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IOSCO Consults on Protective Measures for Investors in OTC Leveraged Products

27 February 2018

The International Organization of Securities Commissions (IOSCO) has issued the consultation report, Report on Retail OTC Leveraged Products (Consultation Report). The Consultation Report proposes policy measures for its member organisations to consider when addressing the risks arising from the offer and sale of certain over-the-counter (OTC) leveraged products to retail clients. The comment due date is 27 March 2018.

Retail investors use OTC leveraged products to speculate on short-term prices or for hedging. These products are traded over the counter and through online trading platforms through marketing campaigns that often are aggressive or misleading. The pricing, settlement, and trading terms are not standardised. Trading in these products is risky, and, according to several studies, a large majority of retail investors in these complex products lose money.

The Consultation Report encourages IOSCO members to improve the practices of licensed firms that offer OTC leveraged products, better inform investors about product features and investing risks, and more effectively combat illegal cross-border activity in trading in these products.

The Consultation Report proposes a licensing requirement for all firms that sell the relevant products to retail investors either domestically or on a cross-border basis. It also proposes measures that would:

  • Provide leverage limits and minimum margin requirements
  • Address the risk of investors losing more than their initial investment
  • Enhance disclosures of costs and charges of the products
  • Improve disclosure of risks of the products, including profit and loss ratios  
  • Enhance the quality of pricing and order execution
  • Restrict the sale, distribution and marketing of the products.

The Consultation Report is available here.

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