The Belgian government has passed legislation, due to be effected August 18 to ban all leveraged OTC derivatives, all binary options, and the sales method by which they are distributed, considering them to be “highly risky”, often not connected to the real economy and demonstrating a disdain for high pressure sales. Outcome: No more retail electronic trading in Belgium
As of August 18, 2016, the entire Belgian population will wave goodbye to all binary options products, derivative contracts whose maturity is less than one hour; all derivative contracts with leverage, such as contracts for difference (CFDs) and leveraged rolling spot forex contracts.
This legislation which will be set in to force as of August 18 this year, will restrict the distribution of these specific financial derivatives among Belgian retail clients, whilst a restriction on certain distribution practices will also be effected.
The Regulation drawn up by the Financial Services and Markets Authority (FSMA) on this matter has been approved by royal decree which took place on July 21, with publication in the Belgisch Staatsblad/Moniteur B.elge (Belgian Official Gazette) having taken place on August 8. Such publication represents the official notification to the public of this particular ruling’s impending implementation.
The new ruling applies to derivative contracts distributed to consumers in Belgium, usually from abroad, via electronic trading platforms.
The Belgian FSMA considers that these are products that are marketed aggressively and are extremely risky, often involving transactions over a very short period and without any connection to the real economy.
The Regulation consists of two elements which apply cumulatively. The first element is a ban on distribution of a few specific types of derivative contracts to consumers via electronic trading platforms including all leveraged spot FX, CFDs and all binary options products.
The second element is a ban on a number of aggressive or inappropriate distribution techniques (cold calling via external call centres, inappropriate forms of remuneration, fictitious gifts or bonuses, etc.) used when distributing OTC derivatives to consumers.
The Minister for Employment, the Economy and Consumer Affairs, Kris Peeters has made a public statement in the Belgian parliament on this matter saying “This Regulation contributes to better protection of consumers of financial products. Henceforth, it will be clear to everyone that binary options and other speculative derivatives have no place on the Belgian retail market.”
The Minister of Finance, Johan Van Overtveldt, remarked: “In recent years, we have seen a rise in the number of foreign offerors of products such as binary options that approach the Belgian market without having an authorization and /or a published prospectus. This Regulation will help combat such offers.”
Jean-Paul Servais, chairman of the FSMA, stated: “The FSMA has repeatedly issued warnings about the risks associated with these products. Other supervisory authorities and ESMA have done likewise. Yet the FSMA continues to receive complaints about these products. Therefore it proposed establishing a framework regulating the distribution of OTC derivatives and to prohibit the distribution of certain types of these products.”
Such draconian legislation has come about due to the lower end of the market once again muddying the waters for the bona fide firms which could have continued to market products to Belgian customers with the greatest of professional diligence.
Indeed it is the responsibility of the good firms in the industry to uphold the standard and outnumber those with nefarious intentions, especially those which derive their business from a gaming/lead buying standpoint rather than a correct and experienced financial markets and electronic trading background.
Indeed, operating a ‘bucket shop’ in which no real market prices are being utilized and targeting customers for deposits whilst operating on a profit and loss basis for company revenues is a small percentage of the industry, often by companies in unregulated jurisdictions. This small but damaging practice is now an elephant in the room.
In London, some of the very best institutional liquidity providers are doing their absolute utmost to use their longstanding and very solid relationships with Tier 1 banks to ensure that the pricing and clearing of all products including notoriously hard to price CFDs, for the greater good of everyone in the industry and its customers.
This must be allowed to prevail, as the world’s highly polished electronic trading firms in the global financial centers of London, New York and Chicago are a bastion of top quality business ethics and are leading the way for the development of tomorrow’s financial markets economy. They must be allowed to service clients globally, and in order to do so, it means devising a way to ensure that the best firms with the best practices are the ones with the greatest access to the free market.