Europe’s financial regulator has said it will extend tough temporary restrictions on contracts for difference, speculative trading products popular with retail investors, in a further blow to the struggling online trading sector.
The European Securities and Markets Authority said on Friday that it would renew curbs on the “marketing, distribution or sale” of the derivatives to retail traders, which came into force in August, for another three months starting on November 1.
The earlier continent-wide move came as concern grew that big losses were being incurred on complex products by inexperienced traders. It constituted Esma’s first use of emergency “product intervention” powers, afforded to it in January under new Mifid II markets rules.
But the restrictions have heaped pressure on the industry, including large London listed companies such as IG Group and CMC Markets.
On Tuesday, CMC put out a profit warning, partly blaming the rules, which sent shares down as much as 18 per cent. The extension of the crackdown also comes a day after IG’s chief executive, Peter Hetherington, stepped down unexpectedly in a move deemed “badly timed” by analysts because of investor concern over the impact of the rules.
“Esma considers that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist,” the watchdog said on Friday. It renewed the restrictions, including curbs on the amount of leverage providers can offer to retail customers, which were strongly opposed by the industry.
As part of its broad clampdown on the industry, Esma last month also extended a temporary ban on the sale of another complex derivative, binary options, to retail investors. Esma has the power to renew any three-month restrictions again if it feels national regulators have not taken sufficient action to protect investors.
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