ESMA seeks feedback on effects of CFD restrictions and binary options ban

Maria Nikolova

National regulators have reported that, both for binary options and for CFDs, there has been an increase in the number of clients treated as professional clients on request.

The European Securities and Markets Authority (ESMA) is seeking feedback from market participants, consumers and their associations on the effects of the restrictions of the offering of CFDs to retail clients and the ban on binary options.

The temporary product intervention measures of ESMA started to apply on July 2, 2018 for binary options and August 1, 2018 for CFDs. Following three consecutive renewals, these temporary measures expired on July 1, 2019 for binary options and July 31, 2019 for CFDs.

At this moment the large majority of National Competent Authorities (NCAs) in the EU have taken national product intervention measures in order to address, in a permanent way, the investor protection concerns arising from these products.

The European Commission has asked ESMA to report on its experience with the new product intervention powers, including the practical effects of the measures. ESMA now launches a call for evidence inviting market participants, consumers and their associations to share any information on the effects of the measures.

ESMA notes that it has thus far obtained information from national regulators over the effects of the product intervention measures.

With regard to binary options, there were no new authorisations of firms offering binary options to retail clients and the regulators reported limited non-compliance in relation to the prohibition to market, distribute or sell binary options to retail clients.

Concerning CFDs, the national competent authorities reported an overall drop in the number of CFD retail client accounts, trading volume and total retail client equity in comparison with the reporting period a year earlier (when the CFD measures were not in place). The share of profitable retail client accounts remained broadly stable, and the average costs incurred by retail clients while trading CFDs were significantly lower in the periods after the introduction of the ESMA measures.

Average costs in respect of active retail accounts containing CFDs on cryptocurrencies marked a significant decrease in comparison to others, though such accounts continued to incur higher costs than accounts with no cryptocurrency exposure.

Finally, the national regulators reported a sustained decrease in the number of automatic close-outs, the number of times accounts went into negative equity and the size of negative equity balances.

The national competent authorities reported that, both for binary options and for CFDs, there has been a growth in the number of clients treated as professional clients on request. For binary options, this number was relatively small in comparison to the number of retail clients before the ESMA prohibition of providers of binary options.

The opinions should be submitted by November 4, 2019. ESMA will consider the responses to this call for evidence when drafting its response to the European Commission.

Read this next

Digital Assets

Silvergate dismisses speculation of trouble, says BlockFi exposure is minimal

Crypto-friendly bank Silvergate Capital claimed on a Tuesday blog post that it had minimal exposure to crypto lender BlockFi, which filed for chapter 11 bankruptcy protection this week.

Retail FX

Fidelity launches crypto trading for retail investors

Fidelity Investments, one of the largest brokerages in the world, has officially rolled out a commission-free crypto trading product for retail investors, starting with zero-fee trading for Bitcoin and Ethereum.

Digital Assets

ECB head calls for tougher crypto regulation after FTX collapse

President of the European Central Bank, Christine Lagarde, has called on lawmakers to start working on fresh crypto regulations to protect the financial system after the collapse of the FTX exchange.

Retail FX

CySEC updates rules for regulated brokers’ cross border activity

As CySEC’s attitude of adopting more stringent licensing guidelines and operating regulations becomes ever clearer, certain aspects of the rules and operations start to come into sharper focus.

Market News

Outlook for Gold: Can the Precious Metal Regain Power?

Gold set an all-time high at $2070 on March 08, 2022, when the price skyrocketed amid investors’ worries about the military conflict in Eastern Europe.

Crypto Insider

2022 Islamic Finance recap: as the space continues to evolve, blockchain stands to play a big part

Despite the global economy being ravaged by turmoil induced by the Covid-19 pandemic over the last couple of years, the Islamic finance industry has emerged relatively unscathed

Crypto Insider

Decentralized Exchanges and Pooled Trading Platform Applications

Decentralized exchanges are one-way blockchain companies take back the power of value creation.

Crypto Insider

How to maximize the safety of your digital tokens?

Digitalization is the future of the investment world. These are the most preferred and growing investments in the world.

Institutional FX, Interviews

FIA EXPO 2022: Interview with Trading Technologies

The derivatives trading industry has gathered in Chicago to attend the FIA EXPO 2022 on 14-15 November. 

<