Under MiFID regulations, before executing a CFDs order, what must a firm first do?

• A. First ask the client about their knowledge and experience of investing in CFDs, before executing the order.
• B. Arrange a meeting with the client to discuss the investment, prior to executing the order.
• C. Decline to carry out the transaction if the adviser feels it is not appropriate to the client.
• D. Decline to carry out the transaction, regardless of whether the investment is or is not appropriate to the client.

Answer: (A)

Before executing a CFD order, the firm must check the client’s knowledge and experience with CFDs to judge whether the product is appropriate for them. CFDs are leveraged and complex, so MiFID requires an appropriateness assessment to ensure the client understands the risks and features before the trade goes ahead. Asking about their investing experience with CFDs directly fulfills this required step. If the client lacks sufficient knowledge or experience, the firm would not proceed (or would take additional steps to educate or reassess), rather than simply proceeding or declining for no reason. The other options describe actions that aren’t the mandated first step: arranging a meeting isn’t the specific requirement, and decisions to decline depend on the outcome of the knowledge/experience assessment rather than being automatic.