Quebec’s binary options ban plan faces opposition

Maria Nikolova

The IIAC proposes that binary transactions are allowed in Canada through regulated firms.

In a weird move, the Investment Industry Association of Canada (IIAC) has thrown its weight behind binary options, saying these are not problematic by themselves and offering of these products should be allowed via regulated companies.

The least to say, the stance is strange. It is voiced as Canada’s provincial regulators are reporting increased losses suffered by Canadian investors as a result of the activities of binary options firms. There was even a horrid case when a 61-year old man of Alberta put an end to his life, after having lost a significant sum reportedly due to the activities of binary options firm 23traders. Canadian securities regulators have been issuing warnings and are even composing songs to get the message of the dangers of investment fraud to Canadians.

In the face of all these efforts, the IIAC came up with a stunning response to Quebec’s plans to curb the offer of binary options. You may recall that in February this year, the financial markets authority AMF of Quebec announced plans to amend the Canadian province’s Derivatives Regulation in order to formally prohibit the offering of specific kinds of binary options to Quebec investors. Interestingly, Quebec’s regulator stopped short of introducing a blanket ban on offering of all kinds of binary options. Instead, its proposals envisage a ban on binary options with expiries of less than 30 days. Nevertheless, compared to simple issuing of warnings, Quebec’s actions were seen as rather radical. Obviously, they are seen as too radical by some, including the IIAC.

In its comment to the Consultation, opened by Quebec’s AMF, the IIAC states that binary options are not the problem, per se, but fraudulent and unregulated businesses offering binary options are.

Although this claim may seem sensible, it omits a couple of simple facts – that binary options are in their essence very close to gambling and, thus, imply higher risk of losses than other financial instruments. Furthermore, it is binary options per se that are so easy to exploit by all sorts of companies, including fraudulent ones. In addition, there must be a reason why jurisdictions like Japan prohibit trading in certain types of binary options (including ones with short-term expiries) and why Cyprus is also looking to reform binary options regulations, including banning the offer of binary options with duration of less than 5 minutes. So, binary options could be problematic per se.

The solution that the IIAC outlines is startling: let’s allow brokerage firms regulated by the Investment Industry Regulatory Organization of Canada (IIROC) to be registered to offer binary options to investors.

This would not have been so outrageous if we had not considered how useless this approach has been in many other jurisdictions. France keeps updating its blacklists and cannot put an end to binary options fraud, whereas Italy’s Consob recently admitted that it is helpless when it comes to fighting this types of scams. And Italy was amid the first to ban certain binary options websites.

Of course, the important thing is whether Quebec will take into account the IIAC’s comment.

The IIAC is Canada’s national association of the securities sector. It represents 132 members, which are brokerage firms regulated by the Investment Industry Regulatory Organization of Canada (IIROC).

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