In March 2018 ESMA agreed on temporary product intervention measures on the provision of Contracts for Differences and Binary Options to retail investors in the EU. The agreed measures included:
- for Binary Options: a prohibition on the marketing, distribution or sale of binary options to retail investors; and
- for Contracts for Differences (CFDs): a restriction on the marketing, distribution or sale of CFDs to retail investors.
These measures were formally adopted by ESMA in June 2018 and took effect on 2 July 2018 and on 1 August 2018 respectively. Afterwards, ESMA agreed between August 2018 and March 2019 to renew these product intervention measures for respective additional three-month periods.
NCAs can also take product intervention measures under MiFIR. At least one month before a measure is intended to take effect, an NCA must notify all other NCAs and ESMA of the details of its proposed measure and the related evidence, unless there is an exceptional case where it is necessary to take urgent action.
Under MiFIR, ESMA also has a facilitation and coordination role in product intervention measures taken by NCAs. So, after receiving notification from an NCA of its proposed measure, ESMA must adopt an opinion on whether the proposed measure is justified and proportionate. If ESMA considers it necessary that other NCAs also take measures, this must be stated this in its opinion.
Accordingly, between March 2019 and April 2020 NCAs adopted product intervention measures in their jurisdictions
- to prohibit the marketing, distribution or sale of binary options to retail investors; and
- to restrict the marketing, distribution or sale of CFDs to retail investors.
Those product intervention measures by NCAs replaced ESMA’s prior temporary measures and ensured the continued protection of retail investors.
Moreover, in June 2021 ESMA issued an opinion on product intervention measures communicated by The Netherlands Authority for the Financial Markets (AFM). These measures concern turbos which are high-risk leveraged products with which investors speculate that the prices of the underlying asset, such as a share, an index or a currency, will rise or fall. ESMA’s opinion concludes that the proposed measures are justified and proportionate. ESMA’s opinion also encourages all NCAs to monitor turbos in their respective markets to assess whether similar risks for retail investors as those identified by the AFM could arise there.
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