Regulatory Alert: ESMA makes product intervention for CFDs and binary options – 18/4

27th March 2018

The European Securities and Markets Authority (ESMA) has agreed on a range of product intervention measures to prohibit the provision of binary options and to restrict the provision of Contracts for Difference (CFDs) in order to protect retail investors.

Agreed measures include:

  1. Binary Options – a prohibition on the marketing, distribution or sale of binary options to retail investors; and
  2. Contracts for Differences – a 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 standardised way.

In accordance with Article 40 of MiFIR, ESMA can only introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will consider the need to extend the intervention measures for a further three months.

ESMA intends to adopt the agreed measures in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website. The measures will be published in the Official Journal of the EU (OJ) and firms will be required to implement the prohibition on binary options, one month after publication in the OJ, and two months following the OJ publication, for the restrictions on CFDs.

 

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