IOSCO issued a consultation report that proposes policy measures to consider when addressing the risks arising from the offer and sale of OTC leveraged products to retail clients. The report on retail OTC leveraged products identifies various regulatory approaches aimed to enhance the protection of retail investors who are offered OTC leveraged products, often on a cross-border basis. The report covers the offer and sale by intermediaries of rolling-spot forex contracts, contracts for differences (CFDs), and binary options. Comments on the consultation report must be submitted on or before March 27, 2018.
IOSCO proposes the following policy measures in the report and offers guidance to regulators on how to apply each one:
- A licensing requirement for all firms that sell the relevant products to retail investors either domestically or on a cross-border basis
- Leverage limits or minimum margin requirements
- Measures to address the risk of investors losing more than their initial investment
- Measures to enhance the disclosure of costs and charges of the products
- Measures to improve the disclosure of risks of the products, including profit and loss ratios
- Other focused requirements to enhance the quality of pricing and order execution
- Measures to restrict the sale, distribution, and marketing of the products with a view to addressing mis-selling risk
Intermediaries market and sell these products to retail investors in most IOSCO member jurisdictions. In its report, IOSCO encourages its members to improve the practices of licensed firms that offer OTC leveraged products, in an effort to better inform investors about the features and risks of these products and to more effectively combat illegal cross-border activity in this area. This consultation report is part of the ongoing work of IOSCO on retail investor protection. In December 2016, IOSCO had published a fact-finding report titled "Report on the IOSCO Survey on Retail OTC Leveraged Products" that describes the main risks, activities, and participants in this retail OTC market segment. The current consultation is part of a wider IOSCO mandate, which will also include policy proposals and guidance regarding investor education material on relevant products and firms, along with the enforcement approaches and practices to address the risks posed by unlicensed firms operating in this area. IOSCO is seeking feedback on the tools and measures proposed in this report.
Comment Due Date: March 27, 2018
Keywords: International, Securities, OTC Leveraged Products, Customer Protection, IOSCO