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ESMA issues updated statement on preparatory work in relation to CFDs, binary options and other speculative products offered to retail clients

15 December 2017

The European Securities and Markets Authority (ESMA) has 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.

 

Statement on preparatory work of the European Securities and Markets Authority in relation to CFDs and binary options offered to retail clients

The European Securities and Markets Authority (ESMA) is issuing this statement to provide an update on its work in relation to the provision of contracts for differences (CFDs), including rolling spot forex, and binary options to retail clients. 

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 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 remains concerned that the risks to investor protection are not sufficiently controlled or reduced. Further to the ESMA statement published in June 2017[1], ESMA is considering the possible use of its product intervention powers under Article 40 of MiFIR[2] 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.

 

[1] ESMA35-36-885 Statement on preparatory work of the European Securities and Markets Authority in relation to CFDs, binary options and other speculative products published 29 June 2017 (https://www.esma.europa.eu/document/product-intervention-general-statement).

[2] Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012, OJ L 173, 12.6.2014, p. 84–148.