December 15, 2017

ESMA issued a statement updating on its work in relation to the sale of contracts for differences (CFDs), binary options, and other speculative products to retail investors. ESMA has been concerned about the provision of speculative products such as CFDs, including rolling spot forex and binary options to retail clients for a considerable period. Thus, it has conducted ongoing monitoring and supervisory convergence work in this area.

Some competent authorities have adopted national measures to limit the provision of these products to retail clients. Notwithstanding these actions, ESMA remains concerned that the risks to investor protection are not sufficiently controlled or reduced. Further to the ESMA statement published in June 2017, ESMA is considering the possible use of its product intervention powers under Article 40 of MiFIR to address these investor protection risks. In particular, ESMA is considering measures to prohibit the marketing, distribution, or sale to retail clients of binary options, in addition to restricting the marketing, distribution, or sale to retail clients of CFDs, including rolling spot forex. The restrictions on CFDs currently under review are:

  • Leverage limits on the opening of a position between 30:1 and 5:1, whose limit will vary according to the volatility of the underlying asset
  • A margin close-out rule
  • Negative balance protection to provide a guaranteed limit on client losses
  • A restriction on benefits incentivizing trading
  • A standardized risk warning

ESMA will conduct a brief public consultation in January 2018 on this matter. Any product intervention measure adopted by ESMA under Article 40 of MiFIR can have an initial duration of up to three months and is renewable.

 

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