Tuesday March 27 2018

News Source: Global Exchanges

Focus: Derivative Market Segment

Type: General




On 27th March 2018 the European Securities and Markets Authority (ESMA) outlined agreed measures to ban  trades in binary options and  place a sales restriction for contracts for difference (CFDs).

The decision came about through intensive cooperation between the national supervisors of all EU member states. It is the first time that the marketing, distribution and sale of a financial product is prohibited at European level.

The agreed measures include:

  1. A prohibition on the marketing, distribution or sale of binary options to retail investors; and
  2. 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 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.

The reason for ESMA adopting these measures has been to improve Investor Protection. ESMA concludes that CFDS due to their complexity lack transparency hamper investor protection. The particular features of CFDs – excessive leverage – and binary options – structural expected negative return and embedded conflict of interest between providers and their clients; the disparity between the expected return and the risk of loss; and issues related to their marketing and distribution.

For additional information click the link above.