Better protection for investors against the risks of turbos
Restrictions will be introduced on the offering of turbos to Dutch retail investors. With effect from 1 October, there will be a leverage limitation, a mandatory risk warning and a prohibition on bonuses for trading turbos. The Dutch Authority for the Financial Markets (AFM) aims to provide better protection for retail investors against the risks of turbos. A previous study revealed that a large majority of investors have lost a great deal of money. The restrictions will apply from 1 October 2021.
In brief
- Leverage limitations reduce the financial risk for retail investors
- A mandatory risk warning helps investors to make better-informed decisions
- A prohibition on bonuses counters perverse incentives to encourage investors to increase their trading in turbos
- The restrictions will apply only to the offering of turbos in the Netherlands
Leverage limitations will reduce financial risk
Turbos are leveraged products: investors speculate that the prices of an underlying security, such as a stock, an index or a currency will rise or fall. The underlying security is largely funded with borrowed money. This increases the risk and can mean that investors lose their entire investment. To reduce this risk, the AFM has decided to impose leverage limitations.
Mandatory risk warning for better-informed decisions
Turbo providers will have to add a mandatory warning to the information they provide, stating a standard or company-specific loss percentage. With this measure, the AFM aims to offset the tendency of providers to highlight the potential profits over losses. Investors will thus be able to make better-informed decision.
Prohibition on bonuses to counter perverse incentives
Providers shall not offer benefits of any kind for convincing investors to trade or increase their trading in turbos. Such bonuses divert attention from the risky nature of turbos. They may also attract retail investors who otherwise would not choose to trade in turbos.
Restrictions will apply only to the offering of turbos in the Netherlands
The restrictions will apply to the offering of turbos in the Netherlands, regardless of the Member State in which the provider is located, and will enter into force on 1 October 2021. This gives providers time to make the necessary adjustments. The restrictions do not apply to turbos offered from the Netherlands in other Member States.
Journalists may contact Yolanda Bieckmann, AFM Press Officer, on +31(0)6 3177 7686 or at yolanda.bieckmann@afm.nl.
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