What is the ESMA (European Securities & Markets Authority)?


ESMA, the European Securities and Markets Authority, ensures stability in the European financial system, safeguarding investors and maintaining market stability independently within the EU.

Let us elaborate on the application of the European Securities and Markets Authority and how they are helpful in providing the investors a stable ground for trading while protecting the market and keeping everything stable and sound.

ESMA in a nutshell

  • ESMA ensures stability in EU’s financial system, protecting investors independently.
  • Collaborates with NCAs and European authorities, assessing risks and promoting convergence.
  • Its objectives include protecting investors, maintaining orderly markets, and ensuring financial stability.
  • ESMA banned binary options trading temporarily from July 2018 due to concerns.

How does the ESMA work?

The ESMA works closely with the NCA and European Supervisory Authorities to work over the financial sectors in the banking and insurance field. They are responsible for assessing the risks that an investor could face, market risks as well as the stability of the finances.

They create a rule book specific to the European Union’s financial markets and promote supervisory convergence as well. ESMA even supervises the credit rating agencies, creating security for repositories and trade repositories.

Their activities or missions or objectives are all closely linked, as the insights that are found after risk assessment help in the work of creating the rule book. Along with that, it also helps in the supervisory convergence and supervision as well. The single rule book is known to bring supervisory convergence to become the main result of the implementation and application of the book. People who benefit from this are the CRAs and TRs.

What are the main objectives of the ESMA?

The main objectives of the ESMA include protection of investors from fraud and securing financial stability. Let’s take a deeper look:

  • To protect the investors from harm and to protect their companies from any risk of bankruptcy.
  • To have orderly markets so that stable markets can give a good arena for investors.
  • To have financial stability and partake of any financial risk without the problem of losing it.

The securities market, as well as financial entities like CRAs, or credit rating agencies, must comply with the authority as they rule over these agencies. However, security markets also have the ESMA as the primary regulator throughout the European Union. This goes to show that the European securities and the Market Authorities are known to craft and create the legislation for these agencies and also implement them.

The ESMA also protects investors from any risky companies and their acts. It goes through a risk assessment process to avoid any potential crash to the company and also protect the investor from harm as well.

What’s the history of ESMA?

The European Securities and the Market Authorities were found from the recommendation of the de Larosiere report that talked about establishing the European System of Financial Supervision (ESFS). The ESFS was known to exist as a decentralized network in the year 2009. Their operation started with the founding regulations on the 1st of January in the year 2011.

They also replaced the European Securities Regulators’ committee, which is a network of NCAs promoting the supervision of the European Union consistently. Also, they extended sound advice to the European Commission as well.

How does the ESMA regulate Binary Options?

In July 2018, the ESMA took action to temporarily ban binary options trading due to concerns about the rapid proliferation of traders lacking adequate understanding. Many struggled with basic concepts such as market analysis and fund management, leading to significant losses.

The ban, initially slated for three months, was extended multiple times to ensure continued safeguarding:

  • Initially from July 2nd, 2018, to October 2nd, 2018.
  • Followed by a second ban until January 1st, 2019.
  • Subsequently, a third ban was enforced until April 1st, 2019.
  • A subsequent ban was initiated on February 18th, 2019, halting binary options trading activities.
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About the author

Marc Van Sittert
Marc Van Sittert is an experienced Binary Options Trader and coach who is originally from South Africa. He started his career in 2014 by trading old-school Binary Options online. His main focus is on short-term contracts with 60-second trades.

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