ESMA publishes notice on renewed and amended binary options ban

Maria Nikolova

The renewed ban, which does not apply to all types of binary options, comes into effect on October 2, 2018.

In line with a previous announcement, the European Securities and Markets Authority (ESMA) today said it had adopted a Decision under Article 40 of Regulation (EU) No 600/2014 to prohibit the marketing, distribution or sale of binary options to retail clients.

The European Union regulator has published a notice of the renewed ban, which is set to come into effect on October 2, 2018. The decision is based on the fact that a significant investor protection concern related to the offer of binary options to retail clients continues to exist.

Let’s recall that the renewed ban is also amended. It will not apply to all types of binary options.

The prohibition does not apply to:

(a) a binary option for which the lower of the two predetermined fixed amounts is at least equal to the total payment made by a retail client for the binary option, including any commission, transaction fees and other related costs;

(b) a binary option that meets the following conditions:

  • (i) the term from issuance to maturity is at least 90 calendar days;
  • (ii) a prospectus drawn up and approved in accordance with Directive 2003/71/EC is available to the public; and
  • (iii) the binary option does not expose the provider to market risk throughout the term of the binary option and the provider or any of its group entities do not make a profit or loss from the binary option, other than previously disclosed commission, transaction fees or other related charges.

Last week, ESMA also decided to extend the restrictions on the offering of CFDs to retail clients for further three months. The the restrictions will be renewed from November 1stfor a period of three months. The reason for the decision is that the EU regulator believes that the concerns around investor protection are still present. The restrictions include leverage caps, as well as a margin close out rule and negative balance protection.

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