Cantor Fitzgerald, the financial services group, on Tuesday appeared to pull back from a decision to increase the level of security required from investors to trade so-called contracts for difference.
The company said it had instigated a review of the decision to raise margins on CFDs just 24 hours after it had been taken. A Cantor official conceded its new rates, which would mean clients stumping up 20 per cent of the value of CFD position for a blue-chip stock, may have been “excessive”.
Until Friday, the amount of money needed to take out a CFD via Cantor varied from 10 per cent of the value of the derivative for a blue-chip stock to 50 per cent for more illiquid small-caps.
A CFD is essentially a synthetic equity position, allowing a buyer to gain exposure to the performance of the underlying share.
Cantor clients balked at the new levies, according to some traders. In an e-mail to clients yesterday morning, Cantor wrote in “light of the current global credit market, and the volatility in the global equity markets”, it had raised the margin rates applied to its CFD and spread betting products by 10 percentage points.
“The management believe that the company should be prudent and vigilant in its approach to credit and the credit facilities it offers its clients,” it said.
Although Cantor always planned to return rates to their usual levels when volatility subsided, the speed of the retreat surprised many.
Charles Knott, managing director of CFDs for Cantor Fitzgerald Europe, said it was “not so much a reverse but a review of the decision taken [on Monday]”.
“This hopefully means the increases announced won’t be as harsh,” he said, admitting Cantor “may have made incrementals that were excessive”.
CFDs have been at the forefront of the booming equity derivatives market because they are highly liquid and often more tax-efficient. Notional equity derivative volumes stood at about $7,200bn (€5,200bn) at the end of last year, according to the International Swaps and Derivatives Association.
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