ESMA Advises EC on CFDs and Binary Options Ban

The European Securities and Markets Authority (ESMA) has published its final report on product intervention requirements under the MiFIR. ESMA advises the EC (European Commission) on CFD restrictions and Binary Options ban. ESMA also requests for clarifications on the application of product intervention measures to companies operating on a cross-border basis. The several Member States adopt intervention measures on overlapping products.

05 February, 2020 | AtoZ Markets – Temporary intervention measures on ESMA products began to be applied on 2 July 2018 for binary options and on 1 August 2018 for CFDs. After three consecutive renewals, these temporary measures expired on 1 July 2019 for binary options and 31 July 2019 for CFDs. 

Almost all national competent authorities (NCA) have adopted domestic product intervention measures concerning the distribution or sale of binary options and CFDs to retail customers. However, ESMA has taken opinions concerning these national measures, indicating whether they are justified and proportionate.

ESMA Final Report on Product Intervention Requirements

In the final report, ESMA advises the EC (European Commission) on CFD restrictions and Binary Options ban and also seeks clarification on some issues. These issues include the interaction of national product intervention measures.

ESMA has collected important information on the impact of its intervention measures on products. Also, ESMA published a call for evidence and invited market participants, investors and their associations to share more information on the effects of the measures.

The main elements of technical advise include:

  • A recommendation to the EC to address the risk of arbitrage between MiFID companies and fund management companies
  • Advise on how to improve convergence and the level playing field across the EU single market.
  • Advise on facilitating the transformation of temporary measures into permanent measures.
  • A request for further clarification on the application of product intervention measures to companies operating on a cross-border basis
  • Advise on alternatively extending ESMA’s powers to allow for the introduction of temporary bans for 18 months.
  • Measures to facilitate the adoption by a national competition authority of a measure already adopted by ESMA
  • A request for further clarification on the wording of Article 40 (3) of the MiFIR

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Short Term Measures May Be Problematic, Says ESMA

ESMA also warns that the short-term nature of the measures can be problematic. The product intervention measures adopted to address a significant investor protection problem. It also considered the obligation to analyze the product in question for the adoption of the initial measure. The circumstances are unlikely to have changed concerning that product. However, the concern can be no longer significant after six months, the regulator said.

ESMA said some NCAs are also consulting on potential product intervention measures related to specific related financial instruments. To crypto assets ESMA will continue to monitor markets and exercise its coordinating role concerning the measures proposed by NCAs.

“If, based on its monitoring activities, ESMA will realize that there is a problem that causes significant concern for investor protection. There is also a threat to the orderly functioning and integrity of the financial or commodity markets first or part of the Union’s financial system. ESMA will consider taking action on products. “

The European Commission has asked ESMA to report on its experience in product intervention powers. It also includes the practical effects of product intervention measures concerning Contracts For Difference (CFD) and binary options. The EC has requested technical advise for the preparation of the report. Moreover, the EC will present it to the European Parliament and the Council in the context of the review of MiFID II and MiFIR.

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