No plans to follow London on CFD rules
The Financial Markets Authority has no plans to follow its UK counterpart and impose limits on the leverage that derivatives issuers can offer their clients.
Shares in global derivatives broker CMC Markets plunged by as much as one-third in London trading on Tuesday after the UK’s Financial Conduct Authority (FCA) released a consultation paper proposing tough, new regulations for CFD (contract for difference) traders, including products such as spread bets and rolling spot foreign exchange products.
The FCA said it had “concerns that more retail customers are opening and trading CFD products that they do not adequately understand”.
Its analysis using a representative sample of client accounts for CFD firms found that 82 per cent of clients lost money on these products.
The New Zealand office of CMC Markets is not commenting but pointed to a press release from its London head office that noted that this is just a consultation document.
“CMC shares a common desire to see a uniform application of the highest standards of conduct across the industry,” the statement said.
“CMC recognises that in its consultation paper the FCA is endeavouring to ensure that any regulation is delivered in a balanced fashion and looks forward to working closely with the FCA over the coming months.”
It seems unlikely that new rules in the UK would have an effect on CMC’s NZ operation or other CFD traders.
New Zealand’s FMA said there was no general policy to impose leverage caps for NZ derivatives issuers.
“There are cases where we have imposed limits on leverage ratios in the terms and conditions for a licence,” it said.
“This is where we had concerns about the maturity of the provider in its ability to manage margin calls and liquidity risks. As part of our ongoing monitoring of this sector we will be gathering information about the management of leverage ratios and limits.”
What we’re effectively doing is opening up the world’s financial markets. Peter Cruddas, founder CMC Markets
CMC Markets listed on the London Stock Exchange in February raising more than $1 billion.
Founder Peter Cruddas visited New Zealand last month. Cruddas emphasised that CMC was committed to helping clients learn to manage risk and to make money. He argued that CMC was about providing access to markets which had previously been in the hands of a privileged elite.
“What we’re effectively doing is opening up the world’s financial markets. It is now possible for a taxi driver to pull over to the side of the road and trade 10,000 of the world’s financial products from his mobile phone and he will get the same prices as Goldman Sachs.”