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  1. Questions and Answers - Relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794) [April 2016 and updated March 2017]
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Published date: 8 April 2016

Questions and Answers - Relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794) [April 2016 and updated March 2017]

Comparing proposed amendment...
1 Background
2 Purpose
3 Status
4 Questions and answers
Section 1: Authorisation of firms offering CFDs or other speculative products to retail investors
Question 1 [last update 8 April 2016]: An applicant firm seeking authorisation plans to use an online business model to offer CFDs or other speculative products to retail investors. What particular business model aspects and organisational arrangements may be particularly relevant for national competent authorities (NCAs) to take into account when considering the request for authorisation?
Question 2 [last update 8 April 2016]: Under what circumstances could an applicant firm adopting an online business model to offer CFDs and other speculative products to retail investors and planning to make use of outsourcing arrangements be considered to not meet the MiFID requirements?
Section 2: Conflicts of interest arising from business models that may be adopted by firms offering speculative products to retail investors
Question 1 [last update 8 April 2016]: In the case of some providers of CFDs or other speculative products dealing on own account, there is a direct correlation between the profit/loss made by the client and the profit/loss made by the firm. In such cases, how can the firm demonstrate that it has met its MiFID obligations to act honestly, fairly and professionally in accordance with the best interests of its clients, to take all reasonable steps to avoid conflicts of interest, and to execute orders on terms most favourable to the client?
Question 2 [last update 8 April 2016]: An online platform for trading CFDs remunerates its sales staff based on the volume and value of the CFD transactions executed by retail clients on the platform. Is it possible for firms to demonstrate compliance with MiFID conduct of business and conflict of interest requirements, where remuneration policies and practices link remuneration directly to the sale of financial instruments?
Question 3 [last update 1 June 2016]: What conflicts of interest aspects should national competent authorities (NCAs) consider when a firm offering CFDs or other speculative products to retail investors makes use of other parties to perform activities, including conflicts of interest arising from remuneration arrangements with such parties?
Section 3: Information provided to clients and potential clients about the functioning of CFDs or other speculative products, including marketing communications
Question 1 [last update 25 July 2016]: What particular aspects should NCAs take into account when considering the information that firms present to clients and potential clients about the functioning of CFDs or other speculative products?
Question 2 [last update 25 July 2016]: How can national competent authorities (NCAs) assess a firm's oversight over the marketing communications used to offer CFDs or other speculative products to retail clients?
Question 3 [last update 25 July 2016]: Under what circumstances might the activity of an education provider be considered to be the provision of marketing communications?
Section 4: The assessment of appropriateness when offering CFDs or other speculative products to retail investors
Question 1 [last update 25 July 2016]: What information should be gathered by firms to assess the appropriateness of CFDs and other speculative products for retail clients?
Question 2 [last update 25 July 2016]: What action should a firm take where the assessment of appropriateness indicates that a CFD or another speculative product is not appropriate for a client, but the client wishes to proceed with the transaction?
Question 3 [last update 25 July 2016]: In addition to information collected to establish the knowledge and experience of the client, how should a firm offering CFDs or other speculative products consider other information that may be available relating to the client's situation?
Question 4 [last update 25 July 2016]: What methods can NCAs use to assess whether the appropriateness assessment is being performed correctly?
Section 5: Factors for NCAs to take into account when considering commercial arrangements between two authorised firms that result in the offer of CFDs or other speculative products to retail clients
Question 1 [last update 25 July 2016]: A MiFID investment firm (Firm B) offers an online equity and funds trading platform for retail clients. Firm B wishes to also offer its retail clients the possibility to trade CFDs online. In order to do so, Firm B negotiates a partnership arrangement with another authorised MiFID investment firm that already offers an online CFD trading platform (Firm A). Under the terms of the agreement between Firm A and Firm B, Firm B will introduce its existing retail clients to use the platform offered by Firm A. Firm A will provide a bespoke version of its CFD trading platform to reflect aspects of Firm B's branding and will link its CFD trading platform to the equity and funds trading platform already offered by Firm B.
Question 2 [last update 25 July 2016]: A MiFID investment firm (Firm B) is authorised to deal on own account for its retail clients, who use Firm B's online trading platform to trade CFDs and other speculative products. Firm B then uses a trading platform hosted by another authorised investment firm (Firm A) to execute hedging orders against the position of its underlying retail clients, via one or more sub-accounts.
Section 6: The use of trading benefits when offering CFDs or other speculative products
Question 1 [last update 11 October 2016]: How can firms that offer bonuses to retail clients trading in CFDs or other speculative products do so in a way that ensures they are meeting their MiFID obligation to act in the best interests of their clients?
Section 7: The withdrawal of funds from trading accounts when investing in CFDs or other speculative products
Question 1 [last update 11 October 2016]: How long should it take for a firm offering CFDs or other speculative products to retail clients to process a client's request to withdraw funds from his/her trading account?
Section 8: The use of leverage when offering CFDs or other leveraged products to retail clients
Question 1 [last update 11 October 2016]: What aspects should NCAs consider when assessing the way that leverage is offered to retail investors?
Section 9: Best execution obligations for firms offering CFDs or other speculative products to retail clients
Question 1 [last update 11 October 2016]: What particular aspects should NCAs consider when assessing whether providers of CFDs and other speculative products are delivering best execution to their clients?
Question 2 [last update 11 October 2016]: What disclosures related to best execution should firms offering CFDs or other speculative products provide to their clients?
Section 10: Passporting and the cross-border provision of services by investment firms offering CFDs and other speculative products to retail clients outside the home Member State without the establishment of a branch or tied agent
Question 1 [last update 31 March 2017]: Where an investment firm establishes a representative office in a host Member State, what factors should the home NCA take into account when assessing whether the investment firm complies with the MiFID provisions on cross border services?
Question 2 [last update 31 March 2017]: What should home NCAs consider when assessing the use of third parties by investment firms to acquire retail clients under the provisions of Article 31 or 32 of MiFID?
Question 3 [last update 31 March 2017]: What examples of poor practice have been observed by NCAs in respect of the use of third parties by investment firms offering CFDs and other speculative products to acquire retail clients on a cross border basis?
Question 4 [last update 31 March 2017]: What cooperation should take place between NCAs?
Question 5 [last update 31 March 2017]: An investment firm offering financial contracts for difference (CFDs) or other speculative products communicates to its home competent authority its intention to provide services in other jurisdictions under Article 31 of MiFID, in order to market speculative products to retail investors across Europe online. What particular factors should the home competent authority take into account when considering this information?
Question 6 [last update 31 March 2017]: An online business model is often used by investment firms to offer financial contracts for difference (CFDs) and other speculative products in other jurisdictions under Article 31 of MiFID, without branches. Where an investment firm is adopting this type of online business model and offering information to clients and potential clients in multiple languages, what factors should the home competent authority take into account to ensure the firm complies with its MiFID requirements relating to information provided to clients or potential clients?
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