Spread betting firms rocked by EU crackdown

19 December 2017

Spread betting firms saw their share prices plummet after the European Union’s financial regulator announced a crackdown on binary options and contracts for difference.

The Paris-based European Securities and Markets Authority (ESMA) said on Friday it was considering a ban on the marketing, distribution or sale to retail clients of binary options. The body fears the products are too risky for amateur speculators.

ESMA is also considering imposing leverage restrictions and a guaranteed limit on client losses relating to contracts for difference (CFD) among retail clients.

Plus500’s share price fell by 17% on Monday, with CMC down almost 14% and IG Group falling more than 12%.

In a statement the regulator said: “ESMA remains concerned that the risks to investor protection are not sufficiently controlled or reduced.”

The Reuters news agency reported earlier this year that almost 700 people reported losing a total of more than £18m (€20.1m/$23.6m) on binary options scams in the first six months of this year.

The regulation of binary trading will switch from the Gambling Commission to the Financial Conduct Authority (FCA) from January 2018. The FCA has been pushing for stronger regulations over binary options trading and CFD products for some time.

Countries such as Israel and Belgium have banned binary options trading, while the US requires them to be traded on regulated markets.

Plus500, which does not offer binary options, welcomed the “strong regulatory framework that this will bring to the industry”. IG said it “seeks to only accept clients who understand the risks involved with its products and how they operate”.

Related article: FCA pledges to regulate binary options after scams