The European Securities and Markets Authority (ESMA) has just published a consultation on potential product intervention measures relating to the provision of contracts for differences (CFDs), including rolling spot forex, and binary options to retail investors. This is in line with a statement published by ESMA in the end of 2017 which highlighted the possibility of use of its product intervention powers under Article 40 of MiFIR to address concerns regarding investor protection posed by the marketing, distribution and sale of CFDs and binary options to retail investors. Consultation is now open and stakeholders are to provide their opinion regarding the following measures:

Contracts for Difference

The specific potential measures under consideration 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 standardize the percentage of margin at which providers are required to close out a retail client’s open CFD;
  • Negative balance protection on a per account basis. This would provide an overall guaranteed limit on retail client losses;
  1. A restriction on the incentivization of trading provided by a CFD provider;
  2. A standardized risk warning by CFD providers. This would include an indication of the range of losses on retail investor accounts.

The Authority is furthermore considering the possibility of CFDs in cryptocurrency being addressed in the measures as well. In this context ESMA is currently discussing whether CFDs on cryptocurrencies, whose underlying assets have displayed very high price variation, should be addressed in the measures.

Binary Options

The potential measure under consideration is prohibition on the marketing, distribution or sale of binary options to retail investors.

Stakeholders are to submit their feedback no later than 5 February 2018.

 

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