The Federal Financial Supervisory Authority (BaFin) plans to introduce stricter regulations for trading in turbo certificates in Germany. These measures aim to protect retail investors from significant financial losses. A market study by BaFin has shown that three-quarters of retail investors have lost an average of €6,400, leading to a total loss of €3.4 billion.
Background and Issues
Turbo certificates are highly risky leveraged products due to their volatility and leverage. The high loss rate is particularly attributed to the short holding period, as 70 percent of the certificates are held for less than 24 hours. Among investors with over 1,000 transactions, the loss rate increased to 91 percent.
Planned Measures by BaFin
To improve retail investor protection, BaFin is planning to introduce the following measures:
- Standardized Risk Warning: Providers will have to clearly indicate the high loss risks. The warning should clarify that seven out of ten retail investors incur losses.
- Knowledge Test for Investors: Before trading, investors must pass a knowledge test, which must be repeated every six months.
- Ban on Purchase Incentives: Purchase incentives like bonus payments will be banned to avoid unduly influencing investors.
Impact on Fee Models
The regulations could influence existing fee models. The ban on purchase incentives could reduce the incentive for providers to offer fee models with bonus payments.
Conclusion
The measures by BaFin aim to establish a uniform level of protection for retail investors and increase transparency in trading turbo certificates. These regulations could ultimately reduce losses and improve communication about risks.