Majority of FX, binary options brokers in CFTC RED List remain active

Maria Nikolova

CFTC warnings can hardly make registration-deficient brokers budge, FinanceFeeds’ check of the RED List has shown.

US financial regulators are considered as some of the strictest in the world, imposing harsh restrictions on the online trading industry in the United States.

Issuing warnings against unregulated binary options and FX firms in Europe has had negligible impact on the activities of such entities, as a recent check by FinanceFeeds has shown. And yet, we were curious to see whether a stricter regulator like the United States Commodity Futures Trading Commission (CFTC) would be more convincing when issuing warnings against suspicious online trading companies.

To find out whether the CFTC is more successful in tackling illegal activities of FX and binary options brokers that target US residents, FinanceFeeds examined the Registration Deficient (RED) List composed by the CFTC.

The RED List includes the names of investment companies – mainly binary options and FX brokers, for which a preliminary review by the CFTC has revealed that they solicit and/or accept funds from US residents at a retail level, have no or limited US presence, and act in a capacity that requires registration, but are not in fact registered. The RED List is in its essence a warning list, which currently contains 40 names.

FinanceFeeds’ check has shown that the inclusion in the RED List has had a little effect on the activities of most of these companies.

About 38% of the total, or 15 brokers, are not active. This is a very low rate, given that the number stood at 80% for the binary options blacklist of France’s financial regulator AMF. This means that some 62% of the companies on the RED List are still operating.

What can we say about the operations of these brokers? Do they still target US residents, even after being included in the RED List?

A couple of companies have decided to put a disclaimer on their website that they do not solicit US traders. Which is just a cover-up, as the account opening form includes the option for US residents to register and trade. Another approach is to exclude the United States from the list of countries when opening an account but to leave jurisdictions like Virgin Islands US.

At least 14 entities (35% of the total) still openly accept US residents as their clients – that is, the inclusion in the RED List has had absolutely no effect on their activities.

A typical technique used by many of the companies in the RED list is to make registration complex – this does not equal “secure”. It is just a way of getting more data from a customer before he/she actually gets an account. While binary options targeting European customers are putting the “open an account” button at the top spot of their websites, to easily lure investors, the entities included in the RED List are to a degree hiding the account registration form. This is a way to hide information about what sort of clients they accept.

Under the Commodity Exchange Act (CEA) and US CFTC regulations, since October 18, 2010, an entity that solicits or accepts orders from US customers in connection with Forex transactions must register with the CFTC and comply with rules and regulations, including (inter alia) minimum capital requirements and record-keeping. Putting it otherwise, even an overseas-registered business that targets US residents should have the necessary registration with US regulators.

OTC binary options trading is prohibited in the United States and overseas companies cannot offer such services to US residents either.

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