IOSCO: policy measures to protect investors of OTC leveraged products

Set 20 2018

The Board of the International Organization of Securities Commissions (IOSCO) today issued a final report providing measures for securities regulators to consider when addressing the risks arising from the marketing and sale of OTC leveraged products to retail investors.

Simultaneously, the Board issued a public statement on the risks of binary options and the response of regulators for mitigating the risks and harm to retail investors transacting in these products. The Report on Retail OTC Leveraged Products includes three complementary toolkits containing measures aimed at increasing the protection of retail investors who are offered OTC leveraged products, often on a cross-border basis. The report covers the marketing and sale of rolling-spot forex contracts, contracts for differences (CFDs) and binary options.

The toolkits set out guidance for regulators on:
• Policy measures that can help to address the risks arising from the marketing and sale of OTC leveraged products by intermediaries;
• Educating investors about the risks of OTC leveraged products and the firms offering them;
• Enforcement approaches and practices to mitigate the risks posed by unlicensed firms offering the products

Retail investors typically use these products to speculate on the short-term price movements in a given financial underlying. Typically, the products are offered through online trading platforms often through aggressive or misleading marketing campaigns. Most retail investors trading in these complex products lose money.

The measures in the three toolkits draw largely on IOSCO members’ experiences and practices. The report also includes various policy, educational and enforcement initiatives that IOSCO members have taken to specifically address unauthorized cross-border and online offerings of OTC leveraged products.

The initiatives are intended to serve as useful guidance to IOSCO members as they consider their approaches to address the risks arising from the marketing and sale of OTC leveraged products to retail investors. The policy, enforcement and educational measures included in the report are complementary and should be seen as part of a holistic approach to addressing the risks of the relevant products.

Report on Retail OTC Leveraged Products (PDF)


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