The National Securities Market Commission (CNMV) has intervened in the market by taking various measures to protect retail investors. Thus, it has limited the advertising of contracts for difference (CFDs) and the marketing of other leveraged instruments.
The Commission has released a report on Wednesday stating that between 70% and 90% of all retail clients who operate with CFDs suffer losses. In addition to the restrictions on these contracts and other leveraged financial products, the CNMV has announced new limitations on remuneration policies and sales techniques.
In the statement published by Efe, the Commission explained that the applicants “strengthen the protection” of retail investors and avoid some sales and advertising practices that have occurred in the CFD market and have “prevented the regulations and security measures from current intervention to date were effective.
High Risk Products for Retailers
Regarding advertising, in addition to prohibiting it from being addressed to the general public, sponsorship of events, brand advertising and the use of figures of public relevance are also prohibited.
Brokers that trade CFDs will be prohibited from certain remuneration practices of the commercial network (linking remuneration to the number of clients captured, to the income they generate for the entity or to the losses they obtain). The use of ‘call centers’, ‘webinars’ and ‘demo accounts’ that promote 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.