CNMV limits marketing of CFD and operation of leveraged instruments

On 11 July 2023, the Spanish Securities Market Commission - Comisión Nacional del Mercado de Valores (CNMV) issued a Resolution, in which it

• prohibits the marketing of Contracts for Difference (CFD) aimed at retail investors or to the public at large, the sponsorship of events and organisations, brand advertising and the use of celebrities and

• limits the maximum leverage to which retail clients can be exposed in futures and options and obliges the provider to close out the position when the position falls below 50% of the initial collateral, limiting losses.

In each case, the measures apply to entities authorised to provide investment services in Spain, irrespective of the origin of the investment firm and whether it has a branch (so, it includes entities under the freedom to provide services regime).  In general, the measures, though, do not apply to Spanish entities when they operate in other States. However, if the underlying instrument is a cryptoasset that is not considered to be a financial instrument as defined under MiFID, the measures will apply to Spanish entities when they provide services in other EU Member States.

The measures are a step forward compared with those adopted in 2019 (see our summary here) and are intended to strengthen investor protection against certain commercial and advertising practices in the offering of CFDs - these had prevented the regulation and intervention measures in place to date from being effective. The new provisions also improve safeguards for retail clients against certain practices of excessive leverage of other instruments, such as futures and certain options.

The Resolution follows on from the CNMV's analysis of recent marketing practices carried out by entities that trade with CFDs or which obtain benefits from such trading, and following an increase in losses suffered by retail investors as a consequence of these types of investment.

Similar far-reaching measures - albeit different in type and scope - have already been introduced in other jurisdictions (such as France, Belgium, Netherlands and Germany among others),.

The Resolution comprises two parts, one on CFDs and one on other leveraged instruments

• Prohibition of marketing of CFDs:

  • The CNMV prohibits the marketing of CFDs aimed at retail investors or to the public in general, the sponsorship of events and organisations, brand advertising and the use of celebrities.

  • It also prohibits certain remuneration policies for the commercial network (e.g. linking their remuneration to the number of customers they attract, the revenue they generate for the institution or the losses they make) and other sales techniques (such as the use of call centres, webinars or demo accounts) that encourage the distribution of these products to retail investors.

• Intervention measures on leveraged instruments to which retail clients can be exposed in futures and options:

  • Taking into account that the maximum risk of these instruments is not known at the time of subscription and additionally, the risk of loss is higher than the amount of the initial financial contribution.

  • These specific measures

    • limit the maximum leverage to which retail investors can be exposed

    • oblige the provider to offer such investors the so-called "margin call protection", already foreseen for CFDs and

    • require a client's position to be closed when it falls below 50% of the initial margin (thereby limiting the client's losses).

The CNMV will monitor compliance with the Resolution by the entities subject to its supervision and, considering that a significant part of the activity in Spain is carried out by entities acting under the freedom to provide services regime, it will request collaboration of other EU supervisors to pass on the English version to the entities under their jurisdiction that offer CFDs in Spain without an establishment or an agent.