Canadian Advocacy Council proposes to regulators to consider OTC Forex restrictions
According to the Council, leveraged foreign exchange over-the-counter products raise the same concerns as binary options and, consequently, they may have to fall within the ambit of the binary options ban proposal.
It has been a while since the Canadian Securities Administrators (CSA) outlined a proposal to prohibit advertising, offering, selling or otherwise trading a binary option with or to an individual. The consultation has now closed in all participating jurisdictions and, thus far, we have been left with the impression that most of the feedback is negative, with the majority of opinions calling for changes to the proposal such as allowing registered companies to offer binary options trading or allowing the offer of certain types of binary options.
However, over the past several days, Quebec’s financial markets regulator AMF, one of the most active regulators pushing for a ban on binary options, has made public other opinions too. These are highly supportive of implementing the ban. Of most interest to us is the opinion of the Canadian Advocacy Council for Canadian CFA Institute Societies (the CAC), which is backing the binary options ban proposal and even goes beyond it, to question the status of OTC Forex offering.
The CAC, whose membership includes portfolio managers, analysts and other investment professionals in Canada, support the CSA’s proposed Binary Option Prohibition and notes that binary options are commonly used as vehicles to commit fraud against individuals, often with no possibility of recovering the funds.
More interestingly, the CAC stresses it is important that the CSA takes this measure in furtherance of the goal to prevent fraud and support better investor protection in the capital markets. The organization queries whether the sale of other such financial instruments to retail investors should also be restricted.
“In particular, instruments such as leveraged foreign exchange over-the-counter products may give rise to the same concerns expressed in the Binary Option Prohibition and consequently we query whether they ought to fall within the ambit of this proposal”, the CAC says.
The opinion goes on to say that the CAC observes that these types of instruments along with their pricing, terms, and other features are equally opaque to the retail investor as binary options are.
The CAC also notes that it is vital to explore the treatment of like instruments in order to ensure clarity and consistency in the capital markets. It refers to a Staff Notice issued by the Ontario Securities Commission (OSC) back in 2009 with regard to the offering of contracts for difference and foreign exchange contracts to Ontario investors. In this Notice, the OSC emphasized the need for registration but did not take any further regulatory action with respect to banning these products. The Notice was in response to concerns that such instruments were being sold to retail investors by unregistered and offshore entities via the Internet. Similar concerns are expressed in the proposed Binary Option Prohibition, the CAC stresses.
The CAC is the single entity to mention OTC FX restrictions in its opinion. We are curious to see whether this single opinion would be sufficient to make the Canadian regulators consider a crackdown on OTC FX products too.