Feedback is being sought by the European Securities and Markets Authority (ESMA) on possible changes to regulations relating to cryptocurrency derivative contracts. The focus is on a particular derivative contract, called contracts for differences (CFDs), and whether they would comply with the piece of regulatory framework known as the Markets in Financial Instruments Directive (MFID).
\r\nUnder a CFD, a party agrees to pays the other party if the value of whatever asset the contract is based on changes. The ESMA wants input on whether CFDs which are based on cryptocurrencies need to have restrictions in place.
\r\nThe ESMA is concerned that the volatility of cryptocurrency markets could create issues if CFDs are based on price moves. The restrictions put forward by the ESMA range from reducing the level of leverage provided to investors, to an all-out ban on the marketing and sale of cryptocurrency based CFDs
\r\nThe document goes on to note that perhaps the safest option is to prohibit retail clients from investing in CFDs. In 2017, the UK Financial Conduct Authority issued a warning to members of the public who were considering investing in crypto-based CFDs, saying they were extremely high-risk speculative investments.
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