Ban on high risk investment bets extended

Ban on high risk investment bets extended

The prohibition on marketing, distribution or sale of binary options is to be extended for a further three months from 2 October, when the current ban expires.

The European Securities and Markets Authority (Esma) introduced the restriction on promoting, selling and distributing contracts for difference (CTFs) to retail investors across the European Union in response to concerns that the products carry too high a risk.

Binary options, as they are known, enable investors to bet on the value of anything that can be measured in financial terms, including stock, commodity, currency and an index. They are offered by investment banks or spread betting firms.

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Esma took the decision to extend the ban following further investigations into the structure of binary options. It concluded "a significant investor protection concern related to the offer of binary options to retail clients continues to exist".

However, it has focused its examination on specific types of binary options, putting aside concerns about others that contain features that mitigate the risk of investor detriment.

These include options that are of a sufficiently long term, of 90 days plus, are accompanied by a prospectus and are fully hedged by the provider.

Additionally, Esma has concluded products that have one or two predetermined pay-outs at the end of the term will be excluded from its on-going investigation, providing neither pay-out option is less than the initial client investment.

The authority confirmed it will continue to survey these products during the forthcoming three-month prohibition period.

It stated: "Esma intends to adopt the renewal measure in the official languages of the EU in the coming weeks, following which Esma will publish an official notice on its website.

"The measure will then be published in the Official Journal of the EU and will start to apply from 2 October 2018 for a period of three months."