Binary Options under fire. After Israel’s ban, Canada also deems it gambling and warns about financial and personal risks
Binary options remains a sensitive subject in the financial arena. Not only exists the question of whether it is or not gambling, but also the rate of complaints of fraud regarding firms offering that service is very high in comparison to other brokers, a subject of discussion which is prevalent across many internet forums. This week, […]
Binary options remains a sensitive subject in the financial arena. Not only exists the question of whether it is or not gambling, but also the rate of complaints of fraud regarding firms offering that service is very high in comparison to other brokers, a subject of discussion which is prevalent across many internet forums.
This week, The State of Israel’s financial markets regulator, the Israel Securities Authority, outlawed retail binary options, citing that it is too similar to gambling, which is illegal in Israel.
The Cyprus Securities and Exchanges Commission (CySEC) is currently the only European authority providing regulation to the retail off-exchange binary options sector, but under the MiFID rules binary options firms in that jurisdiction get access to the broader market of the EU. While the UK oversees binary options operators through the Gambling Commission, the Financial Conduct Authority (FCA) conducted a consultation, to be made public in 2016, regarding a transition of the service to financial product, and aligning the UK with the rest of the EU.
Other countries are also licensing binary options firms, such as Japan which has done so since late 2013. The Financial Futures Association of Japan (FFAJ) requires brokers to have minimum expiration time requirements, classic binary options, no deposit bonuses and test for new traders. Under Australian law, more specifically s761D, binary options are regulated as a derivative and should be licensed under ASIC. New Zealand’s FMA also started licensing firms.
However, this week the Israel Securities Authority spearheaded regulatory action that is being picked up by other authorities. FinanceFeeds broke the news two days ago that Israel has decided to outlaw binary options as it deems them similar to gambling, echoing the stance of the United States, that banned all-OTC binary options trading, with all binary options trading being conducted through dedicated NFA-regulated exchanges , those being NADEX and Cantor Exchange.
Back in 2013, the SEC alerted market participants with a document called “Binary Options and Fraud”, saying that “much of the binary options market operates through Internet-based trading platforms that are not necessarily complying with applicable U.S. regulatory requirements and may be engaging in illegal activity”.
“Because of their lack of compliance with applicable laws, if you purchase binary options offered by persons or entities that are not registered with or subject to the oversight of a U.S. regulator, you may not have the full benefit of the safeguards of the federal securities and commodities laws that have been put in place to protect investors, as some safeguards and remedies are available only in the context of registered offerings.
In addition, individual investors may not be able to pursue, on their own, some remedies that are available for unregistered offerings”.
Yesterday, it was time for the Canadian Securities Administrators to issue a public warning regarding binary option which stated: “No business is currently registered or authorized to market or sell binary options in Canada.”
“Binary options are like “bets” on how an asset (currency, stock, etc.) will perform in a limited amount of time – they are “all or nothing” wagers, similar to gambling. However, even when investors see virtual gains, they often cannot access these profits as they don’t exist.”
“Canadians are exposing themselves to the high risk of identity theft and fraud when signing up for these platforms that often request their credit card information,” said Louis Morisset, Chair of the CSA and President and CEO of the Autorité des marchés financiers. “The CSA warns investors that if they deal with these platforms, they risk the threat of thousands of dollars in unauthorized withdrawals on their credit cards and of being stuck with high-interest payments for a non-existent investment”, said the statement.
While cracking down fraudulent OTC binary options operators might take a while, the public image of the product gets increasingly under fire, hurting legitimate businesses and possibly even on-exchange firms.
Photograph: Toronto marina, downtown Toronto, Ontario