ESMA plans to ban binary options being afraid the popular trading product is too risky
The European Securities and Markets Authority (ESMA) revealed plans to ban the sale of binary options to its retail clients.
The ban is a part of a bigger restriction on the spread betting sector that would also observe contracts for differences leverage (CFD) limit. ESMA is concerned that the risks to investor protection are not sufficiently controlled, so as part of the restriction, the amount of risk/reward that a retailer investor can expose themselves to will be reduced.
In a last year’s statement, the Financial Conduct Authority (FCA) proposed striker rules and announced its plans to put an end to the trail trading of contracts for differences (CFD) products to protect retail investors. After many other European regulators followed suit, the matter was passed onto ESMA during this summer, which means changes could be applied Europe-wide.
ESMA will conduct a brief public consultation on this matter in January 2018. After that ESMA is considering to use its product intervention powers in the financial markets.
The changes may be disappointing to some spread betting firms, which have reported bumper profits this year. For others, CMC Markets have been vocal on various occasions, they believe that the clampdown will help business by pushing rivals that focus on “lower-value” customers out of business.
The FCA plans last December did not reference binary options contracts due to the fact that at the time, they were regulated by Britain’s gambling regulator, the Gambling Commission, not by the financial watchdog. The FCA wanted to lower CFD leverage limits to up to 25:1 for customers that are new, and 50:1 for experienced ones.
Although, recently, ESMA took a rather different approach. According to ESMA, CFD leverage limits should be capped at much lower – between 30:1 and 5:1 – depending on the volatility of the asset invested in. Similar to the proposals of Financial Conduct Authority, ESMA aims to restrict trading bonus’ and incentives, as well as standardising risk warnings.
In an attempt to keep the focus of SiGMA on online gaming, SiGMA has, to-date, resisted letting any binary operators exhibit at the show, so gaming affiliates could focus on their vertical — gaming.