ESMA presents a report on market risk: CFD, ICO, binary options

The European Securities and Markets Authority (ESMA), the European Financial Market Supervisory Authority, has published a report on the CFD market, binary options and ICO. The content of the document refers to the risk of these markets in the EU, assessing its level in the period from January to August this year. In the regulator's assessment, the risk remains unchanged from the fourth quarter of 2017 and is high level.

ICO investment with increased risk

According to the authors of the report, the high risk associated with the emergence of new financial products is worrying. The biggest concerns of ESMA are the Initial Coin Offer (ICO), which was previously warned. This time, the regulator makes consumers aware of the risks associated with investing in such products.

Initial Coin Offering sometimes also called IPCO - Initial Public Coin Offering is a startup action aimed at raising capital by distributing some of the funds to people who have decided to support it.

In order not to be indifferent due to the unsatisfactory risk measurement, ESMA decided to introduce a temporary, 3-month prohibition of offering binary options as well as trade restrictions for CFDs. Such decisions are possible after the entry into force of the MiFID II Directive and the MiFIR Regulation, which gave ESMA new powers to product intervention in the European financial market.

The shared report also draws attention to the persistence of a very high level of market risk. These risks are the effect of the re-evaluation of selected assets on the stock exchanges, as well as market uncertainty. In addition, ESMA has decided to increase the operational risk assessment due to the uncertain situation that Brexit will introduce to the market and an increasing number of cyber attacks.

The full content of the ESMA report

Changes on the market from 1 in July

We would like to remind you that significant changes on the binary options market in the form of a distribution ban and marketing come in Europe from 1 on July 2018. After this date, for minimum 3 months, brokers with a European license will have to remove binary instruments from the offer.

More changes await us on August 1. It is then that the new rules applicable on the CFD market will come into force - it will include limiting leverage, introducing a uniform stop-out rule, introducing mandatory negative balance protection and standardizing risk warnings. You can read more about the changes in a separate article HERE.