EU Markets Watchdog Toughens Rules on Crypto Derivatives

The EU markets watchdog has agreed a temporarily change in the leverage limts for cryptocurrency derivative contracts in the region.

AccessTimeIconMar 27, 2018 at 11:00 a.m. UTC
Updated Sep 13, 2021 at 7:44 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

The European Securities and Markets Authority (ESMA) has toughened its stance on cryptocurrency derivative contracts.

In an announcement Tuesday, the EU markets watchdog said it has agreed to temporarily adjust the leverage limit for cryptocurrency-related "contracts for difference" (CFD) products to 2:1 – a move that will require retail investors to initially pay at least 50 percent of the total CFD value.

With a CFD, one party agrees to pay the other party if the value of the underlying asset changes.

The policy comes after the agency started a public consultation process in January, arguing at the time that the volatility of cryptocurrencies as an underlying asset for CFDs poses serious concerns for retail investor protection.

With initial leverage then standing at 5:1 – meaning investors could pay just 20 percent of the total CFD value initially – the agency had mulled either a lower leverage limit (2:1 or 1:1) or even banning distribution, marketing or sales of these products altogether.

In today's announcement, the ESMA indicated that cryptocurrencies still remain an area of concern, and may consider tougher measures in the future in order to protect investors.

The regulator stated:

"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."

The new measure come at a time when the cryptocurrency market is seeing growing interest from retail investors, and brokers and dealers have responded to this demand with new products.

For instance, just this Monday, Swiss bank and securities dealer Dukascopy announced it is now offering bitcoin/US dollar CFDs through its retail client accounts, with future plans to offer purchase and sales of the underlying cryptocurrency assets.

EU flag image via Shutterstock

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.