The European Securities and Markets Authority (ESMA) is currently evaluating the application of new supervisory measures in relation to the offering of highly speculative financial instruments to retail clients.
In a statement published on 29.06.2017 ESMA addressed the activities in question: “ESMA has been concerned about the provision of speculative products such as CFDs, rolling spot forex and binary options to retail investors for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area.”
The measures taken to date do not potentially appear to be adequate from ESMA’s point of view. ESMA is therefore currently discussing about EU-wide product intervention measures. The specifically discussed measures include the imposing of leverage limits as well as restriction of potential losses by clients and/or restrictions relating to the marketing and distribution of such products. Some of these measures have already been applied as national product interventions (for example in Belgium or Germany), or the market consulted.
An ESMA product intervention may only take place once the MiFID II package enters into force, i.e. from 03.01.2018, and shall be required to be re-evaluated every three months. Pre-requisites for such a product intervention are a significant threat to investor protection or a threat to the orderly functioning and the integrity of financial markets or the stability of the financial system.
CFDs, binary options and rolling spot forex contracts are frequently offered on a cross-border basis via online platforms using aggressive marketing methods. Such products are exceptionally risky for retail clients. Such products are not standardised and the characteristics of products may vary from one provider to the next. Studies have shown that retail investors speculating in such products have as a rule lost the money that they have invested. In several EU Member States complaints have been registered by investors who sustained significant losses from such products.
The ESMA Statement has been published at:
https://www.esma.europa.eu/document/product-intervention-general-statement
In this regard, the FMA would also like to refer to the following ESMA and FMA publications about this subject:
- Information on the FMA website
https://www.fma.gv.at/en/fma-thematic-focuses/fma-focus-on-binary-options-and-cfds/
ESMA “Questions and Answers” on the “Provision of CFDs and other speculative instruments to retail investors under MiFID”
- MiFIR Product Intervention Powers – Frequently Asked Questions