The European Securities and Markets Authority (ESMA) has published its latest question and answer (Q&A) manifest regarding the application of the Markets in Financial Instruments Directive (MiFID) and how it relates to the marketing and sale of instruments such as contracts for difference (CFDs), binary options, and rolling spot forex, according to a recent ESMA statement.
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As a corollary, MiFID was originally designed to help foster a greater level of cohesiveness across Europe’s financial markets and to establish a common regulatory framework for Europe’s securities markets. Moreover, MiFID has since its rollout also succeeded in introducing new and more expansive requirements for firms, such as in the realms of conduct of business and internal organization.
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Moving forward, the newly revamped MiFID II package is expected to come into effect on January 2017, which promises further change across the European regulatory playing field.
Regarding its stance on instruments in Europe, ESMA has categorized two distinct types of firms that offer these products, i.e. firms acting as intermediaries between retail clients and liquidity providers and firms acting as the client’s counterparty, which offer the products directly to retail clients. By and large however, ESMA recognizes CFDs, binary options, and FX as highly speculative in nature and non-standardized, making them difficult to understand for a majority of retail investors.
As such, ESMA has addressed a number of mounting concerns about the protection of investors in Europe with the aim of promoting common supervisory approaches and practices in the application and administration of MiFID. The Q&A document itself also provides a cascade of responses to questions identified by competent authorities in relation to practical aspects involved in offering these products.
In particular, the ESMA Q&A communiqué outlines such topics as supervision, program logistics, regulatory obligations for CFDs, binary options, and FX, as well as addressing the grey area in between some of these products’ offering and ESMA regulations. The Q&A document can be read in full by accessing the following link.