August 24, 2018 / 6:47 AM / 8 months ago

EU extends ban on sale of 'binary' options to retail customers

LONDON (Reuters) - The European Union’s securities watchdog has renewed a ban on the sale of ‘binary’ options to retail customers for a further three months starting Oct. 2, saying there are still concerns about the risks of the products.

The European Securities and Markets Authority (ESMA) started the ban on July 2 amid concern about losses made on the options, which give an investor exposure to price movements in securities without actually owning the underlying assets.

“ESMA considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist,” the regulator said in a statement.

ESMA said certain longer-dated binary options would be excluded from the renewed ban, as well as those where the investor’s capital is not at risk.

ESMA has said it is concerned about how these inherently high-risk speculative products are offered to retail investors, potentially leading to significant losses, and in December flagged plans to ban their sale, sending shares of spreadbetting firms tumbling.

The main providers whose shares have been hit by the ban include IG Group (IGG.L) and CMC Markets (CMCX.L).

Analysis on trading in the EU shows 74-89 percent of retail accounts typically lose money on their investments, with average losses per client ranging from 1,600-29,000 euros ($1,830-$33,167).

ESMA will have to have to renew the ban in a further three months or it will automatically expire.

($1 = 0.8744 euros)

Reporting by Lawrence White; Edited by Mark Potter

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