On 11th October 2016, the European Securities and Market Authority (ESMA) published its updated Level 3 legislative document - Questions and Answers Relating to the provision of CFDs and other speculative products to retail investors under MiFID. [Speculative products are – CFDs, FX and binary options.]: https://www.esma.europa.eu/sites/default/files/library/2016-1165_qa_relating_to_the_provision_of_cfds_and_other_speculative_products_to_retail_investors_under_mifid.pdf


The amendments of this document are with regard to the use of trading benefits, withdrawal of funds, use of leverage, best execution. The requirements are summarised below.


Summary of the Q&A amendments:

  1. Use of trading benefits when offering CFDs or other speculative products;

ESMA recommendation: the practice of offering bonuses must be avoided; including benefits that are designed to encourage behaviours that are not in the best interests of clients.


  1. Withdrawal of funds from trading accounts when investing in CFDs or other speculative products;

ESMA recommendation: The firm (the Merchant) should enable its clients to withdraw funds from their trading account at any time.

Ordinarily, in the case that there is a positive cash balance in the retail client’s trading account that is not committed margin supporting open positions, this should mean that a firm is able to process the client’s request to withdraw funds (e.g. by sending payment instruction to the bank) on the same day that the request to withdraw funds was made, or the next working day if the client’s request is received outside of normal trading hours.


  1. Use of leverage when offering CFDs or other leveraged products to retail clients;

ESMA recommendation: The firm (the Merchant) must:

  1. Recommend that the client does not dedicate his or her entire deposit to meeting margin requirements, in order to protect the client against market volatility; and
  2. Give clients the option to lower the leverage in order to limit their exposure. The maximum possible leverage limit should not be offered as the default offer to retail clients.


  1. Best execution obligations for firms offering CFDs or other speculative products to retail clients

ESMA recommendation: The Merchant must have an execution policy with certain content. The firm (the Merchant) must not:

  1. attempt to exclude or limit best execution responsibilities, or
  2. attempt to transfer best execution responsibilities to another party,  through clauses in retail client agreements, contracts, or in the firm’s execution policy;
  3. use poorly defined clauses to arbitrarily cancel (usually profitable) client trades.