CySEC Accounces Plans to Regulate Binary Options Brokers

BinaryOptionsNow | Published on May 6, 2012 at 11:55 am

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BinaryOptionsNow – Following months of speculation that the Cyprus Securities and Exchange Commission (CySEC) was planning to commence regulating binary options brokers, on Friday, May 4th the financial regulatory body unveiled its plans to begin doing so in the near future.

Binary options, which CySEC had not as of last week considered as financial instruments, will now be categorized as such under the organization’s rubric. To be precise, CySEC has now included binary options in the category of financial instruments which are covered by the Investment Services and Activities and Regulated Markets Law of 2007-2009. This lays the ground for introducing binary options regulation in the near future.

This announcement has the potential to shake up and recast the entire binary options trading market and change the way it works and the rules it follows. Financial companies providing binary option trading services will now have to obtain a license and traders themselves will most likely seek to ensure that their broker is properly licensed.

Previous Stance

Binary options are new instruments that bring a novel approach to trading instruments like forex, stocks, commodities, futures and other instruments. As these instruments were quite different from existing financial instruments, they weren’t regulated by any central organization.

However, the increased popularity of binary options caught the attention of CySEC and after several months of deliberation, they have finally decided that binary options can be classified as financial instruments under existing laws. This obliges financial companies to obtain licenses to continue providing regulated binary trading services.

What This Means

Financial companies offering binary option trading services and traders are the two parties most affected by this decision. This change in CySEC’s stance means that companies or persons who want to continue offering binary trading will have to become regulated binary brokers by obtaining a CIF (Cyprus Investment Firm) license from CySEC if they don’t already hold one. For companies or persons who hold the CIF license and provide binary option trading services under the category of ‘other business’ will have to get their licenses amended accordingly. These firms will have to further indicate whether the traded instrument should be categorized as per paragraph 4 or 5 or 6 or 7 of Part III, Appendix 3 of the above mentioned law.

The companies or persons who don’t currently hold a CIF license but are providing binary option trading services will have up to 15 days from the date of this announcement to notify CySEC of their intension to submit an application for the license. They also have a maximum of six months from the date of this announcement to actually submit the application required to obtain a CIF license.

Entities who aren’t interested in offering services for regulated binary trading as regulated binary brokers and entities who don’t notify CySEC of their intention to submit the above mentioned application for a CIF license are obliged to stop providing trading services for binary options within a maximum of 30 days from the announcement date. Non compliance of these requirements would result in a breach of section 4 of the concerned law.

CySEC has made it abundantly clear that companies can continue offering regulated binary trading services only after they obtain the CIF license. Pursuant to these requirements, CySEC has asked all investors and traders to be cautious about whom they trade with and ensure that they trade only with entities holding a valid CIF license for binary options trading.

Future of Binary Options

Given that Cyprus has a lot of investment companies and trading startups due to low tax rates and a favorable investment climate, it is likely that trading companies will start bracing and preparing themselves for increased binary options regulation. As CySEC has been a pioneer in trading regulation and that other regulators around the world tend to follow suit, there is growing speculation that CySEC’s UK counterpart, the FSA is likely to take similar steps to start regulating binary option trading.

The current rules of the FSA don’t classify binary options as financial instruments and treat binary options trading as a gaming activity similar to betting, even though CySEC’s Australian counterpart ASIC has made the decision to regulate binaries and is currently the regulator for IG Markets’ binary trading services. It is important to note, however, that even CySEC had been denying the likelihood of regulating binary option trading until it surprised everyone with the announcement. It seems it’s only a matter of time now before regulators over the world start classifying binary options as financial instruments as start regulating them.

Apart from the changes this will bring in the options trading market, it is likely to help traders as more regulation generally means better safety for the traders’ money. Once the dust settles down, binary options might become just another financial instrument which would be traded like the other instruments.

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