Okay. It is here, pals. I shared the news about EU-wide regulator ESMA’s intention to propose to impose leverage cap of 30:1, ban on binary options, restrictions on bonus and promotions offered to clients and mandatory negative balance protection feature on all forex brokers within its jurisdiction.
ESMA closed public consultation period by mid February and is now out with its final proposal. ESMA’s final proposal is unchanged and includes maximum leverage limitation of 30:1 for CFD and forex majors. The maximum leverage could be even lower than 30:1 for minor and exotic pairs (20:1), gold (20:1), oil (10:1), other commodities (10:1), equities (5:1), global indices (20:1) and cryptocurrencies (2:1).
In addition to maximum leverage cap of 30:1, binary options are going to be banned, mandatory margin close out rule and negative balance protection will be imposed on the forex brokers throughout EU countries.
Headwinds for the Industry
Needless to say, it is a major headwinds for the industry and forex brokers in Europe. Even though, negative balance protection is going to work on the behalf of the investors, they will drift away from the continent towards off-shore forex brokers in the search of higher leverage.
ESMA’s new measures are going to published in the official Journal of the EU within a month. Forex brokers will follow through and apply the new rules in two months following the publication date.
Reactions from Forex Brokers
The new measures received mixed bag of reactions from the industry players. IG announced that it is disappointed that ESMA decided to proceed with its proposal to impose different leverage restrictions on different markets. IG argues that the new leverage cap will restrict consumer choice. The company also mentioned its worry about the risk of retail clients to choose forex brokers located outside of the EU.
On the other hand, Plus500 announced that the Company welcomes the new rules and already complies with many of the proposed changes. Plus500 believes that ESMA’s proposed measures will improve the trading conditions and have limited impact on the Company’s anticipated financial performance in 2018.
UK watchdog FCA annouced that the regulator supports ESMA’s proposed measures. FCA is expected to evaulate whether to apply ESMA’s proposed rules on the forex brokers under its regulation.