Overview of ESMA CFD Rules Implementation at IBKR (UK) - Retail Investors Only

概観: 


CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

61% of retail investor accounts lose money when trading CFDs with IBKR.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

The European Securities and Markets Authority (ESMA) enacted new rules applicable to retail clients trading CFDs, effective 1st August 2018. Professional clients are unaffected.

The rules consist of: 1) leverage limits; 2) a margin close out rule on a per account basis; 3) negative balance protection on a per account basis; 4) a restriction on the incentives offered to trade CFDs; and 5) a standardized risk warning.

Most clients (excepting regulated entities) are initially categorised as Retail Clients. IBKR may in certain circumstances agree to reclassify a Retail Client as a Professional Client, or a Professional Client as a Retail Client. Please see MiFID Categorisation for further detail.

The following sections detail how IBKR (UK) has implemented the ESMA Decision.

1 Leverage Limits

1.1 ESMA Margins
Leverage limits were set by ESMA at different levels depending on the underlying:

  • 3.33% for major currency pairs; Major currency pairs are any combination of USD; CAD; EUR; GBP; CHF; JPY
  • 5% for non-major currency pairs and major indices;
    • Non-major currency pairs are any combination that includes a currency not listed above, e.g. USD.CNH
    • Major indices are IBUS500; IBUS30; IBUST100; IBGB100; IBDE40; IBEU50; IBFR40; IBJP225; IBAU200
  • 10% for non-major equity indices; IBES35; IBCH20; IBNL25; IBHK50
  • 20% for individual equities

 1.2 Applied Margins - Standard Requirement

In addition to the ESMA Margins, IBKR (UK) establishes its own margin requirements (IB Margins) based on the historical volatility of the underlying, and other factors. We will apply the IB Margins if they are higher than those prescribed by ESMA.

Details of applicable IB and ESMA margins can be found here.

1.2.1 Applied Margins - Concentration Minimum

A concentration charge is applied if your portfolio consists of a small number of CFD positions, or if the three largest positions have a dominant weight. We stress the portfolio by applying a 30% adverse move on the three largest positions and a 5% adverse move on the remaining positions. The total loss is applied as the maintenance margin requirement if it is greater than the standard requirement.

1.3 Funds Available for Initial Margin

You can only use cash to post initial margin to open a CFD position. Realized CFD profits are included in cash and are available immediately; the cash does not have to settle first. Unrealized profits however cannot be used to meet initial margin requirements.

1.4 Automatic Funding of Initial Margin Requirements (F-segments)

IBKR (UK) automatically transfers funds from your main account to the F-segment of your account to fund initial margin requirements for CFDs.

Note however that no transfers are made to satisfy CFD maintenance margin requirements. Therefore if qualifying equity (defined below) becomes insufficient to meet margin requirements, a liquidation will occur even if you have ample funds in your main account. If you wish to avoid a liquidation you must transfer additional funds to the F-segment in Account Management.

2 Margin Close Out Rule

2.1 Maintenance Margin Calculations & Liquidations

ESMA requires IBKR to liquidate CFD positions latest when qualifying equity falls below 50% of the initial margin posted to open the positions. IBKR may close out positions sooner if our risk view is more conservative. Qualifying equity for this purpose includes cash in the F-segment (excluding cash in any other account segment) and unrealized CFD P&L (positive and negative).

The basis for the calculation is the initial margin posted at the time of opening a CFD position. In other words, and unlike margin calculations applicable to non-CFD positions, the initial margin amount does not change when the value of the open position changes.

2.1.1 Example

You have EUR 2000 cash in your CFD account. You want to buy 100 CFDs of XYZ at a limit price of EUR 100. You are first filled 50 CFDs and then the remaining 50. Your available cash reduces as your trades are filled:

  Cash Equity* Position Price Value Unrealized P&L IM MM Available Cash MM Violation
Pre Trade 2000 2000             2000  
Post Trade 1 2000 2000 50 100 5000 0 1000 500 1000 No
Post Trade 2 2000 2000 100 100 10000 0 2000 1000 0 No

*Equity equals Cash plus Unrealized P&L

The price increases to 110. Your equity is now 3000, but you cannot open additional positions because your available cash is still 0, and under the ESMA rules IM and MM remain unchanged:

  Cash Equity Position Price Value Unrealized P&L IM MM Available Cash MM Violation
Change 2000 3000 100 110 11000 1000 2000 1000 0 No

 The price then drops to 95. Your equity declines to 1500 but there is no margin violation since it is still greater than the 1000 requirement:

  Cash Equity Position Price Value Unrealized P&L IM MM Available Cash MM Violation
Change 2000 1500 100 95 9500 (500) 2000 1000 0 No

The price falls further to 85, causing a margin violation and triggering a liquidation:

  Cash Equity Position Price Value Unrealized P&L IM MM Available Cash MM Violation
Change 2000 500 100 85 8500 (1500) 2000 1000 0 Yes

 

3 Negative Equity Protection

The ESMA Decision limits your CFD-related liability to the funds dedicated to CFD-trading. Other financial instruments (e.g. shares or futures) cannot be liquidated to satisfy a CFD margin-deficit.*

Therefore assets in the security and commodity segments of your main account, and non-CFD assets held in the F-segment, are not part of your capital at risk for CFD trading. However, all cash in the F-segment can be used to cover losses arising from CFD trading.

As Negative Equity Protection represents additional risk to IBKR, we will charge retail investors an additional financing spread of 1% for CFD positions held overnight. You can find detailed CFD financing rates here.

*Although we cannot liquidate non-CFD positions to cover a CFD deficit, we can liquidate CFD positions to cover a non-CFD deficit.

4 Incentives Offered to trade CFDs

The ESMA Decision imposes a ban on monetary and certain types of non-monetary benefits related to CFD trading. IBKR does not offer any bonus or other incentives to trade CFDs.