CFM50380 - Derivative contracts: relevant contracts: contracts for differences

CTA09/S582

Definition of 바카라 사이트榗ontract for differences바카라 사이트�

The term contract for differences (often abbreviated to CFD) is defined as a contract the purpose or pretended purpose of which is to make a profit or avoid a loss by reference to fluctuations in

  • the value or price of property referred to in the contract, or
  • an index or other factor designated in the contract.

Swaps will fall within the definition of contracts for differences, as will cash-settled futures and options. See examples at CFM50390.

A contract that may lead to entry into a swap (a 바카라 사이트榮waption바카라 사이트�), will itself be a contract for differences. There can be no physical delivery, so it cannot be an option within S579 - see CFM50320.

The term 바카라 사이트榠ndex or other factor바카라 사이트� in the definition of a CFD is very wide (CTA09/S582(3)). Any variation in any matter, to which a numerical value can be attributed, can form the basis of an index. The index does not have to be a pre-existing index, such as the FTSE 100 index in example 2 (CFM50390). It can be created specifically for the purposes of the contract.

As in the Leslie case (see below), a financial spread bet, if entered into by a company, will also be a contract for differences. It would be unusual for a company to place such a bet - most companies are likely to be prohibited by their Memorandum and Articles of Association from out-and-out gambling. But if it does so, the fact that the contract may represent a wager does not of itself mean that CTA09/PT7 does not apply.

City Index Ltd v Leslie

The definition of CFDs is modelled on that applicable for financial services regulation, to be found in article 85 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) and should be interprered in a similar way.

CFD is a term that has been consideredin the Courts. In essennce, a CFD is a contract whose value depends on something else but is not simply a wager.

The issues were considered by the Court of Appeal in the case of City Index Ltd v Leslie (1991, 3 All ER 180). Mr Leslie entered into 바카라 사이트渟pread bets바카라 사이트� over share price indices and, after some initial profits, rapidly lost a considerable amount of money. He tried to escape liability by claiming that his debt to City Index Ltd was a non-enforceable gaming loss. However the Courts concluded that the spread bets were 바카라 사이트渃ontracts for differences바카라 사이트�, either under their commercial meaning or by virtue of their 바카라 사이트榩retended purpose바카라 사이트� of securing a profit or avoiding a loss.

Excluded contracts

There are, however, a number of exclusions from the definition of a CFD to prevent overlap with other concepts. See CFM50400.