June 01, 2018

ESMA formally adopted new measures on the provision of contracts for differences (CFDs) and binary options to retail investors. The measures have been published in the Official Journal of the European Union and will start to apply from August 01, 2018 for CFDs and from July 02, 2018 for binary options. ESMA adopted these measures in the official languages of EU and they will remain in force for a period of three months from the date of application.

The measures on CFDs involve restriction on the marketing, distribution, or sale of CFDs to retail investors. This restriction consists of leverage limits on opening positions, a margin close-out rule on a per account basis, a negative balance protection on a per account basis, preventing the use of incentives by a CFD provider, and a firm-specific risk warning delivered in a standardized way. The measures on binary options involve prohibition of the marketing, distribution, or sale of binary options to retail investors. MiFIR gives ESMA the power to introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will review the product intervention measures and consider the need to extend them for a further three months.

ESMA also published questions and answers (Q&A) on the temporary product intervention measures on the marketing, distribution, or sale of CFDs and binary options to retail clients, based on Article 40 of the Markets in Financial Instruments Regulation (MiFIR or Regulation (EU) No 600/2014). The Q&A provides answers to practical questions in relation to the existing contracts, payments, margin close-out protection, aggregate liability, monetary benefits, binary options, CFDs referencing futures, and guaranteed stop-loss orders. Additionally, EIOPA published a statement on consumer detriment resulting from policyholder exposure to CFDs and binary options. Considering the potential future risks to policyholders, EIOPA expects insurance undertakings to avoid as possible direct underlyings of insurance-based investment products, the instruments for which ESMA has issued a ban or restriction. In addition, ESMA published Q&A 

 

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Effective Date: August 01, 2018 (3 months for CFDs); July 02, 2018 (3 months for binary options)

Keywords: Europe, EU, Securities, Insurance, Temporary Intervention Measures, CFDs, Binary Options, Q&A, MiFIR, EIOPA, ESMA