ESMA Imposes Restrictions On CFDs and Ban On Binary Options

The European Securities and Markets Authority (ESMA), the leading securities regulator in Europe has been discussing rolling out new regulations to govern binary options and contracts for differences (CFDs).

ESMA recently confirmed that these new measures have finally been approved and will be rolled out shortly.

The new regulations imposed by ESMA are expected to protect retail investors from being exploited. The regulations for CFDs will come into effect from 1st August and will prevent CFDs from being marketed, distributed or sold to retail investors.

Some of these restrictions will include a standardised risk warning, negative balance protection on each individual account, a margin close out rule on each individual account, restrictions on incentives to trade CFDs.

In a statement, Steven Maijoor, Chairman for ESMA said

The measures ESMA has taken today are a significant step towards greater investor protection in the EU. 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.

European Securities and Markets Authority (ESMA)

New Regulations For Binary Options From 02 July

Binary options have also been hit with a similar restriction which comes into effect a lot sooner. Binary options will be limited by these new restrictions from the 2nd of July and they will no longer be marketed, distributed or sold due to the risks posed by the binary options industry.

ESMA decided to adopt these regulations throughout the EU as it was the best way to address these concerns and protect retail investors. These new measures on binary options and CFDs will be closely monitored in the coming months to see their impact and based on the results, ESMA will then decide what action should be taken next.

This monitoring stage will most likely last for a period of 90 days as that is the time frame that MiFIR provides. Before the 90 days are complete, ESMA will have to submit a report on the impact of these changes and whether new measures to be rolled out.

The new rules will shut down the binary options market across the EU and send a large number of binary option firms and traders out of business while firms and traders who dealt with CFDs will also be significantly impacted by these new restrictions.

---