Italy’s CONSOB becomes latest regulator to attack trading in binary options, spot forex, CFDs

Italy’s CONSOB becomes latest regulator to attack trading in binary options, spot forex, CFDs

CONSOB Italy

Italy’s National Commission for Companies and the Stock Exchange (CONSOB) issued on Monday  a notice, in which it informs investors about the dangers associated with trading in binary options, contracts for difference (CFDs), and rolling spot forex. The regulator referred to such instruments as being “highly-speculative, risky and complex forms of financial investment” and are not suitable for most investors.

CONSOB said it has already taken steps in mitigating trader losses. It has limited direct powers of supervision and/or intervention in relation to intermediaries.

Brokers usually offer such instruments through particularly aggressive commercial practices and misleading advertising messages, and investors accept them without a real understanding and assessment in advance of the effective scope of the risks that this entails, the regulator noted. Moreover, this form of investment can entail losses even much greater than the capital initially invested. For this reason, investors should not trade in such instruments until they start to understand and assess all associated risks.

Such instruments are risky even when trading via regulated brokers

According to CONSOB, over the last few years binary options, spot forex and CFDs have spread more widely in the various EU countries, including Italy. Nearly all brokers offering such instruments in the country either operate via a secondary office in Italy, or are based in any other EU country. Under the EU Markets in Financial Instruments Directive (MiFID), brokers that are licensed in an EU member gain access to the markets in all countries of the European Economic Area (EEA). A MiFID forex broker can lawfully open offices, target clients in, and provide financial services in all member states without having to obtain additional license. However, in most countries they are required to be registered and authorized.

“In Italy, it must be added, the sector is characterized by the presence of numerous abusive subjects, subjects that do not have authorization to operate, that offer contracts over the Internet without however being subject to administrative supervision by the Supervisory Authorities,” the CONSOB said.

Trading in binary options, spot forex and CFDs remains risky even if a broker is licensed and regulated by a reputable authority body. However, risks are even higher with non-authorized brokers. It should be noted that disputes between investors and an EU investment firms without a branch in Italy cannot be taken to the new Arbitrator for Financial Disputes (AFD), set up recently at CONSOB.

Italy joins other EU countries in fighting risky trading instruments

Italy is joining a growing list of countries that are turning against trading instruments they consider risky, binary options in particular. Such instruments have become very controversial recently.

In August last year, Belgium banned the distribution via online channels of over-the-counter (OTC) binary options, spot forex, and CFDs with leverage. France has also banned the online advertising of “highly speculative and risky financial contracts”, such as binary options, forex and CFDs with a leverage greater than 1:5. In addition, the Netherlands and Germany have also announced they consider the ban on the advertising of such instruments.

Israel recently announced it is preparing legislation amendments to address the binary options issue after European regulators raised concerns that the country’s policies regarding binary options are lux and demanded industry across Europe, in Israel included, should be shut down. As a resiult, the Israel Securities Authority (ISA) is drafting a legislation which would expand its authority and enable it to shut down entities that solicit customers abroad, as currently its authority is limited to the country’s borders.

In the US, trading in such instruments is restricted to on-exchange execution only (via Nadex or Cantor Exchanges). Meanwhile, Quebec’s Autorite des Marches Financiers (AMF) recently proposed the prohibition of the sale of binary options to citizens in the province, becoming the first Canadian province to consider a full ban on this type of instruments.

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