[Newsflash n. 56]
On 7 January 2019, Consob launched a public consultation to endorse and make permanent the ban on retail offers of binary options (“BO”) and contracts for difference (“CFDs”) to retail investors as adopted by ESMA pursuant to article 40 of MIFIR Regulation on 22 May 2018 and then extended several times, most recently on 14 December 2018 for the BO and on 19 December for CFDs.
The Italian Authority shares ESMA’s view that the above financial products are inherently very risky and complex and therefore not suitable for retail investor (as already warned in February 2017 Consob).
Indeed, their high complexity and short-term volatility and the high risk to which that they expose the investors (particularly when they are leveraged instruments), make BOs and CFDs a too dangerous investment for retail clients. Moreover, these financial instruments are often traded on-line without assistance of a financial advisor or manager so that investors do not pay due attention to their embedded features.
In light of the above, Consob intends to adopt ESMA’s provisions in an permanent basis in accordance with the article 42 of the Regulation (EU) no. 600/2014 (MIFIR). In particular, if confirmed, those measures will consist of the following:
1. Prohibition of marketing, distribution or sale of BOs to retail investors.
2. Determination of certain limits and requirements in relation to the marketing, distribution or sale of CFDs to retail investors:
- Limits to financial leverage in relation to the volatility of the underlying asset ranging from 30:1 (for the variations between major currencies) and 2: 1 (for cryptocurrencies);
- Obligation to close positions on behalf of the client in the event of margins reduction in margins with determination of the percentage from which the providers are obliged to close one or more open CFD positions (50 % of the required margin);
- Provision of a mechanism for the protect of the client’s trading account from negative balance;
- Prohibition to offer incentives for clients to operate in CFDs;
- Obligation to publish a standardised warning on the risks related to operation in CFDs, including the percentage of losses suffered by the provider’s retail investors.
The ban will apply to retail offers made in the exercise of freedom to provide services and/or with establishment of a branch.
Comments to this consultation may be submitted not later than 22 January 2019.
Please feel free to contact your contact us for any further information or for assistance in submitting your response.
Contacts:
Vito Vittore
Partner
Elena Pagnoni
Partner
Roberta Talone
Associate
