Imposing binary options ban is not simple: Industry questions Quebec’s plans

In February this year, Quebec’s financial markets regulator AMF has sought to introduce amendments to the Canadian province’s Derivatives Regulation, with the list of proposed changes including a ban on the offering binary options with duration of less than 30 days to Quebec residents.

FinanceFeeds has already informed its readers about the response of the Investment Industry Association of Canada (IIAC) to the proposed changes – the Association opposed the introduction of an outright ban and instead suggested that binary options remain on the offer list of companies authorized by Canada’s regulators.

As more responses have been added to the Comments section, we have decided to review these too. It turns out that introducing a binary options ban is not a simple change to execute.

One of the main issues raised by the proposed changes is the scope of the ban. As expected, Exchanges demand certainty that the ban (if there is one) will not apply to exchange-traded products. This is underlined by the stance of TMX Group. Although the Montréal Exchange (MX) and Canadian Derivatives Clearing Corporation (CDCC) support the AMF intentions to enhance investor protection, they suggest that it is possible to achieve these objectives by reducing the scope of the proposed prohibition so that offering of products via an exchange authorized in Quebec shall not be prohibited.

TMX invites the AMF to consider the positive example provided by the United States, as a jurisdiction which permits the offer of binary options to investors via exchanges regulated by the US authorities.

A similar stance is expressed in the comment of the Canadian Market Infrastructure Committee (CMIC), which suggests to the Quebec regulator to add language to clarify that the proposed prohibition does not apply to exchange-traded transactions.

CMC Markets has also voiced its opinion on the proposed changes. In a letter submitted on behalf of CMC Markets Canada Inc. and CMC Markets UK PLC. (together “CMC Markets”), the company says it does not believe that an outright ban on binary options would be the best way to protect Quebec investors. The broker explains that prohibiting a product already being offered illegally in Quebec will only encourage those Quebec residents who wish to trade binary options to open accounts and / or continue trading with unregulated offshore providers. The company cautions that as a result of such a ban, binary options trading by Quebec residents will continue without any of the formal protections offered by dealers regulated by the AMF and IIROC.

CMC asks the AMF to consider permitting the offering of regulated binary options to Quebec residents by an authorised supplier and urges for greater clarity within the amended regulation regarding the conditions that have to be satisfied in order for a company to be permitted to offer binary options in Quebec.

One thing is clear – the responses to the proposals indicate that the industry is not ready to give up on binary options. However, this is the business side of the matter – none of the documents reflects the stance of clients of binary options firms or of investors in general. It is obvious that changes are necessary but, given the stance expressed in the comments, it is also apparent that Quebec’s AMF is facing pressure not to implement any drastic changes to the derivatives regulations.

In the announcement accompanying the opening of the consultation in February this year, AMF President and CEO Louis Morisset said: “Binary option platforms generally promise fast profits which are not paid out to investors. They’re run by people who are acting illegally and embezzling victims’ funds”.

We are curious to see whether the regulator will stick to this harsh stance or will resist imposing a ban on binary options.