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?

Answer 1:

1. Where a firm offering CFDs or other speculative products to retail clients is dealing on its own account and acting as the client’s counterparty to a particular transaction, this may present conflicts of interest between the firm and the client, in particular if a loss incurred by the client equates to a profit made by the firm. In such cases, in pursuing its own commercial interests, the firm is incentivised to act in a manner that is not in the client’s best interests because it cannot make money unless the client loses money (Article 21 of the MiFID Implementing Directive). Such a conflict of interest may be exacerbated as a result of high leverage often offered to retail clients trading CFDs or other speculative products, which increases the potential profits and losses at stake.

2. NCAs should pay careful attention, at the point of authorisation and as part of ongoing supervision, to the possible conflicts of interest arising as a result of the different business

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