim at incentivising retail investors to trade CFDs or to trade larger volumes of CFDs. The scope of the prohibition includes monetary benefits such as, but not limited to, the offering of bonuses in relation to the opening a new account or the offering of rebates on fees, including volume based rebates, charged by an investment firm to its retail clients. Monetary benefits that do not constitute an incentive for retail investors to trade CFDs or to trade larger volumes of CFD, such as lower fees, not linked to volumes, for all retail clients, are allowed;
- V. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.
4. Rule Application:
As point 1, above these measures apply to all retail clients (EU and Non EU)
5. Other Issues:
- • Existing open positions:
- Product intervention measures does not apply to CFDs sold to retail clients prior to 1st of August. The restrictions apply to CFD positions entered into from 1st of August 2018). As to the margin close-out protection and the negative balance protection.