Hungary cenbank restricts distribution of CFDs

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In its decisions the National Bank of Hungary (MNB) strictly limited the retail distribution of contracts for differences (CFDs) by five domestic market participants that offer this speculative and highly risky product. The central bank took this step after the expiration of the EU product intervention related to CFDs and binary options and the task had been taken over by the national competent authorities.
Hungary cenbank restricts distribution of CFDs
In its product intervention decisions announced on Friday, the Magyar Nemzeti Bank (MNB) restricted the sales of contracts for differences (CFDs) to retail clients for four Hungarian investment firms (Concorde Értékpapír Zrt., Erste Befektetési Zrt., eBrókerház Befektetési Zrt., Equilor Befektetési Zrt.) and one credit institution (MTB Magyar Takarékszövetkezeti Bank Zrt.). Taking into account the supervisory practices of other EU Member States and the expectations of the European Securities and Markets Authority (ESMA), the MNB introduced restrictions corresponding in content with the product intervention decision of ESMA. The elements of the restrictions are as follows:
  • The service providers concerned are obliged to require varying degrees of initial margin- which is in line with the type of the underlying asset - from their retail clients. Based on the margin requirements, CFDs with various underlying assets will remain available for this clientele with a maximum of 30 to 1 leverage ratio.
  • For the protection of the retail clients concerned, market participants are obliged to apply margin close-out protection. Accordingly, one or more CFD positions have to be closed on terms most favourable to the client when the sum of funds in the CFD trading account and the unrealised net profits of all open CFDs connected to that account falls to less than half of the total initial margin protection for all those open CFDs.
  • For negative balance protection it is also a rule that a client’s aggregate liability for all CFDs may not exceed the amount of the client’s funds in the CFD trading account at the given moment, thus ensuring an upper limit for potential losses.


Market participants may not publish marketing information related to trading in CFDs unless it contains the standardised risk warning required by the MNB, which also presents the loss percentage of client accounts. In addition, service providers may not encourage trading by providing bonuses for their retail clients or by using any other monetary or non-monetary benefits.

As it is known, on the basis of the EU Regulation on markets in financial instruments (MiFIR), as of 1 August 2018 in connection with the CFDs and as of 2 July of the same year regarding binary options, ESMA made product intervention decisions. Accordingly, it prohibited the marketing, distribution and sale of binary options to retail clients, and limited the distribution of CFDs. ESMA extended the validity of these decisions several times (with minor amendments), and thus the restriction concerning CFDs and the prohibition related to binary options remained in force in the territory of the European Union, and thus in Hungary as well, until 31 July 2019 and 30 June 2019, respectively.

The current decisions of the MNB are needed because with the expiry of the uniform EU product intervention restriction it has been and is being replaced by national product intervention measures all over Europe. The risks identified in connection with binary options by ESMA and other national competent authorities appear to a lesser degree in Hungary. The underlying reason is that prior to ESMA’s product intervention they were available for retail clients only at two institutions, where both the turnover and the number of clients concerned was extremely low.

Considering the opinion of ESMA as well, which states that measures whose impact corresponds to or is stricter than that of ESMA’s product intervention have to be introduced in each Member State, but in view of the aforementioned reasons, currently the MNB does not deem any product intervention in this product group justified. Nevertheless, the central bank continuously monitors the market of binary options, and will take the necessary measures if needed.

The market of CFDs in Hungary significantly exceeds the size of the market of binary options both in terms of turnover and the number of clients. In the opinion of ESMA, in the case CFDs as well restrictive measures corresponding to ESMA’s product intervention or stricter have to be introduced in each Member State, which uniformly apply to the sale of CFDs to retail clients on the territory of the given Member State, covering both the institutions supervised by the given member state authority and the cross-border service providers present in the given country.

Through its decisions published today, the MNB applies product intervention measures regarding the concerned market participants that it supervises, considering that the product intervention measures of other national competent authorities also cover the cross-border services of the institutions supervised by them. Accordingly, the investor protection benefits provided by the product intervention are ensured for Hungarian retail clients even as clients of institutions that have their registered office in the majority of EU Member States.

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