New ESMA Regulation*

In March, the European Securities and Markets Authority (ESMA) announced having agreed on a range of measures intended to harmonise EU-wide regulation and to provide better protection to retail clients trading leveraged products, like CFDs.

Read the full ESMA statement here

*The measures impact clients of Saxo Bank A/S who are EU residents.

Overview of measures

    Leverage limits on new positions

    50% margin close-out rule on an account-level basis

    Negative balance protection limiting client losses

    Prohibition on benefits used to incentivise trading

    Standardised warning statement of the risks involved across promotional material

    Prohibition on the marketing, distribution or sale of binary options regardless of type

Measures in detail 

Leverage caps

Leverage limits will apply to trades and take into consideration the volatility of the underlying market.  Initial margin requirements will increase on CFD and FX products, meaning the amount of cash you initially need available to fund a leveraged trade will be higher.

As an example, the initial margin requirement on non-major FX pairs will go from our current 2% margin rate (50:1 leverage) to 5% (20:1).

Saxo CurrentESMA Initial Margin
FX (Majors)1.50%3.34%30:1
FX (Minors2.00%5.00%20:1
Index (Majors)2.50%5.00%20:1
Index (Minors)3.00%10.00%10:1
Gold3.00%5.00%20:1
Commodity6.00%10.00%10:1
Equity10.00%20.00%5:1

Margin close out

This will standardise the percentage of margin clients must maintain before providers are required to close out client positions. 

The proposed rate is 50% of minimum initial required margin on an account-level, meaning if the total margin in your account falls to 50% of minimum initial margin required, then positions will be closed out.

Negative balance protection

Providers must provide negative balance protection on a per account basis which is designed to provide an overall guaranteed limit on potential losses incurred by retail clients.

Restriction on incentives

Restrictions will be placed on promotions offering excessive bonuses or other incentives to attract and encourage retail investors to invest in FX/CFDs.

Harmonised Risk Warning with firm-specific performance

A standardised format for risk warnings will be introduced, where firms will have to include information on the amount of leveraged trades which resulted in positive outcomes for their clients. 

Binary Options

All binary options, regardless of whether they are traded OTC or listed on a trading venue, fall within the scope of the agreed measure. and as such we will no longer be offer one-touch and no-touch options to EU-domiciled retail clients.

Saxo’s Position

Saxo has always been an advocate of responsible trading and we support the measure set forth by ESMA.

KF

At Saxo, we have been expecting these developments for some time. We made a clear strategic decision not to compete on high leverage. Saxo believes that consistent, harmonised regulation at a European level will be positive for clients and the industry as a whole.

Kim Fournais – Co-Founder & CEO, Saxo Bank