The European Securities and Markets Authority (ESMA) published an updated question and answer document (Q&A) Tuesday on applying securities rules, known as the Markets in Financial Instruments Directive (MiFID), to the marketing and sale of speculative products such as contracts for difference (CFDs), binary options, and rolling spot forex to retail investors.
“The complexity of CFDs and other speculative products means it may be difficult for the majority of retail investors to understand the risks involved although they are widely advertised to the retail mass market by a number of firms, often via online platforms,” the ESMA says in a news release.
Many regulators have concerns about protecting investors when dealing with these sorts of products, it add.
Additionally, as many of these sorts of products are traded cross-border, ESMA’s guidance aims to promote common regulatory approaches and practices when CFDs and other speculative products are sold to retail clients.
Separately, the ESMA also issued revised guidance on the implementation of certain investor protection measures under the new MiFID rules, which are due to take effect in January 2018. The new measures aim enhance the protection of investors by both introducing new requirements and strengthening existing ones.
The MiFID rules guidance covers issues such as best execution, providing independent investment advice, recording telephone conversations and electronic communications, and underwriting, among other things.