Global Regulators Publish Retail OTC Leveraged Products Report


The International Organization of Securities Commissions has published the retail OTC leveraged products report, informing the market participants of its guidance on the future of leveraged trading.

14 February, AtoZForex The International Organization of Securities Commissions (IOSCO) has issued a Report on Retail OTC Leveraged Products. The organization thus has provided its own guidance to the world’s financial and securities regulators in terms of the future of leveraged trading.

Global Regulators Publish Retail OTC Leveraged Products Report

The members of the organization include all of the key global regulators, including the SEC in the US, CySEC in Cyprus, the FCA in the UK, Australia’s ASIC, the Chinese CSRC and SSC in Vietnam.

Additionally, the IOSCO has opened a consultation on the matter, thus asking for the feedback on the measures and tools proposed. The main topics covered by IOSCO included:

  • A licensing requirement for all firms that sell the relevant products to retail investors either domestically or on a cross-border basis;
  • Leverage limits or minimum margin requirements;
  • Measures to address the risk of investors losing more than their initial investment;
  • Measures to enhance the disclosure of costs and charges of the products;
  • Measures to improve the disclosure of risks of the products, including profit and loss ratios;
  • Other focused requirements to enhance the quality of pricing and order execution; and,
  • Measures to restrict the sale, distribution and marketing of the products with a view to addressing mis-selling risk.

Blanket provision of negative balance protection

The IOSCO, however, did not provide a specific guidance in regards to what maximum leverage would be. The organization has just stated that the issue should be addressed and each regulator should have a figure in place. This should be done in order to avoid customers being offered unlimited leverage. According to IOSCO, such situation might lead to trading abuse and clients suffering the loss of capital.

One of the key topics discussed by IOSCO is the requirement for all the brokers offering cross-border services. The organization aims to set out a proper licensing procedure in the countries from which they take clients.

Moreover, the IOSCO has proposed the blanket provision of negative balance protection for clients trading with leverage. Another issue addressed in the IOSCO report is the marketing of leveraged financial products, such as Binary Options. The organization looks into establishing restrictions on the marketing for Binary Options as well as other high-risk leveraged financial products.

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