According to a recent report from Finance Magnates, Contracts for Difference (CFDs) are having a hard time at adoption in younger regional regulatory regimes. The news portal reported that IG Group’s South African entity has had trouble bringing CFDs onboard for client trading primarily due to the fact that South Africa’s Financial Sector Conduct Authority (FSCA) does not regulate such financial products at the moment.
IG Group’s local entity is indeed licensed by the FSCA to provide execution only service, but it has not been able to receive any status to offer OTC derivatives – the category of CFDs. The broker has applied for such authorizations back in 2019, but was denied. Now the broker has filed an appeal and interestingly enough, the regulator has given IG Group a temporary exemption from “Regulation 2(1)(a) of the FMA Regulations”, meaning that existing customers may actually be able to trade CFDs for the time being.
During the exemption period the broker must disclose certain information and metrics relating to existing clients’ trading of CFDs. Nonetheless, it remains to be seen if the broker can achieve a breakthrough in getting authorization to provide CFD trading on a full-time basis, given the regulator’s current classification of CFDs as OTC derivatives “on a principal-to-principal basis”.
With CFD restrictions looming in Australia in the spring of 2021 and already existing regimes that have tightened restrictions on CFD trading in the UK and Europe, the current situation with IG Group’s South African entity could be a “make it or break it” moment for such OTC derivatives adoption in regional markets with relatively new regulatory regimes at a time when many retail OTC brokers are looking to such regions for expansion.
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