ESMA supports Dutch AFM move to restrict Turbos for retail traders
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has issued an opinion on product intervention measures communicated by The Netherlands Authority for the Financial Markets (AFM) for Turbos.
Turbos are high-risk leveraged products with which investors speculate that the prices of the underlying asset, such as a share, an index or a currency, will rise or fall. They are popular with retail traders in certain jurisdictions in Europe. such as The Netherlands and Germany.
ESMA’s opinion concludes that the AFM’s proposed measures are justified and proportionate.
The sale of CFDs is already subject to restrictions that decrease the risks for retail investors. As we reported back in December, the restrictions proposed by the AFM for Turbos are similar to those applying to the sale of CFDs. This concerns three of the five restrictions: a leverage limitation, a mandatory risk warning and a prohibition on incentives offered to trade in Turbos.
The AFM considers that retail investors are currently not adequately protected against the risks of Turbos. Previous research has shown that on average, investors suffer a loss of €2,680 with these risky investments.
Furthermore, ESMA’s opinion encourages all National Competent Authorities (NCAs) to monitor Turbos in their respective markets to assess whether similar risks for retail investors as those identified by the AFM could arise there.
ESMA said that NCAs may take product intervention measures in accordance with Article 42 of Regulation (EU) No 600/2014. At least one month before a measure is intended to take effect, an NCA must notify all other NCAs and ESMA of the details of its proposed measure and the related evidence, unless there is an exceptional case where it is necessary to take urgent action.
In accordance with Article 43 of Regulation (EU) No 600/2014, ESMA performs a facilitation and coordination role in relation to such product intervention measures taken by NCAs. After receiving notification from an NCA of its proposed measure, ESMA must adopt an opinion on whether the proposed measure is justified and proportionate. If ESMA considers that the taking of a measure by other NCAs is necessary, it must state this in its opinion.