ESMA’s temporary product intervention measures for retail CFD and binary option products

Further to the European Securities and Markets Authority (ESMA) call for evidence on product intervention measures for the marketing and distribution of speculative financial products to retail clients in January 2018, the European Supervisory Authority recently released its final proposals which remain unchanged from its original consultation

Following the responses received, ESMA will:  
  • prohibit the marketing, distribution and sale of binary options to retail clients; and
  • impose a three-month restriction on the marketing, distribution and sale of CFDs, including rolling spot forex and financial spread bets to retail clients.
The product intervention measures ESMA has agreed under Article 40 of the Markets in Financial Instruments Regulation (MiFIR) include:
  • leverage limits on the opening of a position between 30:1 and 2:1, whose limits would vary depending on the volatility of the underlying asset;
  • a 50% margin closeout rule applied on a per account basis;
  • negative balance protection per account basis;
  • a restriction on firms offering monetary and non-monetary benefits (excluding research and information tools) to retail investors; and
  • a standardised risk warning, including firm-specific figures on the percentage of losses on retail clients accounts trading CFDs.
Under Article 40 of MiFIR, ESMA shall review the interventions imposed at appropriate intervals, and at least every three months.
The agreed measures will be published in the Official Journal of Europe (OJ) in the coming weeks and firms will be required to implement the prohibition on binary options, one month after publication in the OJ, and two months following the OJ publication, for the restrictions on CFDs.
As for the UK, the FCA published a statement supporting ESMAs temporary product intervention measures. The FCA expects to consult on whether to apply these measures on a permanent basis to firms offering CFDs and binary options to retail clients.
For more information, please contact our regulatory consulting team.

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