On 24 August 2018, the European Securities and Markets Authority (ESMA) has agreed to renew the prohibition of the marketing, distribution or sale of binary options to retail clients, in effect since 2 July, from 2 October 2018 for a further three-month period (see our Newsflash n.45).
ESMA has also agreed to exclude a limited number of binary options from the scope of the renewal. In particular:
- A binary option for which the lower of the two predetermined fixed amounts is at least equal to the total payment made by a retail client for the binary option, including any commissions, transaction fees and other related costs; and
- A binary option that meets cumulatively the following three (3) conditions:
- the term from issuance to maturity is at least ninety (90) calendar days;
- a prospectus drawn up and approved in accordance with the Prospectus Directive (2003/71/EC) is available to the public; and
- the binary option does not expose the provider to market risk throughout the term of the binary option and the provider or any of its group entities do not make a profit or loss from the binary option, other than previously disclosed commissions, transaction fees or other related charges.
With respect to point B above, ESMA considers that a binary option that benefits from the cumulative effect of all the three criteria is less likely to lead to a significant investor protection concern.
ESMA intends to adopt the renewal measure in the official languages of the EU in the coming weeks. The measure will then be published in the Official Journal of the EU.
Source: ESMA
