The Cypriot securities regulator has proposed a set of measures to reform and standardise binary options trading, a controversial product which is effectively a “yes” or “no” bet on financial markets.
Cyprus has in the past been regarded as a soft touch regulator, but it has recently tightened regulation on online trading firms and handed out record fines to companies breaching its rules.
The Cyprus Securities and Exchange Commission announced five key proposals to reform binary options provision, outlined in a consultation paper:
- Removing opaque strike pricing, so that a clients’ trade is executed exactly as quoted by the broker
- Quoting potential trading outcomes in real time
- Allowing clients to exit a trade at their discretion, rather than being obliged to wait until the contract expires
- A ban on bets lasting less than five minutes.
- Standardisation of trading and settlement methodologies, to avoid manipulation of the binary contract’s market value.
Cypriot investment firms have untilMarch 3 to respond to the consultation paper. Demetra Kalogerou, CySEC’s chair, commented:
Binary options products as we know them today carry deficiencies and do not provide retail investors with adequate protection when investing in such high risk and complex financial instruments.
The proposed reforms now under consultation will enhance the nature, characteristics and trading methodology of this type of retail financial instrument.
The new proposed standards regarding digital options contracts will seek to eliminate the causes of concern commonly found amongst those firms providing binary options products, ensuring they act in an honest, fair and professional manner.
Crucially, these reforms will standardise trading in binary options, bringing significantly greater transparency and execution terms, thus providing enhanced investor protection.
As EU-based companies may offer their services across the trading bloc, despite a lack of standardised rules, many Cyprus-based investment firms have customers in the UK.
The UK’s financial regulator is considering plans to bring binary options trading under its remit – in the UK, the product is currently regulated by the Gambling Commission.