Germany CFD regulations requiring negative balance protection take effect

Germany's BaFin maintains restrictions on retail trading with financial CFDs

A full eight months after first being proposed, new rules governing CFD trading and brokerage take effect this week in Germany.

A quick timeline….

German regulator BaFin proposed the new rules for brokers providing off-market leveraged CFD trading on December 8, 2016. That came just two days after BaFin’s UK counterpart, The FCA, came out with its own proposals for FX and CFD brokerage on December 6. The FCA’s rules were much more severe than BaFin’s, proposing a hard 50x leverage cap on FX and CFD trading, and a blanket ban of deposit (and other) bonus payments to retail clients, which (some) brokers have been using for years to entice retail traders to deposit, re-deposit, and eventually churn their accounts.

BaFin’s proposals included just a requirement that brokers provide negative balance protection to their Germany-based clients, such that retail traders could not lose more than they had deposited to their accounts. The loss on any leveraged trade which “gapped down” below a zero value would not be borne by the trader, but by the broker.

Since the original rule proposal was made, the concern among many in the online trading industry was that BaFin was going to reconsider its position, and institute some sort of leverage cap as well, like the FCA. Or, even worse, a blanket ban on leveraged product trading or advertising, as was instituted by Belgian and French regulators.

However BaFin stuck to its guns and, on May 8 announced that the December 8 proposals would take effect as originally issued, with the new rules to be implemented on August 10, i.e. last Thursday.

Our sense from speaking with brokers in the online trading sector is that most if not all of the leading brokers serving the German CFD market, such as FCA regulated brokers IG Group Holdings plc (LON:IGG), CMC Markets Plc (LON:CMCX), and Plus500 Ltd (LON:PLUS) had made the necessary alterations to their back-end systems even before the final May announcement was made. (Some had been offering negative balance protection all along).

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