Canadian Securities Administrators propose prohibition of binary options

Maria Nikolova

The proposed rules will explicitly prohibit advertising, offering, selling or otherwise trading a binary option to an individual.

Canadian regulators have made a radical move concerning binary options: today the Canadian Securities Administrators (CSA), an organization which has amid its members the securities regulators from 10 Canadian provinces and 3 territories, has published a proposal to prohibit binary options.

The proposed instrument 91-102 aims to protect investors from becoming victims of binary options fraud and from becoming victims of the illegal promotion of what the CSA sees as an extremely high-risk product. Let’s note that the Proposed Instrument outlines a rather wide definition of “binary option”. The ban will apply to binary options, regardless of the specific name. This means that the prohibition will cover (list is not exhaustive) “all-or-nothing options”, “asset-or-nothing options”, “bet options”, “cash-or-nothing options”, “digital options”, “fixed-return options” and “one- touch options”.

The Proposed Instrument prohibits advertising, offering, selling or otherwise trading a binary option with or to an individual. To prevent avoidance of the prohibition by having a client create a corporation or other type of entity to trade binary options, the Proposed Instrument also prohibits advertising, offering, selling or otherwise trading a binary option with or to or any other person or company that is created, or is primarily used, to trade a binary option.

Importantly, the CSA notes that non-fraudulent binary options pose significant risks to individuals too.

What about Quebec? As FinanceFeeds has already informed its readers, in February this year, Quebec’s securities regulator AMF proposed a binary options ban. The Proposed Instrument is in line with that set out in the AMF Proposal, the CSA said. The AMF is now considering withdrawing the AMF Proposal and instead recommending the adoption of the Proposed Instrument. We are curious to see whether the CSA proposal triggers the same opposition as the AMF proposal.

The Proposed Instrument is now open for comments. The public comment period expires:

  • May 29, 2017 in Alberta and Quebec,
  • June 28, 2017 in Manitoba and Saskatchewan,
  • and July 28, 2017 in all other CSA Participating Jurisdictions.

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