EU Markets Regulator Expands Crypto-Based Derivatives Trading Restrictions

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ESMA agreed to extend its prohibitions on the selling of cryptocurrency CFDs for another three months, starting November 1.

EU Markets Regulator Expands Crypto-Based Derivatives Trading Restrictions

The European Securities and Markets Authority (ESMA) has agreed to expand its restrictions on contracts for difference (CFDs), including those focused on cryptocurrencies. In an official release made public on Friday, September 28, the department announced its decision.

A CFD is a contract made by a buyer and a seller which says that the variance between the current value of an asset and its value at the time of the contract will be offset by the seller if it is positive, or the buyer if it is negative.

According to the release of ESMA, from November 1 the restrictions which originally came into force on August 1 will be renewed for another three months. The agency explained its move by the important concern for investor protection associated with providing CFDs to retail clients.

As Cointelegraph stated earlier, the leverage cap for cryptocurrency CFDs was at 5:1 before ESMA implemented the first restrictions. But since August it has been set at 2:1, which means that when opening it, crypto investors must have at least half of the volume defined by a contract.

ESMA issued a Call for Evidence in January which considered a potential interference with digital coin CFDs. The paper said crypto-currency price instability posed questions about adequate investor security.

In March ESMA reinforced its CFD requirements. Because of the specific characteristics of cryptocurrencies as an asset class, the financial instruments market providing exposure to cryptocurrencies, such as CFDs, will be closely monitored and ESMA will assess whether more stringent measures are required.

Crypto investing was also treated with caution by other EU regulators. As reported by Cointelegraph back in February, the European Supervisory Authorities (ESAs) warned clients that cryptocurrencies are “highly volatile” assets showing strong signs of a price bubble.

Various EU countries are looking for ways to approach crypto derivatives. French stock market regulator, for example, urged the regulation of crypto-assets under EU law and forbade online advertising. Austria has also suggested supervising them by enforcing exchange laws for gold already in place. And before dealing with crypto derivatives, a UK watchdog has required companies to get authorization.