The European Securities and Markets Authority (Esma) has agreed to renew the prohibition of the marketing, distribution or sale of binary options to retail clients by a further three months.
In effect since 2 July 2018, the restriction has now been extended for another three months from 2 October.
Esma said in a statement it “carefully considered” the need to extend the ban.
The regulator said it “considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist”.
Options excluded
Esma said some binary options with specific features that mitigate the risk of investor detriment have been exempted from the prohibition order.
These specific features include that options are sufficiently long-term (at least 90 days), are accompanied by a prospectus and are fully hedged by a provider or another entity within the same group as the provider.
“Esma considers that a binary option that benefits from the cumulative effect of these three criteria is less likely to lead to a significant investor protection concern,” the statement said.
Predetermined pay-outs
Products that, at the end of the term, have one of two predetermined pay-outs, neither of which is less than the initial investment of the client, will also be excluded from the ban.
“The pay-out for this type of binary option could be the higher or lower one but in either circumstances the investor would not lose money compared to their total investment.
“As the investor’s capital is not at risk these products should be explicitly excluded,” the statement said.
Esma said it would continue to keep the excluded products under review during the prohibition period.
