The European Securities and Markets Authority (ESMA) has finalized new measures to bolster investor protection by banning trading in binary options for retail investors and setting certain restrictions on trading in contracts for difference (CFDs), the authority announced on Friday.
Both efforts are subject to short transition periods. The prohibition on the marketing, distribution, or sale of binary options to retail investors takes effect on July 2. The restrictions on the marketing, distribution and sale of CFDs to retail investors (which includes leverage limits, margin restrictions, and a ban on certain incentives) kicks in on Aug. 1.
“The measures ESMA has taken today are a significant step towards greater investor protection in the EU,” says Steven Maijoor, ESMA chairman, in a statement..
“The new measures on CFDs will, for the first time, ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide understandable risk warnings for investors. ESMA’s prohibition on the marketing, distribution or sale of binary options to retail investors addresses the significant investor protection concerns caused by the characteristics of this product,” Maijoor adds.
The restrictions will be in effect for three months, during which ESMA will monitor and assess the impact of these measures, and consider whether to extend them for a further three months.