European Securities and Markets Authority Decision (EU) 2018/2064 Article 1: Temporary prohibition on binary options in respect of retail clients

Article 1 - Temporary prohibition on binary options in respect of retail clients

Article 1

Temporary prohibition on binary options in respect of retail clients

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1. The marketing, distribution or sale to retail clients of binary options is prohibited.

2. For the purposes of paragraph 1, irrespective of whether it is traded on a trading venue, a binary option is a derivative that meets the following conditions:

((a))

it must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

((b))

it only provides for payment at its close-out or expiry;

((c))

its payment is limited to:(i)a predetermined fixed amount or zero if the underlying of the derivative meets one or more predetermined conditions; and(ii)a predetermined fixed amount or zero if the underlying of the derivative does not meet one or more predetermined conditions.

((i))

a predetermined fixed amount or zero if the underlying of the derivative meets one or more predetermined conditions; and

((ii))

a predetermined fixed amount or zero if the underlying of the derivative does not meet one or more predetermined conditions.

3. The prohibition in paragraph 1 does not apply to:

((a))

a binary option for which the lower of the two predetermined fixed amounts is at least equal to the total payment made by a retail client for the binary option, including any commission, transaction fees and other related costs;

((b))

a binary option that meets the following conditions:(i)the term from issuance to maturity is at least 90 calendar days;(ii)a prospectus drawn up and approved in accordance with Directive 2003/71/EC of the European Parliament and of the Council(9)is available to the public; and(iii)the binary option does not expose the provider to market risk throughout the term of the binary option and the provider or any of its group entities do not make a profit or loss from the binary option, other than previously disclosed commission, transaction fees or other related charges.

((i))

the term from issuance to maturity is at least 90 calendar days;

((ii))

a prospectus drawn up and approved in accordance with Directive 2003/71/EC of the European Parliament and of the Council⁹is available to the public; and

((iii))

the binary option does not expose the provider to market risk throughout the term of the binary option and the provider or any of its group entities do not make a profit or loss from the binary option, other than previously disclosed commission, transaction fees or other related charges.

9 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC ( OJ L 345, 31.12.2003, p. 64 ). ↩