Daily Management Review

Market Regulators of EU To Ban CDFs & ‘Binary Options’ Sale To Retail Clients


03/27/2018


Spread-better firms shares fell as the E.U. regulators reveal their plans of restricting the sales of some financial products.



The regulators of the E.U. revealed that it will introduce a ban for the options of “binary” sales to “retail clients”, whereby restricting the “Contract for Differences” sales in an attempt to “protect investors from significant losses”, which in turn knocks off “shares in Britain’s spreadbetters”.
 
ESMA or the “European Securities and Markets Authority” informed the “marketing, distribution and sale of binary options to retail investors” would be prohibited, while the CFD restrictions will constrain the “marketing, sale and distribution of them”.
 
Without the ownership of assets like stock, currency or commodity, investor is exposed to “price movements in securities” with the help of financial products such as CFDs and binary options. According to a statement:
“ESMA, along with National Competent Authorities (NCAs), concluded that there exists a significant investor protection concern in relation to CFDs and binary options offered to retail investors. This is due to their complexity and lack of transparency.”
 
ESMA has expressed its concerns over “high-risk speculative products” offering to “retail investors” which could potentially lead to “significant losses”. Therefore, ESMA “flagged” its plans of banning these sales, as a result, the shares of “spreadbetting firms” came “tumbling” down.
 
Furthermore, Reuters reported:
“Analysis on trading in the EU showed 74-89 percent of retail accounts typically lose money on their investments, with average losses per client ranging from 1,600-29,000 euros (1,407-25,507 pounds), ESMA said”.
 
The “world’s first spread-betting firm”, IG expressed its disappointment in ESMA’s decision of imposing restrictions, as it would “risk” the retail clients to move to providers who are outside the EU. IG claimed that ESMA’s announcement relates only to “retail clients”, while the former has a client base which is “dominated by sophisticated traders”. The firm also forecasts a “lower” revenue income in the FY of 2019 affected by the “regulatory changes” concerning the E.U. and the U.K.
 
Nevertheless, amid regulation’s proposed uncertainty, IG and other firms report a growth in the revenue, whereby signing up “record numbers of customers”, which could partly be attributed to the digital currency boom.
 
Investec thinks that the said changes could slash down its “2019 revenue estimates of about 2 percent”, while the analysts at Liberum are expecting “downgrades to consensus estimates for IG’s pretax profit of over 10 percent”.  Even though, CMC thinks that “a reduction in revenue would be immaterial for the group” while it also said that the “margin changes” could impact the trading of the clients.
 
 
References:
reuters.com







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