FCA statement on ESMA’s ongoing work on possible product intervention measures applicable to retail CFD and binary option products

The European Securities and Markets Authority (ESMA) has made an announcement today on its work in relation to the provision of contracts for differences (CFDs), including rolling spot forex, and binary options to retail clients. 

ESMA is considering the possible use of its product intervention powers under Article 40 of the Markets in Financial Instruments Regulation (MiFIR) to address risks to investor protection. In particular, ESMA is considering measures to:

  1. Prohibit the marketing, distribution or sale of binary options to retail clients.
  2. Restrict the marketing, distribution or sale to retail clients of CFDs, including rolling spot forex.

The restrictions on CFDs currently under review are:

  • leverage limits on the opening of a position between 30:1 and 5:1, whose limit will vary according to the volatility of the underlying asset
  • a margin close-out rule
  • negative balance protection to provide a guaranteed limit on client losses
  • a restriction on benefits incentivising trading, and
  • a standardised risk warning

ESMA will conduct a public consultation in January 2018 on this matter.

Any product intervention measure adopted by ESMA under Article 40 of MiFIR can have an initial duration of up to three months and is renewable.

The FCA supports ESMA in its consideration of potential EU-wide product intervention. Our domestic policy work on permanent product intervention measures applicable to firms offering CFDs and binary options to retail clients is ongoing. Any permanent FCA policy measures would take in to account any prospective ESMA measures.