Spanish Regulator Set To Implement Additional Restrictions On CFD Trading
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The Spanish Securities Market Commission (CNMV) anticipates that the additional restrictions it will make on marketing, distribution, and the sale of contracts for difference (CFD) instruments will come into effect on July 20, 2023. The restrictions have received the support of the European Securities and Market Authority (ESMA).
Spanish Regulator to expand restrictions on CFDs
According to ESMA, new restrictions needed to be put in place regarding CFDs trading. The regulator noted that these additional measures were proportionate and also justified.
The first set of new restrictions announced by the regulator expands the rules that were launched by CNMV in 2019 and by ESMA in 2018. These guidelines have introduced a ban on marketing communications or practices that target retail clients and the general public.
Some of the guidelines that have been announced by the regulator are related to sales agents, call centers, and software providers that will play a significant role in recruiting investors.
These new guidelines have also barred the use of CFDs to sponsor events and organizations or the use of public figures to market these financial instruments. However, the restrictions have placed an exemption on sponsorship and brand endorsements that are made by brokers who do not provide CFDs or those whose CFDs make up a small part of their offerings.
These new guidelines do not include certain CFDs, such as those which are offered at the discretion of the client or those that are needed to conduct transactions related to the instruments. It also excludes information related to “objective data on CFDs,” including fact sheets that do not offer subjective details.
CFD trading is a risky venture
The guidelines announced by the CNMV with the backing of ESMA come after a public consultation phase regarding these instruments. In November last year, the regulator announced additional guidelines.
The CNMV noted that the restrictions announced in 2019 did not have much effectiveness in protecting investors. It noted that the additional restrictions had been necessitated by the increased risk posed by these financial instruments, as around 75% of retail investors still post losses on investments in CFDs despite the restrictions put in place.
CNMV also published a public consultation document saying that CFDs are still accessible to retail clients in Spain. These clients do not have adequate financial knowledge of these instruments despite investing in them.
According to the regulator, the main reason why investors suffered losses after investing in these instruments is the use of aggressive marketing campaigns. Retail investors are usually lured into making an investment using call centers and other techniques used to avoid the existing guidelines.
It is also not the first time that the CNMV is expanding restrictions around CFDs. In 2017, the regulator required that the providers of forex, CFD, and binary options leverage higher and issue additional risk warnings to retail clients. Providers were required to issue a disclaimer before opening a trading position.
