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Maya Mandzikasvili

30 November 2018

Regulation Announcements

Germany Plans to Ban Binary Options Permanently

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November 30, 2018 AtoZ Markets-On November 30, the German Federal Financial Supervisory Authority (BaFin) started a permanent ban on binary options. BaFin gives brokers and clients time until the 20th of December 2018, to comment on the proposed measures in writing.

ESMA is against binary options

Few weeks before BaFin announcement, AtoZ Markets reported that ESMA plans to renew its ban on binary options for another three months. According to the official ESMA statement, it has considered the need to extend the intervention measure because a "significant investor protection concern related to the offer of binary options to retail clients continues to exist.”A binary options is a financial exotic option, which have long been identified by ESMA as a toxic product. In binary options the payoff is either some fixed monetary amount or nothing at all. The German financial watchdog is rolling out a measure that is set to inherit the ESMA’S temporary product intervention measures under MiFID. According to an official publication on the website of BaFin, the marketing, distribution, and sale of binary options to small investors will get banned. An executive Director of BaFin Elisabeth Roegele explained their decision saying that in the current low-interest-rate phase, binary options are a very attractive offer for small investors. However, as Roegele emphasized, the marketing of the product with a promise of high returns is making it too risky for retail investors.

BaFin assumes binary options having an addictive nature:

BaFin which recently BaFin terminated UB4TRADE's operation for licence absence, assumes that risks of the binary products are coming from their addictive nature. According to BaFin, binary options are also very complex and have a non-transparent calculation of the expiration price of the underlying asset.The German financial authority highlights that unlike other financial instruments, binary options are not traded on a market where supply and demand are determining the price.The price is set out by the provider of the product, which leaves no opportunity for clients to verify the level. Moreover, because of the extremely short maturities, investors don’t have any means to accurately assess the risk/return profile of the product usually. Finally, BaFin highlights that binary options brokers regularly act as direct counterpart to their clients.The inherent conflict of interest makes the offering unsuitable for retail investors. According to BaFin, brokers and clients can comment on the proposed measures in writing until the 20th of December 2018. The second round of product intervention measures discussed by the German BaFin lapses on the 2nd of January 2019.

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