Regulator continues to restrict boom-time CFDs

The Central Bank has decided to continue existing restrictions on ordinary investors using contracts for difference (CFDs), the market financial bets that played a starring role in the collapse of the Sean Quinn business empire after he used them to build up a huge stake in Anglo Irish before the bank’s collapse.

The restrictions for retail investors using CFDs were first brought in by the regulator European Securities and Markets Authority, and will now be continued by the Central Bank.

“Once these temporary measures expire, the Central Bank’s national product intervention measures will immediately take effect in order to ensure ongoing protection of retail investors,” the Central Bank said.

During the early boom, the then tax-free CFDs were heavily promoted by Irish stockbrokers for investors to take leveraged bets on share prices, at a relatively small amount of money upfront.

Their widespread use on a handful of shares helped pump up the profits of Irish brokers’ share trading desks during the boom.

However, although relatively straight forward financial bets, CFDs exposed the holders to huge losses in circumstances when the underlying share price collapsed.

And despite warnings from cases of high-profile investor losses, CFDs were still widely used up to the onset of the crash in Irish shares.

The Central Bank also said it would use its powers to ban the sale to retail investors of so-called binary options which it said were “a fundamentally flawed product”.

For CFDs, the retail restrictions include a “requirement that retail investors cannot lose more money than they put into their CFD account”, the Central Bank said.

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