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.

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