According to an announcement made on March 27, 2018, the European Securities and Markets Authority (ESMA) has increased their requirements on Contracts For Differences (CFDs) in cryptocurrencies markets.
A CFD is an agreement on a futures contract when there are differences in settlements. Instead of resolving the differences through a delivery of physical goods or securities, a CFD requires differences in settlements be resolved through cash payments. For many experts, resolving these settlements through cash payments is simpler than other options. It also offers investors the benefits and risks of a security without the complications of ownership.
The change in ESMA requirements will allow for the increase of the leverage limit for CFDs to 2:1 when they open. In other words, an investor must be able to cover at least 50% of the value of the contract at opening. This is a big step up from the prior regulation which required a ratio of 5:1. The 5:1 ratio meant at opening an investor need only have 20 percent of the value of the CFD on hand.
The ESMA put out a Call For Evidence in January of 2018 seeking possible tampering with cryptocurrency CFDs. It is their belief that recent high price variation was the basis of investor uncertainty.
The recent announcement from the ESMA focused on the remaining potential risk cryptocurrencies may still post to investors:
“... For CFDs on cryptocurrencies, many of these concerns remain present. Due to the specific characteristics of cryptocurrencies as an asset class the market for financial instruments providing exposure to cryptocurrencies, such as CFDs, will be closely monitored, and ESMA will assess whether stricter measures are required.”
Regulatory agencies for individual European nations have joined with ESMA in the most recent regulatory push. For instance, Autorité des marchés financiers (AMF), the regulator of French markets, has also called for additional EU regulations on cryptocurrency derivatives. They also have pushed for the regulation by the European Market Infrastructure Regulation of trading platforms that allow for the trading of cybercurrency.
Austrian regulators have also joined the call for reform. The Austrian Finance Minister is seeking tighter controls on cryptocurrency derivatives in order to fight money laundering. Regulators across the EU have stressed to their citizens the high-risk nature of cryptocurrency investment.
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