ESMA to extend binary options ban from April 2, 2019

Maria Nikolova

The prohibition of marketing, distribution or sale of binary options to retail clients will be extended for a further three-month period.

MiFID II implementation likely to be set back even further

The European Securities and Markets Authority (ESMA) will once again extend the ban on the marketing, distribution or sale of binary options to retail clients. The EU regulator has agreed to renew the measure from April 2, 2019 on the same terms as the previous renewal decision that started to apply on January 2, 2019.

Explaining the rationale for the extension, ESMA said it considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist.

ESMA plans to adopt the renewal measure in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website. The measure will then be published in the Official Journal of the EU and will start to apply from April 2, 2019 for a period of three months.

Let’s recall that, under the terms of the ban renewal from October 2, 2018, ESMA has excluded a limited number of products from the scope of the measure. The regulator said back then it had considered the specific features of binary options currently within the scope of the measures. Certain binary options were found to have specific features which mitigate the risk of investor detriment, such as:

  • they are sufficiently long-term (at least 90 days);
  • are accompanied by a prospectus;
  • and are fully hedged by the provider or another entity within the same group as the provider.

ESMA found that a binary option that benefits from the cumulative effect of these three criteria was less likely to lead to a significant investor protection concern.

Also, products that at the end of the term have one of two predetermined pay-outs, neither of which is less than the initial investment of the client, will be excluded. The pay-out for this type of binary option could be the higher or lower one but in either circumstances the investor would not lose money compared to their total investment. As the investor’s capital is not at risk these products should be explicitly excluded, the regulator says.

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