Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Securities and Markets Authority Intends to Extend Product Intervention Measures for Binary Options for a Further Three Months
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  • European Securities and Markets Authority Intends to Extend Product Intervention Measures for Binary Options for a Further Three Months
    08/24/2018
    The European Securities and Markets Authority has announced its intention to adopt a Decision to extend the prohibition on the marketing, distribution and sale of binary options to retail investors for a further three-month period from October 2, 2018. ESMA has previously adopted intervention measures for binary options, with the current Decision set to expire on October 1, 2018.

    ESMA has power under the Markets in Financial Instruments Regulation to impose prohibitions or restrictions on certain financial instruments, financial activities or practices. This may be done when, among other conditions, the exercise of ESMA's power addresses a significant investor protection concern in the Union. Product intervention measures imposed by ESMA under MiFIR must be reviewed at appropriate intervals and at least every three months. If a measure is not renewed after three months, it will expire. In reviewing the current Decision, ESMA has agreed to exclude from the scope of product intervention certain types of binary option that are less likely to lead to a significant investor protection concern.

    The types of binary options that will be excluded from the scope of the new Decision after October 2018 are:
    • 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 conditions: (i) the term from issuance to maturity is at least ninety calendar days; (ii) a prospectus drawn up and approved in accordance with the Prospectus Directive is available to the public; and (iii) 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.

    ESMA's Board of Supervisors agreed on the renewal of intervention measures on August 22, 2018. ESMA will publish an official notice on its website in the coming weeks. The new Decision will then be published in the Official Journal of the EU and will start to apply from October 2, 2018 for a period of three months.

    View the ESMA press release.

    View ESMA's Decision published in June 2018.

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