Cyprus Bailout Looms Large Over FX and Binary Brokers

BinaryOptionsNow | Published on March 21, 2013 at 10:33 pm

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BinaryOptionsNow – Possibly the most important news that hit the media these days is the Cyprus bailout situation in which the Cypriot government attempted to levy a tax on all bank deposits in the country. The levy would have been necessary in order to allow the European Union and IMF to send a bailout package to the country in order to prevent Cypriot banks from going bust.

The law proposal to implement the levy however failed, as such, the situation of Cyprus banks is at this moment still uncertain. This event has a great influence on the global binary options as well as forex businesses due to the fact that a large number of online trading brokers are registered and located in the country.

What Led Up to the Situation in Cyprus?

Industry observers agree that due to the recent financial crisis as well as the faulty management the Cypriot government, the economy of the small island nation reached near collapse. In order to save itself, the country requested a bailout package from the European Union. The total bank bailout program would have needed 17 billion Euros.

The European Union and the IMF would have supplied 10 billion Euros, however, the remaining assets would have been Cyprus’ task to gather. The EU and IMF only agreed to deliver the 10 billion if the Cypriot government would have been able to raise around 5.8 billion Euros by implementing a one-time-only tax on bank deposits.

According to the law proposed by the Cypriot president Nicos Anastasiades, bank account holders with assets less than 100,000 Euros would have been taxed with 6.75% while account holders with assets above 100,000 Euros would have been taxed with 9,9%.

The law proposal was however defeated by the end of the day of March 19th, leaving the country’s and its banks’ fate uncertain. This means that all companies currently located in the country – including binary options brokers – risk of losing all of their assets in case the country won’t manage to secure a new bailout deal or financial aid soon.

Effect on the Binary Options and Forex Industry

Initially, brokers and traders were under the risk of losing a significant portion of their assets if the bank deposit levy would have been implemented. However, the proposal to implement this levy was defeated by the Cypriot Parliament yesterday. Unfortunately, the country’s financial situation is still as bad as before.

There are basically two types of brokers located in Cyprus. The first ones are those that are legally registered in the country for taxation purposes but keep their bank accounts elsewhere in more secure jurisdictions such as the United Kingdom or Switzerland. The second category is those that are both registered and also have their bank accounts in Cyprus.

In regards to those that are in the first category absolutely nothing will happen from a financial perspective. These brokers will in the future however relocate from Cyprus, most likely to the jurisdiction their bank accounts are located in. From traders’ end this process will be unnoticeable.

However, those brokers that have their bank accounts in Cyprus risk of losing all of their assets and go bankrupt in case Cyprus won’t manage to fix its internal problems soon. At this moment it’s not certain which are those brokers that exclusively have their bank accounts in the country.

The overwhelming majority of Cyprus-licensed brokers claim that their keep their assets or part of their assets outside of Cyprus. If this is indeed true, then no matter what happens in Cyprus, traders and their assets will remain safe. However some observers speculate (without any concrete evidence) that this might not be entirely true and many brokers still keep their assets in Cyprus.

What’s the Most Likely Outcome of the Situation?

Many experts believe that it’s unlikely that Cyprus will be left to its fate by the European Union or by some other international power. At this moment, the Cypriot government is negotiating with Russia in order to receive the necessary funds to save its banking system. The negotiations with Russia may also put a pressure on EU officials to offer Cyprus a more advantageous bailout deal.

In the end, it’s likely that the country will either receive an aid package from Russia or the EU/IMF. In this case, the country’s financial crisis will be averted in the short term but the real problems might not entirely be solved and the country might end up in a similar situation in a few years.

However, this would allow binary options brokers and forex trading brokers to leave the country and relocate to a safer jurisdiction such as the UK or Malta that at this moment works on a new binary options regulatory framework. From a trader’s perspective, this transition will have almost no consequences at all.

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