Over the course of the past year, CySEC (Cyprus Securities and Exchange Commission) has proposed and implemented a number of changes to the regulations associated with binary options trading.
Many of these work to address issues within the industry, with the goal being to control pricing and trade execution problems.
It is important the both traders and affiliates are aware of not only the existing changes, but also proposed changes that may come to fruition.
Where are Changes Taking Place?
Financial regulators from around the globe have had their sights set on the binary options industry for quite some time, with many criticizing the lack of trader security and comparing binary options trading to gambling.
As such, there have been several initiatives that are intended to implement stricter rules or even to completely ban the financial instrument. Following CySeC’s initial announcements, the UK’s Financial Conduct Authority (FCA) put similar rules in place. There are only some regulated UK binary option brokers.
Both Belgium and France have taken drastic measures to limit binary options, Forex and CFD related advertising. The Netherlands and Germany announced that they also are considering similar advertising bans.
These advertising restrictions are to limit the number of binary option scam marketing material. Israel has already enforced a ban on binary options trading living within the country, but are said to also be considering a ban on advertising to customers elsewhere.
This type of move could cause a major disruption for brokers who have their call centers based in Israel.
Impact of Regulation Changes on Brokers
Most binary options brokers offer only simplistic trades and trading platforms. Most offer an up/down selection of price movement on the asset, which means that a trader would simply select their prediction of upcoming price movement, an expiry time, and investment amount.
Now, standardized contracts may become the norm and this will be a challenge for brokers who do not have the necessary trading platform. These types of changes are likely to push broker operations offshore.
The negative impact of certain changes on the industry is becoming quite clear. OptionBit, a popular broker, decreased its EU staff after one round of strict regulations was announced.
OptionBit falls under the binary option regulations of CySec. OptionBit is not the only broker to be impacted by these decisions.
OptionRally, which is also a regulated binary broker, has now laid off the majority of its employees in Israel. Banc de Binary, which many recognize as being one of the first brokers to become licensed, has now gone out of business, in large part due to not being able to comply with stricter guidelines.
What are the Exact Changes to Regulations?
CySEC has in the past made other major changes to its regulations, which may claim have made it more difficult for binary options and Forex brokers to remain in perfect compliance. A total ban on deposit (and other) financial bonuses was announced, as was as a lower default cap on leverage amounts for Forex and CFDs.
These types of changes were implemented in response to plans made by the ESMA (European Securities and Markets Authority) to completely overhaul regulations in the industry.
Among the most important changes would be that a binary options contract would include both a bid and ask. The former system made use of a random price that was only loosely related to an actual underlying asset.
Broker price feeds can come from outside sources, or have even been proprietary in the past. Now, there will be rules that must be followed with regards to where a broker’s platform price feed will come from.
Other new regulations will allow traders to exit a trade before the expiry period has concluded. This change is one that some brokers had begun to implement in advance (offering a “sell” option in their platform.
For others, the change requires changes to software to bring trading interfaces up-to-date. Another major change involves expiry times. Many brokers offer 60-second expiry times, and some have offered expiries that were even shorter.
CySEC regulations limit the shortest expiry period to 5 minutes. However, binary Options brokers will retain plenty of options for expiry times which exceed this minimum.
What is the Future of Binary Options Trading?
Opinions on the topic seem to vary. While many feel that these changes present a positive path forward for the binary options industry, others feel that they should have been implemented long ago.
One thing is for certain – it has been an uphill climb for brokers who work to maintain an excellent reputation. For the sake of those brokers, affiliates, and the traders who truly need to supplement their income through trading binary options, it would be wonderful to see the industry not only recover, but also thrive once again.
