Japanese Regulator Releases Guidelines for Binary Trading Regulation

BinaryOptionsNow | Published on September 5, 2013 at 8:01 pm

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BinaryOptionsNow – With binary options becoming increasingly popular worldwide, more and more countries decide to implement various regulations and guidelines brokers will have to follow in order to receive an official license by the state. The first country to do this was Cyprus however others are not far behind in this process.

One of the most important and largest binary options markets on the globe is that of Japan. Despite the immense popularity of binary options in the country, so far Japanese regulators have not yet implemented a set of guidelines that will enable brokers to apply for a license.

However, a few months ago the Financial Futures Association of Japan (FFAJ) released a report that will serve as a guideline for a newly created work group in developing the above mentioned regulatory framework. It’s not yet sure when this process will be finalized but experts believe that binary options might finally become regulated in the country sometimes during this year.

Proposed Guidelines for Binary Options Regulation

As mentioned above, the Financial Futures Association of Japan released a few months ago a set of guidelines and proposals for the regulation of binary options. Most of these guidelines refer to the functioning of binary options brokers as well as the marketing of options trading services.

You can read about these guidelines below:

Minimum expiration time of 2 hours

This measure intends to make binary options trading more professional by eliminating the option types with shorter expiration times that mostly depend on luck and chance. Brokers however argue that this would just encourage traders to continue to trade at unlicensed and illegal brokers due to the fact that these brokers will be able to continue to offer short term options.

Requirement to clearly point out that if contracts will finish out of the money traders will lose all their investments

This measure is already enforced and applied by the overwhelming majority of the available brokers.

  • Disclose the profit and loss as well as the ratio of profits and losses incurred by traders
  • The prohibition of advertising binary options as “easy investments”
  • The implementation of so-called “Know Your Customer” questions based on which brokers will have to establish maximum losing limits on customer accounts based the customers’ knowledge
  • A common strike price for each contract
  • Fixed payout rates that won’t change during the lifetime of an option
  • Brokers will be prohibited from unexpectedly suspend trading for no reason
  • Various rules for data collection and monitoring

While most of these guidelines make a lot of sense and are in fact already applied by most brokers despite the lack of any regulations, some are highly restrictive. For example, the requirement of not offering options contracts with expiries shorter than two hours would encourage traders to register at unlicensed brokers.

Unlicensed brokers operating from offshore jurisdictions will not be required to follow these guidelines and will at the same time also avoid legal consequences in Japan. And if unlicensed binary options brokers will offer more attractive services to traders than legal ones, then the whole idea behind regulating binary options in Japan will end up as a failure.

Experts’ biggest fear is that the Japanese market would end up the same as the US market, where due to the extremely weird and protectionist nature of regulations most brokers have decided to continue to operate from offshore jurisdictions without a license.

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