ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors

On 27th March 2018, the European Securities and Markets Authority (ESMA) agreed on measures on the provision of contracts for differences (CFDs) and binary options to retail investors in the European Union (EU).

The agreed measures include:

1.    Binary Options - a prohibition on the marketing, distribution or sale of binary options to retail investors; and

2.    Contracts for Differences - a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.

In accordance with MiFIR, ESMA can only introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will consider the need to extend the intervention measures for a further three months. 

Next steps
ESMA intends to adopt these measures in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website.  The measures will then be published in the Official Journal of the EU (OJ) and will start to apply one month, for binary options, and two months, for CFDs, after their publication in the OJ.