ESMA statement in relation to CFDs, binary options and other speculative products offered to retail clients

On 15 Dec 2017 ESMA has issued an updated statement on its work in relation to the sale of contracts for difference (CFDs), including rolling spot forex, and binary options retail clients.

ESMA states that it 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 of time and has conducted ongoing monitoring and supervisory convergence work in this area. Some competent authorities have also adopted national measures to limit the provision of these products to retail clients.

Notwithstanding these actions, ESMA states that it 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:

  1. prohibit the marketing, distribution or sale to retail clients of binary options; and
  2. restrict 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 incentivising trading; and
  • a standardised 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. Measures adopted by ESMA apply across Member States in the same manner. This means that all market participants providing services in Europe must comply with the measures. The product intervention powers can be used against all firms authorised under Directive 2014/65/EU and credit institutions (banks) authorised under Directive 2013/36/EU.

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