The new guidance includes the prohibition on the marketing, distribution or sale of binary options to retail investors, but the trading industry is particularly upset with the CFD restrictions. These include leverage limits on opening positions; a margin closeout rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm-specific risk warning delivered in a standardized way.
Dan Moczulski, CEO of Star Financial Systems, considers “the ESMA rulings to be so poorly thought out that [he] just can’t predict how the industry will change going forward”. While the intention of protecting the unsophisticated investor is clear, Moczulski says the new rules will not change that outcome because “the investor attracted to get rich quick, poor risk/return outcomes does not understand or seek regulatory protection.[…] These changes now guarantee that the unregulated, or lightly regulated industry has a more attractive message than the regulated industry.”
Taking the opposite view is Admiral Markets, an FCA regulated broker that does not onboard retail clients. The company welcomed the unified regulation and called it “a good change”. Admiral Markets does not expect these regulatory changes to impact professional clients and a high percentage of their clients are experienced traders, according to the broker.
Natallia Hunik, Global Head of Sales at Advanced Markets, expects “to see some indirect impact due to the ruling’s effect on the business operations at many of [their] European clients.” Lower leverage may lead to a reduction in trading volumes over the short term, but Hunik believes that “in the long term, the market will adapt and reach an equilibrium where reduced leverage and responsible trading create an overall positive effect on industry transparency and profitability.”
Laurent Bellieres, Chief Risk Officer at Swiss-based broker Dukascopy, expects the EU market to shrink on account of the new regulation as the volume of transactions and hence trading income will be reduced.