ESMA proposes Binary Options and CFDs Investor Protection Measures

ESMA proposes Binary Options and CFDs Investor Protection Measures and seeks evidence from stakeholders on the impact of the suggestions. What should you know about the latest regulatory statement?

18 January, AtoZForex The primary regulator of the financial services markets in the EU, the European Securities and Markets Authority (ESMA) has published an announcement on its official website.

Considering the launch of the new set of the united financial regulations across the European markets, MiFID II, the regulator puts its best efforts to ensure the full compliance level.

ESMA plans Binary Options Ban and new FX Leverage Cap

Today, ESMA has published a call for evidence on potential product intervention measures that are relate to the provision of contracts for differences (CFDs). This also includes rolling spot Forex, and binary options to retail investors.

Back in December 2017, ESMA has published a statement with the explanation of the possible use of its product intervention powers under the Article 40 of MiFIR. The announcement covered the investor protection concerns that are posed by the marketing, sale, and distribution of CFDs and Binary Options to retail investors.

The regulatory body has been expressing concerns in regards to the provision of speculative products, such as CFDs, Binary Options and spot Forex to retail clients for some period of time. The watchdog has conducted an ongoing overseeing and supervisory convergence work in this field.

Some of the competent officials have also adopted national measures to cap the provision of these products to retail clients.

ESMA proposes Binary Options and CFDs Investor Protection Measures

The latest announcement from ESMA seeks evidence from stakeholders on the impact of the following proposed measures (according to the official website’s information):

The specific potential measures under consideration for contracts for difference are:

  1. Leverage limits on the opening of a position by a retail client. These would range from 30:1 to 5:1 to reflect the historical price behaviour of different classes of underlying assets;
  2.  A margin close out rule on a position by position basis. This would standardise the percentage of margin at which providers are required to close out a retail client’s open CFD;
  3.  Negative balance protection on a per account basis. This would provide an overall guaranteed limit on retail client losses;
  4. A restriction on the incentivisation of trading provided by a CFD provider; and
  5. A standardised risk warning by CFD providers. This would include an indication of the range of losses on retail investor accounts.

The regulator also considers whether CFDs in cryptocurrencies should be covered in the measures.

As for the Binary Options, ESMA considers a prohibition on the marketing, distributing and sale of binary options to retail investors. ESMA notes that the submission period for responses will be valid until 23:59 Paris time on 5 February.

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