According to a statement published at the end of June, the European Securities and Markets Authority (ESMA) is discussing for the first time whether to initiate a product intervention for retail investors in the case of highly speculative financial instruments. The legal basis for this step are the new EU Investor Protection Rules which enter into force at the beginning of 2018. Specifically it addresses the selling of Contracts for difference (CFDs), binary options and “rolling spot forex” transactions, which have already been under heightened observation for a while, and about which the FMA had already warned on multiple occasions. From ESMA’s point of view, the measures taken to date such as establishing a Task Force, publishing Q&As and issuing investor warnings are potentially not adequate to ensure that national supervisory authorities proceed uniformly and to guarantee the protection of the investors.
ESMA will be able to make use of an EU-wide product intervention in the future to prohibit the selling of risky financial instruments or specific dangerous product characteristics. With regard to CFDs, binary options and rolling spot forex contracts, the ESMA is currently discussing about limiting leverage effects by setting its own leverage limits, guaranteed limits on client losses as well as restrictions on the marketing and distribution of such products. Some of these measures have already be applied, for example in Germany and Belgium, as part of product interventions at national level. Pre-requisites for such an EU-wide product intervention by the ESMA 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. Such an intervention shall only be possible once the MiFID II package enters into force on 03.01.2018, and shall be required to be re-evaluated every three months. From this point in time, the FMA will also have legal instruments at its disposal in Austria to conduct national product interventions.
CFDs, binary options and rolling spot forex contracts are frequently offered on a cross-border basis using aggressive marketing methods via online platforms and are exceptionally risky for retail investors. 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 there have been complaints registered by private investors, who have sustained significant losses from such products.
Detailed information about CFDs, binary options, and rolling spot forex contracts can be found on the FMA website at https://www.fma.gv.at/en/fma-thematic-focuses/fma-focus-on-binary-options-and-cfds/.
The ESMA’s statement about a potential product intervention for highly speculative financial instruments for retail investors is available online at https://www.esma.europa.eu/document/product-intervention-general-statement.