The Authority for the Financial Markets (AFM), the Dutch financial regulatory body, has launched a consultation on the ban on advertisement of risky investment instruments, such as binary options, contracts for difference (CFDs), futures and warrants. The regulator emphasizes on the harm caused by instruments with leverage of 10:1 or higher.
Consumers can lose money quickly when trading in the above-listed instruments, which the AFM calls “toxic”. Long-term investment does not yield good profits, either. The regulator’s move is an important step in the fight against harmful financial products to which retail consumers are exposed, it noted.
The band will affect the following instruments:
- Binary options
- CFDs with a possibility of residual debt
- CFDs with a leverage of 10:1 or higher
- Turbochargers with a leverage of 10:1 or higher
- Futures with a leverage of 10:1 or higher
The AMF pointed that it has selected the instruments that are to be subject to the advertising ban after consulting with market participants and other European regulators. One of its concerns is that these instruments are offered from abroad. However, the adoption of various measures by the different European regulators would limit the aggressive advertising of such instruments.
In September last year, the Dutch finance ministry announced intentions to restrict advertising of risky instruments. The AMF will consult with the finance ministry, but it urges market participants to express their opinions on the proposed ban no later than 3 April.
Other regulators are also taking similar steps
Other EU countries have also been heavy on the industry. 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, Germany has also announced it considers the ban on the advertising of such instruments.
The Cypriot regulator, CySEC, has also been tightening the rules on binary options. Just recently it proposed the introduction of standards for binary options trading.
Israel has banned trading in binary options and is drafting a legislation which would enable it to shut down entities that solicit customers abroad. Currently its authority is limited to the country’s borders. Many EU regulators have been inciting the Israeli regulator to be stricter in its policies regarding binary options.
Meanwhile, in the US trading in such instruments is restricted to on-exchange execution only (via Nadex or Cantor Exchanges). In Canada, 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 province in the country to consider a full ban on this type of instruments.