call for evidence

ESMA Call for Evidence on Potential Product Intervention Measures on CFDs and Binary Options to Protect Retail Clients

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On January 18, 2018, European Securities and Markets Authority (“ESMA”) published a call for evidence (“CfE”) on potential product intervention measures on contracts for differences (“CFDs”) and binary options in order to protect retail clients (ESMA35-43-904).

In December 2017, ESMA published a statement explaining it was considering the possible use of its product intervention powers under Article 40 of the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) to address investor protection concerns arising out of the marketing, distribution and sale of CFDs and binary options to retail investors. It is now seeking feedback from stakeholders on the impact of certain potential measures.

In relation to CFDs, ESMA is considering implementing the following:

  • A standardized risk warning by CFD providers in any communication to, or published information accessible by, a retail client relating to the marketing, distribution or sale of a CFD. At present, ESMA’s preferred option is that this standardized warning would indicate the percentage range of retail investor accounts having losses.
  • Leverage limits on the opening of a position by a retail client that would apply to any payment made to a product provider for the purpose of entering into a CFD, excluding any commission and transaction fees owed to the provider. They would range from 30:1 to 5:1 depending on the different classes of underlying assets.
  • A margin closeout rule on a position-by-position basis. This would standardize the percentage of margin at which providers are required to close out a retail client’s open CFD. The aim is that clients are routinely protected from losing more than they have invested in a consistent manner across providers.
  • Negative balance protection on a per-account basis, to provide an overall guaranteed limit on retail client losses.
  • A restriction on incentivization of trading provided directly or indirectly by a CFD provider, such as providing retail clients with a payment (other than a realized profit on any CFD provided) or a non-monetary benefit in relation to the marketing, sale or distribution of a CFD.

ESMA is currently considering how CFDs on cryptocurrencies fit within the MiFID II regulatory framework as financial instruments. It is seeking views on this and asks whether it should introduce specific restrictions concerning CFDs in cryptocurrencies.

ESMA is also considering a prohibition on the marketing, distribution and sale to retail clients of binary options. This is on the basis that the risks relating to binary options are due to inherent product features that are unlikely to be sufficiently addressed through product restrictions.

The CfE closes to responses on February 5, 2018.

ESMA Publishes Responses to Call for Evidence on Transaction Reporting

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The European Securities and Markets Authority (ESMA) has published the responses it has received to its May 2012 call for evidence on transaction reporting. On 7 May 2012, ESMA published a call for evidence on transaction reporting. The purpose of the call for evidence was to gather initial views on ESMA’s work to develop guidelines on harmonised transaction reporting under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID). This followed the commitment made by ESMA’s predecessor, the Committee of European Securities Regulators (CESR), to review its May 2007 Level 3 guidelines on MiFID transaction reporting.

On the basis of responses received, ESMA intends to launch a full public consultation on guidelines on harmonised transaction reporting. Call for Evidence. Responses.