Will Germany Ban CFD Trading?

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The German regulator has promised to "intervene" - but what does this mean?

Over the weekend German newspaper Die Welt published an interview with Elisabeth Roegele, Head of Consumer Protection at German financial markets regulator BaFin. She was talking about the prohibition of a financial product called ‘Bonitätsanleihe’, which is essentially a certificate distributed through banks to retail investors.

BaFin vehemently opposes this product as too complex and therefore not suitable for retail investors. Due to a new law which came into effect last year, BaFin now has the power to prohibit certain financial products right away. Over the course of the interview Mrs. Roegele also mentioned that BaFin is monitoring the development of CFDs and binary options in Germany very closely and that they will certainly intervene at some time in the future.

What does “intervene” mean?

Unfortunately, neither BaFin nor Mrs. Roegele gave a specific account of what the regulator is planning to do. An intervention could be a reduction of leverage (down from 400 to maybe 50), monitoring the execution of brokers more closely, introducing account airbags (traders cannot lose more than what is on their accounts) or prohibiting CFD trading entirely.

According to a specialized lawyer that I know, BaFin has no precise plans at the moment, but this could change as soon as there is a scandal in the German market and subsequently in the press. A scandal could be a big broker going bankrupt or more binary brokers targeting German traders. This would raise the attention of BaFin and they would need to do something about it.

There is a tendency in Germany to reduce OTC trading (CFDs, certificates) and bring the volume to regulated exchanges like Deutsche Börse and EUREX. I am pretty sure that we will definitely see some kind of intervention by BaFin during the next two years.

Hopefully it is only a limitation of leverage and better monitoring of brokers (which is no problem for well-regulated entities) and not a complete ban of CFD trading.

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