Investor protection

Markets in Financial Instruments Directive (MiFID) is the Directive of the European Union, included into the legislation of the Republic of Latvia by the „Financial Instrument Market Law ” and the FCMC regulations. The Directive represents the set of requirements toward the whole European financial sector in order to create the unified European financial instruments market.

The main objective of the Directive is to ensure the unified regulatory regime governing trading of financial instruments across all member states of the EU. The main principles of MiFID are: increased protection of investors, provision of high-quality investment services and guarantee of market transparency.

Renesource Capital is the European investment company and it provides its services in compliance with the MiFID. Accordingly, the Company has all necessary protocols and policies which ensure full compliance with the provisions of the Directive. The aforementioned documents can be provided by a customer’s request, and they are also available in the “Documents” section of our website.

Financial instruments belonging to customers are held on Renesource Capital account in strict compliance with regulatory acts applicable to these FI and are kept on account opened in the name of the Company with the indication that the financial instruments belong to the customers of the Company (nominee account). Financial instruments belonging to many customers are held in a nominee account.

This being said, the Company maintains segregated accounting of FI belonging to its customers and ensures the opportunity to separate at any time the FI belonging to a specific customer from the FI belonging to other customers or to the Company itself.

New ESMA regulation on CFD’s in Europe

March 23, 2018, the European Securities Market Authority has decided to prohibit and restrict Private Investors' margin transactions and increase the level of protection of Private Clients.

The new margin rates set by ESMA apply on all available for trading CFD/FOREX instruments, and will be applicable for positions opened before August 1, 2018.

Risk Warnings

Private Clients will receive regular and standardized risk warnings as well as information about the percentage of the total loss on all CFD/FOREX accounts held by Renesource Capital.

The main purpose of these alerts will be to attract the attention of Private Clients and inform them about the high risk of margin transactions, which can result in loss or profit.

CLIENT ADVANTAGES:

  • The alert system enhances the understanding of the financial products of the Private Clients;
  • The alert system encourages Private Clients to make well thought out decisions about whether they want to continue to engage in transactions with high-risk products and whether they can afford to take the risk of high capital loss.

Negative balance protection

The new regulation provides Private Clients with negative balance protection. During rapidly changing market (high volatility) conditions when the sudden price changes affect substantially the underlying assets, the Client's account balance may become negative.

With the introduction of this restrictive measure, the maximum loss that a Private Client can suffer from CFD/FOREX trading including all related costs will be limited to the total amount of Clients deposit on the CFD/FOREX account.

CLIENT ADVANTAGES:

  • The Private Client will be protected against extreme market conditions, due to which the Client's CFD/FOREX account balance may become negative;
  • Significantly reduce the risk of loss of the Private Client's capital.

CFD / FOREX account automatic position closure or stop out rule

Another innovation of the ESMA regulatory framework is the position margin close out rule for the CFD / FOREX accounts. During normal market conditions, this measure reduces the risk of loss of the Private investor’s capital and prevents from the situations when losses may exceed the capital invested.

The margin close out rule will be applicable to FOREX/CFD’s accounts, the equity of which has reduced 50% of the initial margin amount.

As a result, the Private Client is limited in the choice of trading strategies:  as according to the new regulation, certain positions may be closed if the Client does not increase his collateral for margin trading. This means that there may be a situation in which an unexpected market risk arises for the remaining positions of the Private investor.

Leverage limits

New ESMA regulation significant limits the size of leverage available for margin trading.

Please find bellow leverage comparison, before and after introduction of the new ESMA regulation:

Forex and CFD underlying asset

Leverage before change

Leverage after change

FX Majors (USD, EUR, GBP, JPY, CAD, CHF)

1:100

1:33

FX Minors

1:50-1:20

1:20

Gold

1:25

1:20

Major Indices (FTSE100, CAC40, DAX30, DJIA, S&P500, NASDAQ100, NASDAQ, NIKKEI225, ASX200, EURO STOXX50)

*

1:20

Commodities (Energies, Softs, Agricultures)

1:30

1:10

Minor Indices

*

1:10

Individual Stocks

*

1:5

Other Financials

*

1:5

Cryptocurrencies

*

1:2

*Only individual conditions apply.

 

Please find bellow margin requirement comparison, before and after introduction of the new ESMA regulation:

Forex and CFD underlying asset

Margin requirement before change

Margin Requirement after change

FX Majors (USD, EUR, GBP, JPY, CAD, CHF)

1%

3.33%

FX Minors

2-5%

5%

Gold

4%

5%

Major Indices (FTSE100, CAC40, DAX30, DJIA, S&P500, NASDAQ100, NASDAQ, NIKKEI225, ASX200, EURO STOXX50)

*

5%

Commodities (Energies, Softs, Agricultures)

3%

10%

Minor Indices

*

10%

Individual Stocks

*

20%

Other Financials

*

20%

Cryptocurrencies

*

50%

*Only individual conditions apply.

 

Before changes

After changes

The Client can make a trade with the CFD on a commodity with initial margin requirement of 3% (1: 33 leverage)

The Client can make a trade with the CFD on a commodity with initial margin requirement of 10% (1: 10 leverage)

 

CONCLUSION: The amount of initial margin will increase more than 3 times, while the leverage will decrease in the same amount.

Here you can find the original by ESMA regulation.

Risk Disclosure Statement. Margin transactions (Forex, contracts for difference CFD, futures and futures options, stock options, REPO transactions, transactions in over-the-counter derivatives and transactions using broker credit, including selling short) involve higher risk. The level of risk increases with the leverage ratio. As the result of margin transactions, relatively high profits are possible with low level of initial investments, as well as significant losses which may exceed the principal amount of investments or the amount of the collateral. Please ascertain whether margin transactions in their essence and content suit the risk profile that was assigned to you by AS IBS Renesource Capital and whether the content of margin transactions corresponds to your investment goals.

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