Ministry of Finance: Leverage limited to 1: 50. What does ESMA say?

Next news on financial leverage. This time from Poland. 12 in June a bill introducing a change to the original assumptions of the Ministry of Finance appeared, which assumes reduction of leverage on the Forex market up to the amount of 1: 50. An earlier idea was to limit this mechanism to 1: 25 from 1: 100, which has been in force since July of the year 2016.

1 leverage: 100 for professionals

The draft of the said act from 12 June would introduce a change in the article 73, more precisely in the 2 subsection:

"2a. The investment firm performs orders to purchase or sell financial instruments listed in art. 2 sec. 1 point 2 (lit. c-i submitted by a retail client, provided that the margin required for a given financial instrument is not less than 2% of the nominal value of this financial instrument, subject to paragraph 2b-2c. "

The project also provides for the possibility of applying for a leverage of 1: 100 by people who will show some experience in leveraged investments. The condition is simple - it is enough to show that in the last 24 months we have completed at least 40 transactions on the OTC market. This is stated in point 2ba and 2bb:

"2ba. In the case of a retail client who has concluded at least 40 transactions in financial instruments listed in art. 2 sec. 1 point 2 (lit. c-i, on 24, the months preceding the submission of the order referred to in paragraph 2a or 2b, at the request of this client, the margin required for a given financial instrument or the value by which the bonus is increased is not lower than 1% of the nominal value of the financial instrument or option, respectively.

2bb. In order to confirm the number of transactions concluded, referred to in paragraph 2ba, the client provides the investment firm with a copy of the transaction history contained in other investment companies. "

Other entries, i.e. those concerning the increase of financial penalties for institutions violating the provisions of the Act, as well as blocking access to websites of companies operating illegally, remained unchanged.

Polish law and ESMA guidelines

A Polish trader may fall into considerable consternation. Why the Ministry of Finance makes changes to the law and the provisions regarding the slavery in Poland, since the new ESMA guidelines are expected to apply from the 1 August? Limiting the leverage to 1: 50 at the national level will not make it possible to use it while limiting it to 1: 30 at the EU level.

At the moment, we do not know the position of the Financial Supervision Authority and the Ministry of Finance in this matter. However, there are certain assumptions that it may be a reduction of leverage for professional clients to the 1 level: 100, and not just for retailers as it is today.

Another issue is that the ESMA provisions are temporary and at the moment are to apply for the first 3 months from 1 August 2018. Of course, it is possible to extend this period by another 3 months, but if the EU regulator does not, then the regulations they are to return to their previous state. Is the new law a form of security for such an eventuality?