Germany plans to restrict marketing, distribution and sale of futures
The Federal Financial Supervisory Authority (BaFin) plans an intervention in the futures market.
The regulator argues that retail clients should be protected against losing all of their assets in highly volatile market situations when trading in futures. BaFin is therefore planning to restrict the marketing, distribution and sale of futures with additional payments obligations. Retail clients will no longer be able to trade in these products.
Contracts for difference (CFDs) with additional payments obligations were banned in 2017.
In BaFin’s view, retail clients that trade in financial products involving an obligation to make additional payments are exposed to substantial risk. In highly volatile market situations, these products can result in unlimited losses. If the capital invested is not enough to offset losses, investors must use their other assets. Retail clients can lose significantly more than their invested capital; in the past, some investors have been required to make six-figure additional payments.
After banning CFDs with additional payments obligations for retail clients, BaFin has noted that companies are increasingly marketing futures with additional payments obligations to retail clients. In addition, an increasing number of mini and micro futures products with additional payments obligations are currently coming onto the market. Owing to their small contract size and corresponding low entry threshold, these products are aimed specifically at retail clients.
With its product intervention measure, BaFin aims to ensure that, in future, the losses incurred by retail clients trading in futures contracts will be limited to the amount invested, as in the case of CFDs.
BaFin can restrict or prohibit the marketing, distribution and sale of financial instruments in order to protect investors (Article 42 of the Markets in Financial Instruments Regulation – MiFIR). Comments on the measure may be submitted until 17 March 2022.