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ESMA to renew binary options trading ban for further three months

Aug 24 2018
By
Jonathan Smith

 

The European Securities and Markets Authority (ESMA) has come out with an official statement on Friday, saying that it will extend the prohibition on binary options for a further three-month period from October 2, 2018. The European regulator initially banned the marketing, distribution or sale of binary options to retail clients as of July 2, 2018 due to investor protection concerns.

 

Interestingly, ESMA explicitly excluded certain binary options products from its prohibition. These are long-term (at least 90 days) options which are fully hedged by the provider or another entity within the same group as the provider, and are accompanied by a prospectus. Only binary options that meet cumulatively these three conditions are considered to mitigate the risk of investor detriment and are therefore allowed for retail clients.

 

ESMA also agreed to exclude from the scope of the binary options ban renewal options for which the lower of the two predetermined fixed amounts is at least equal to the total payment made by a retail client for the binary option, including any commissions, transaction fees and other related costs.

 

The pan-European regulator intends to adopt the renewal of its intervention measures on binary options in the official languages of the EU in the coming weeks.

 

As per the Markets in Financial Instruments Regulation (MiFIR), ESMA can only introduce temporary three-month measures, but before the period expires, the regulator can review the results and consider a further extension for another three month-period. A pan-EU approach is needed given the cross-border nature of these financial products, and ESMA’s intervention is the most appropriate and efficient tool to address a major investor protection issue.

 

TAGS: ESMA  binary options  ban 
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