(Reuters) - Britain's financial watchdog said it will permanently ban the sale of complex derivative products to retail customers from Tuesday to protect them from large and unexpected trading losses.
The Financial Conduct Authority's (FCA) permanent ban on the sale of binary options to retail consumers is similar to a temporary retail ban the European Securities and Markets Authority (ESMA) has in force across the European Union.
ESMA also has temporary curbs on contracts for difference (CFDs).
Regulators have expressed concern about how these inherently high-risk speculative products are offered to retail investors, potentially leading to significant losses.
Binary options allow people to bet on whether the price of a share, currency or index will go up or down within a certain timeframe. CFDs give an investor exposure to price movements in securities without owning the underlying asset.
The FCA ban goes further by including so-called securitised binary options, which are no currently sold in or from Britain. The watchdog said it wants to prevent a market being developed.
(Graphic: CMC Markets and rivals face tighter regulation png, https://tmsnrt.rs/2UYExc5)
The FCA estimates https://www.fca.org.uk/news/statements/fca-confirms-permanent-ban-sale-binary-options-retail-consumers the permanent ban on binary options could save retail consumers up to 17 million pounds per year, and may reduce the risk of fraud by unauthorised entities claiming to offer these products.
"Binary options are gambling products dressed up as financial instruments. By confirming our ban today we are ensuring that investors don't lose money from an inherently flawed product," Christopher Woolard, Executive Director of Strategy & Competition at the FCA, said.
(Graphic: CMC Markets and rivals face tighter regulation png, https://tmsnrt.rs/2UZ5In4)
The main providers whose shares have been hit by the crackdown include IG Group, Plus500, and CMC Markets.
(Graphic: UK online trading platforms feel pinch from regulation, low volatility, https://tmsnrt.rs/2Wz2R4v)
Interactive graphic https://tmsnrt.rs/2V4PeK6 on CMC Markets Revenue Per Client.
Interactive graphic https://tmsnrt.rs/2V30I0J on CMC Markets earnings.
(Reporting by Noor Zainab Hussain in Bengaluru, editing by Louise Heavens)