ESMA product intervention - Binary Option measures extended and Q & As updated

ESMA has renewed its product intervention measures regarding binary options for a further three-month period. ESMA has also released updated Questions and Answers on its temporary product intervention measures on the marketing, distribution or sale of CFDs and Binary options to retail clients.

Renewal Decision in relation to binary options

The binary option product intervention measures are extended from 02 January 2019 for a period of three months. The measure has been extended on the same terms as the previous renewal decision that started to apply on 02 October 2018. ESMA’s Board of Supervisors agreed the renewal on 07 November 2018.

Updated Q & As

The updated Q & As further clarify what is considered “payments for the purpose of entering into a CFD” (Question 5.2) and provide guidance on the prominence of the risk warning (Question 5.13).

Payments for the purpose of entering into a CFD (Question 5.2)

Question 5.2 has been amended to include updated guidance on what is considered "payments for the purpose of entering into a CFD":

"The definition of initial margin in the CFD Decision refers to payments for the purpose of entering into a CFD, excluding commission, transaction fees, and any other related costs. Payment for the purpose of entering into a CFD is limited to cash an example of a payment in this regard. 'Payments' do not include firms crediting cash to the client’s account based on collateralised cash from other assets, held owned by the retail client being used as collateral, whether such assets are within or separate to the CFD trading account."

Prominence of the risk warning (Question 5.13)

Question 5.13 has been introduced to provide guidance on the prominence of the risk warning. Under Annex II of the CFD Decision, when communicating with a retail client regarding the marketing, distribution or sale of a CFD, a firm must also include an appropriate risk warning, ensuring that it is displayed in a prominent layout. The Q & A goes on to provide specific examples of good and bad practice with regard to the prominence of the risk warning.

Next steps

ESMA plans to adopt the renewal measure in the official languages of the EU in the coming weeks, after which ESMA will publish an official notice on its website. The measure will then be published in the Official Journal of the EU and will start to apply from 02 January 2019 for a period of three months.

Please contact Penny Miller, Michael Dodson, Oliver West or any other member of the Simmons & Simmons team for further information.

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