XTB's Shares Reach Four-Month Low: Market Reaction to New CNMV's CFDs Restrictions

<p>Although
representatives of Warsaw-listed XTB stated that the tougher contracts for difference
(CFDs) marketing rules introduced in Spain would not affect the fintech's
existing operations in any way, investors had a completely different opinion.
In response to reports from earlier in the week, the company's shares fell
sharply, testing four-month lows.</p><p>XTB Shares Lose in Delayed
Reaction to CNMV Regulations</p><p>In the
first half of July, the Spanish financial market regulator <a href="https://www.financemagnates.com/forex/spains-expanded-restrictions-on-cfds-set-for-july-20-gets-esma-backing/" target="_blank" rel="follow">CNMV announced</a> that
it wants to introduce additional two-part restrictions on the <a href="https://www.financemagnates.com/terms/m/marketing/">marketing</a>,
distribution, and sales of contracts for difference (CFDs) instruments. The
decision was due to the fact that 75% of retail traders in this market lose
money.</p><p>Although
the regulations came into effect several weeks ago, they have so far passed
without much market attention. Investors only noticed them at the beginning of
this week, causing considerable panic on the Polish stock exchange, leading to
a double-digit sell-off of XTB's (WSE: <a href="https://www.financemagnates.com/tag/xtb/" target="_blank" rel="follow">XTB</a>) securities. Subsequent sessions brought a
continuation of declines, and yesterday (Wednesday), the brokerage house's shares
tested four-month lows at PLN 32.66.</p><p>The
investors' reaction was decidedly different from that of the company itself. As
reported on Monday by Finance Magnates, XTB reassured that the CNMV's
decision <a href="https://www.financemagnates.com/forex/xtb-takes-spains-tougher-cfd-marketing-rules-in-stride/" target="_blank" rel="follow">would not 'significantly' affect its marketing strategy</a> in the Spanish
market, and business would continue as usual.</p><p>"From
our point of view, the changes in the CNMV guidelines regarding the ban on
advertising and any marketing activities related to CFDs on the local market
will help clean the local market of unfair practices that negatively affected
the image of the entire industry," XTB commented in an official statement.</p><p>Investors
are concerned, however, that the CNMV's decision, which received support from
the European Securities and Markets Authority (ESMA), may lead to similar
tightening of regulations in other countries.</p><p>XTB does
not provide separate data for the Spanish market in its financial reports, only
for Western Europe. In the first half of the year, operations in
this area amounted to PLN 191.8 million, constituting 23% of total revenues <a href="https://www.financemagnates.com/forex/xtbs-net-profit-plunges-122-in-h1-despite-record-new-clients/" target="_blank" rel="follow">in
H1 2023</a>.</p><p>In a
telephone conversation with Finance Magnates, a company spokesperson stated
that the stock market declines did not require additional comment. XTB's position
was already presented in the previous official statement.</p><p>XTB (Again) Reassures
Investors</p><p>Responding
to considerable confusion in the Polish media regarding XTB's stock market
declines and information about the potentially negative impact of CNMV's
decision on the company's operations, XTB published an additional update on 23
August. It included five points explaining why the decision will not affect
further business.</p><p>Firstly,
the CNMV's guidelines from 18 July ban the advertising of CFDs but do not
affect other products. XTB will continue its advertising activities in Spain.
Moreover, the <a href="https://www.financemagnates.com/terms/e/esma/">ESMA</a> has analyzed Spanish regulations, and there is no basis
for similar regulations in other markets.</p><p>Thirdly,
XTB's strategy remains unchanged, focusing on promoting other products,
building brand awareness, and educating clients. In addition, XTB is committed
to expanding its product offerings, including stocks, ETFs, and fractional
shares, across all markets. Finally, XTB is preparing to launch <a href="https://www.financemagnates.com/forex/beyond-cfds-xtb-launches-savings-account-to-lure-new-audiences/" target="_blank" rel="follow">a new
product for long-term, passive investment</a>, reflecting its continuous
development of client offerings.</p><p>"At
the same time, as XTB, we support all activities of local regulators, whose aim
is to protect the rights and interests of investors. From our point of view, the
new CNMV guidelines will strengthen our competitive position in the long term
and will allow us to clear the local market of unfair practices that have
negatively impacted the image of the entire industry," XTB concluded.</p><p>The New CNMV Regulations:
What You Need to Know</p><p>The initial
segment of the newly imposed restrictions, building upon the regulations <a href="https://www.financemagnates.com/forex/brokers/exclusive-spanish-regulator-mandates-big-changes-forex-cfds-brokers/" target="_blank" rel="follow">set by
CNMV in 2019</a> and <a href="https://www.financemagnates.com/forex/regulation/esma-is-done-with-cfds-ceases-renewal-of-intervention-measures/" target="_blank" rel="follow">ESMA in 2018</a>, forbids marketing tactics or communications
targeting retail customers or the broader public. This encompasses the
recruitment of investors through sales representatives, call centers, or
software providers.</p><p>These
regulations disallow the sponsorship of events and organizations and the
engagement of public personalities to promote CFDs. However, there's an
exception for sponsorships and brand advertisements by brokers who either don't
deal in CFDs or for whom these instruments constitute only a minor portion of
their overall business or activities.</p><p>Moreover,
the new rules make exceptions for specific CFD-related information: details
requested solely by a client, information essential for conducting CFD
transactions, and objective data on CFDs, such as factual sheets devoid of
subjective content.</p><p>Conversely,
the second part of the added restrictions focuses on the marketing, sale, and
distribution to retail clients of other particular 'leveraged products,'
including certain futures and options. For example, the Spanish regulatory body
will mandate providers of these other 'high-risk products' to close one or more
open positions of a retail client if the value of those positions falls to half
of the initial margin.</p><p>Additionally,
the reach of this second segment includes an exemption: turbo products, whose
total risk equals the investment amount, are not subject to these rules. Turbo
products, bearing a resemblance to CFDs, are leveraged derivatives enabling
investors to gain from the fluctuations of an underlying asset.</p>

This article was written by Damian Chmiel at www.financemagnates.com.