201612.15
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Circular no. 168 with subject “Updated version of ESMA’s Q&A document relating to the provision of CFDs and other speculative products to retail investors under MIFID.”

On 30th November 2016 the Cyprus Securities and Exchange Commission (“CySEC”) issued the Circular no. C168 with subject “Updated version of ESMA’s Q&A document relating to the provision of CFDs and other speculative products to retail investors under MIFID”. With this Circular, CySEC has interpreted ESMA’s Q&A, published in early October 2016, in relation to Cypriot Investment Firms (“CIFs”) offering speculative products to retail clients subject to MIFID.

According to the Circular, the CIFs should focus on the following parts of the Q&A document:

  1. No more bonuses
  • CIFs must avoid the practice of offering bonuses.
  • CIFs will not launch any new bonus schemes to retail clients from now and onwards and let the existing ones lapse or expire or in any way cease to exist.
  • As for the offering of other trading benefits,
    • CIFs must notify CySEC of any new type of trading benefits that intend to offer to retail clients.
    • It is provided that the notification will take place before the trading benefit is launched to the market.
    • CIFs must be able to demonstrate to CySEC that such trading benefit is not designed to encourage behaviors that are not in the best interests of clients.

  1. Default Leverage at 50
  • Excessive leverage deemed to be against the best interest of retail clients.
  • Trading systems must be designed in a way that offers retail clients as a default the lower leverage limit determined in the leverage policy of the CIF, not exceed the cap of 1:50 (default).
  • Retail clients can choose to change the default to a higher leverage, but this must be selected by the retail client.
  • Limit the level of leverage available to retail clients that do not pass the appropriateness test or limit the sum that the client can invest, in any one transaction for a period of time.
  • Where a CIF needs to amend its trading system this should be done the soonest and not later than 30 January 2017.

The Circular is available here.

ESMA’s Q&A is available here.