Further to our earlier blog post, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) has taken national measures mirroring ESMA’s product intervention measures. These measures – included in two separate Decrees, one dealing with binary options and the other with contracts for differences (CFDs) – were published in the Dutch Government Gazette on 17 April 2019 and are effective as of 19 April 2019. The national product intervention measures prohibit binary options and restrict the marketing, distribution or sale of CFDs to retail investors in and from the Netherlands.
According to the Decree prohibiting binary options, irrespective of whether it is traded on a trading venue, a binary option is a derivative that meets the following conditions:
- 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;
- it only provides for payment at its close-out or expiry; and
- its payment is limited to:
- a predetermined fixed amount or zero if the underlying value of the derivative meets one or more predetermined conditions; and
- a predetermined fixed amount or zero if the underlying value of the derivative does not meet one or more predetermined conditions.
The prohibition does not apply to a binary option:
- for which the lower amount 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 rates and related costs;
- meeting the following conditions:
- the term from the issuing to maturity is at least ninety calendar days;
- a prospectus drawn up and approved in accordance with Directive 2003/71/EC is made available to the public; and
- 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 of commissions, transaction fees and other related charges.
The Decree containing restrictions on CFDs, the marketing, distribution or sale to retail clients of CFDs is restricted to circumstances where at least all of the following conditions are met:
- the CFD provider requires the retail client to pay the initial margin protection;
- the CFD provider provides the retail client with the margin close-out protection;
- the CFD provider provides the retail client with the negative balance protection;
- the CFD provider does not directly or indirectly provide the retail client with a payment, monetary or excluded non-monetary benefit in relation to the marketing, distribution or sale of a CFD, other than the realised profits on any CFD provided; and
- the CFD provider does not send directly or indirectly a communication to or publish information accessible by a retail client relating to the marketing, distribution or sale of a CFD unless it includes the appropriate risk warning specified by and complying with the conditions in Annex II to the Decree.
The measures are applicable to investment firms based in the Netherlands as well as to investment firms based in other EU Member States which operate in the Netherlands through a branch office or on a freedom of services basis.
It is the first time that the AFM has used the national product intervention powers that were introduced by the recast Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) in early 2018. Unlike ESMA’s measures, the AFM’s product intervention measures are permanent and the AFM is one of the first European regulatory authorities to have introduced these national measures.
View the Decree prohibiting binary options, 17 April 2019
View the Decree containing restrictions on CFDs, 17 April 2019