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    ESMA Consults on Contracts for Differences and Binary Options Measures

    January 18, 2018

    ESMA published a call for evidence on potential product intervention measures related to the provision of contracts for differences (CFDs), including rolling spot forex and binary options to retail investors. The submission period for responses will close on February 05, 2018.

    ESMA published a statement on December 15, 2017, explaining that it was considering the possible use of its product intervention powers under Article 40 of Markets in Financial Instruments Regulation to address investor protection concerns posed by the marketing, distribution, and sale of CFDs and binary options to retail investors. It is now seeking evidence from stakeholders on the impact of the proposed measures related to CFDs and binary options. ESMA is also considering whether CFDs in crypto currencies should be addressed in the measures. The potential measures under consideration are as follows:

    • Leverage limits on the opening of a position by a retail client. These would range from 30:1 to 5:1 to reflect the historical price behavior of different classes of underlying assets.
    • A margin close out rule on a position by position basis. This would standardize the percentage of margin at which providers are required to close out a retail client’s open CFD.
    • Negative balance protection on a per account basis. This would provide an overall guaranteed limit on retail client losses
    • A restriction on the incentivization of trading provided by a CFD provider.
    • A standardized risk warning by CFD providers. This would include an indication of the range of losses on retail investor accounts.
    • Prohibition on the marketing, distribution, or sale of binary options to retail investors.

     

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    Comment Due Date: February 05, 2018

    Keywords: Europe, EU, Securities, MiFIR, CFDs, Binary Options, Investor Protection, ESMA

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