ESMA Formally Extends Binary Option Restrictions, Again

The European Securities and Markets Authority (ESMA) has published a notice on its website this Friday, that on December 14 of this year, it has formally adopted a decision to renew the prohibition of marketing, distribution or sale of binary options to retail investors.

This news will come as no surprise to many of you, as the regulator previously announced it was going to renew the prohibitions on binary options from January 2, 2019, for three months back in November, as Finance Magnates reported at the time.

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In November, the regulator said the motivation for its move was: “ESMA has carefully considered the need to extend the intervention measure currently in effect. It considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist.”

Today, however, the notice merely reaffirms the conditions of the prohibition, stating that a binary option is a derivative that meets the following conditions:

(a) it must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

(b) it only provides for payment at its close-out or expiry;

(c) its payment is limited to:

(i) a predetermined fixed amount or zero if the underlying of the derivative meets one or more predetermined conditions; and

(ii) a predetermined fixed amount or zero if the underlying of the derivative does not meet one or more predetermined conditions.

ESMA continues its restrictions for CFDs

The announcement comes just days after the European regulator announced that it will also extend its temporary restrictions on selling contracts for differences (CFDs) to retail customers for a further three-month period, saying it was still concerned about investor protection, as Finance Magnates reported.

Theoretically, ESMA can continue to renew its prohibitions on both binary options and CFDs until the end of time. In the next couple of years the regulator may put a permanent policy in place, but until then, it is highly likely the regulator will continue to renew the restrictions indefinitely.