The National Securities Market Commission (CNMV) has given a twist to the commercialization of Contracts for Differences (CFD), given the evidence that the restrictions implemented in 2018 are not enough to prevent these high-risk financial products continue to be placed to retail customers. The body chaired by Rodrigo Buenaventura has verified that “between 70% and 90% of clients who operate with CFDs in Spain suffer losses”.
For this reason, the market regulator has just established a ban on advertising CFDs for retail clients or the general public. This prohibition extends to sponsorships of events and organizations and brand advertising, including the use of persons of public importance by entities that trade CFDs. Both types of communication will only be allowed when the activity is very small compared to the general activity of the entity.
In the resolution published this Wednesday, the CNMV has also limited the remuneration policies and sales techniques for these products and intervenes in the marketing, sale and distribution to retailers of other leveraged instruments.
“These measures are intended to strengthen investor protection against certain commercial and advertising practices in the CFD offer that had prevented the regulations and intervention measures in force to date from being effective,” the CNMV explained in a statement.
Brokers that trade CFDs will be prohibited from certain remuneration practices of the commercial network, such as linking the remuneration to the number of clients captured, to the income that these generate for the entity or to the losses that they obtain. The use of call centers, webinars and demo accounts that encourage the distribution of these products to retailers is also prohibited.
CFDs are “complex and high risk” products and therefore generally “not suitable” for retail investors. For this reason, both the European securities market supervisor (ESMA), in 2018, and the CNMV, in 2019, adopted various intervention measures that established conditions for the marketing, distribution or sale to said investors. The approved measures are due to the fact that the CNMV considers that previous efforts have not been effective in protecting investors.
With respect to the rest of the leveraged products, the maximum leverage to which investors may be exposed has been limited and requires margin closing protection. This means that clients who use leverage will see their positions closed when they drop to 50% of the initial margin, limiting their losses.
These measures will mainly affect eight Spanish entities, which concentrate most of the trading volume of these derivatives, with some 60,000 clients who registered aggregate losses of 70 million euros in 2021, the date of the latest available data. The volume traded through CFDs in that year was 155,000 million euros.
