CySEC outlines new leverage, bonus regulations

2 December 2016

The Cyprus Securities and Exchange Commission (CySEC) has announced a host of new regulations for companies that offer contract for difference (CFDs) and other speculative products such as binary options.

The announcement caused waves across the European market, with shares in online brokerage Plus500 dropping by around 16% yesterday (Thursday).

Demetra Kalogerou, chairman of CySEC, said in a circular that companies must avoid offering bonuses designed to “incentivise retail clients to trade in complex speculative products”, citing CFDs and binary options as examples.

The CySEC circular added that “it is unlikely that a firm offering such bonuses could demonstrate that it is acting honestly, fairly and professionally and in the best interests of its retail clients”.

Operators are also required to declare to CySEC whether they are offering such bonuses by December 14, with the organisation not anticipating any new launches in the wake of this announcement.

CySEC has also ordered companies to design their trading systems in a way that offer retail clients as a default the lower leverage determined in an established and a board-approved leverage policy.

Operators must also limit the level of leverage available to retail clients that do not pass an appropriateness test or limit the sum that the client in question can invest, in any one period of time, while ensuring the maximum loss for clients does not exceed the customer’s available funds.

In addition, CySEC has told companies to process a client’s request to withdraw funds on the same day as the request was made.

Following the news and the dip in its share price, Plus500 has moved to allay any initial fears, saying that the CySEC announcement was simply clarification on regulation announced by the European Securities and Markets Authority earlier this year.

In a statement, Plus500 said: “Plus500 does not believe that the topics covered in the circular will have a material operational or financial impact on the company.”

Meanwhile, the Cyprus National Betting Authority, the country’s industry regulatory body, has revealed plans to introduce stricter legislation to help combat illegal online gambling.

Earlier this week, members of the regulator met with the Parliamentary Finance Committee to discuss measures being taken to block over 2,500 websites that offer illegal gambling services.

The Cyprus Auditor General said Cyprus is losing €10 million ($11.0 million) to illegal operators and is also suffering losses through an interstate agreement with Greece.

The website reports that Cyprus loses €1 million each month under the current deal, with the country also having to pay €10 million in tax to Greek operator OPAP.

Related article: Plus500 on track after ‘strong’ progress in third quarter