SC of The Bahamas to Implement New CFD Rules from May 23

Fazzaco has learned that the Securities Industry (Contracts For Differences) Rules, 2020, the new legislation from the Securities Commission of The Bahamas which was passed on May 27, 2020 by Parliament, will come into effect on May 23, 2021. The new regulation​ containing massive regulatory changes has introduced stricter requirements for Contracts For Difference (CFD) business.

In particular, under the new rules​, it will be much more expensive for CFD providers to have a license within The Bahamas as a result of the addition of a new fee category.

As detailed in the amended rules, a registered CFD firm will have to pay a quarterly activity fee of $45,000 in addition to the annual renewal fee of $30,000, unless the firm has been exempted or had the fee reduced by the Securities Commission. For persons seeking to register to deal in Contracts for Differences, the application fee and registration fee will be $2,500 and $15,000, respectively.

Moreover, a "CFD Supervisory Officer" shall need to pay an application fee of $1,000, an registration fee of $3,000 and an annual renewal fee of $5,000.

Following the changes, the annual cost of having a Bahamas license will increase to more than $230,000 a year, which is multiple times higher than the previous cost of around $16,500.

According to the regulatory documents, other changes include leverage restrictions of 200:1, a ban on binary options trading for retail clients and marketing restrictions limiting cold calling and other aggressive marketing tactics.

In terms of margins, the new regulation​ requires a minimum of 0.5 percent margin, and brokers are required to ensure that the net equity in a retail client account does not fall below 50 percent.  

Furthermore, the amended rules have introduced restrictions on retail incentives, banning enticements and bonuses and requiring the launch of negative balance protection.

Entities looking to provide CFD trading services within the offshore jurisdiction will also be required to register the supervisor of the entity, who will be responsible for ensuring the entity remains in compliance with the law.

CFD providers in The Bahamas also need to comply with additional reporting requirements specifically concerning CFD transactions, similar to those implemented by the European Securities and Markets Authority (ESMA), in accordance with the new regulation.