Cyprus Securities and Exchange Commission – Regulating Binary Options
BOTS.com team decided to investigate the CySec regulation and to provide you with a detailed report about the upcoming Cypriot regulation. If you don’t have any idea what regulation is all about, please visit this link (Regulation and Binary Options) to learn more before reading this new article.
All You Need to Know About CySec Regulation
After almost three years waiting, 2013 is expected to be crucial for binary options trading; the first licenses would be granted by the Cypriot regulators to a few leading brokers. Not all brokers would be regulated of course, just a few leading companies which already began process of regulation. Seems like Binary Options is will soon be a safer place for new and veteran traders as well. So what can we expect from the CySec Regulation? Read below!
*Update (November 2015): A lot has happened since regulation was just an optimistic thought. Nowadays a brokerage without at least a CySEC regulation is often viewed as too risky and most traders stay away from such companies. The Cyprus Securities and Exchange Commission (CySEC) is the go-to watchdog for almost all brokerages who want to establish themselves as trustworthy financial entities and leaders in the Binary Options industry.
CySEC is ruling in terms of regulation, and the minimum qualification for a broker these days is a CySEC license. It’s a two way sword however, as some voiced concerns that the Cypriot regulators are making it easy for brokers to get regulated. It is true they are not the most fearsome regulatory authority and they mostly issue warnings about brokers, but we’ve also seen fines given). However, if your broker is regulated, you benefit from a higher degree of transparency because at least you know the name of the company that owns the website/brokerage, they have to declare their address and you can file complaints against them with the CySEC. Long gone are the days when all you knew about your brokerage was their URL (web address) and a phone number. Long gone are the days when your broker simply disappeared in thin air and you had no idea where to start looking for them.
What do the CySec Regulators require from Binary Options Brokers?
- Completed application form as provided by the CySEC
- Company legal documents (certificate of incorporation, Memorandum and Articles of Association, etc)
- Certificates of the registered office in Cyprus (confirming there is a registered company in the Republic of Cyprus)
- Clean criminal records and Certificates of Good Standing for the shareholders with special participation, the Board of Directors and employees of the company
- Two-year business plan
- Financial statements for the past three years
Conditions for granting a license:
- Minimum issued share capital
- Efficiency of the company’s internal control mechanism (to be described in the procedures manual)
- Company’s structure and organisation designed to minimise the risk of conflict of interest between the client and the company or between the clients
- Suitability of the company’s shareholders and directors
- Company’s technical and financial resources
*Update April 2016: The CySEC has recently decided to turn up the heat on binary options brokers. Well, it’s a thing they should have done a long time ago but as they say in Cyprus: better late than never. Basically, these new rules are focused on transparency in the field of binary options and will make it easier for the investor (you and me) to see what they are buying, how is the price of an option created, who is the quote provider, how is the expiry price calculated (mathematical equation) and many other things like that. Next we are going to list the most important ones but we will also give you a link to the official CySEC webpage so that you can read the full document.
The following contains quotes from Circular No. C126 issued by the Cyprus Securities and Exchange Commission, April 14, 2016. To read the full document follow this link.
- Information on the identification of the underlying asset of the binary option
Providing clients with sufficient information before buying the binary option regarding the identification and the type of the underlying asset of the binary option, including the trading venue [e.g. WTI Crude Oil (Dec 15) NYMEX]. This information is fully integrated and clearly displayed at a specific section on the trading platform or a relevant link referral to the website of the CIF is available.
- Information regarding bid and ask prices of the underlying asset of the binary option – Strike price of the binary option
- Providing to clients a continuous (per second) and smooth presentation of the flow of the bid/ask prices of the underlying asset of the binary option throughout the lifetime of the asset, such as those taken by the feed provider.
- Disclosure of the bid/ask prices of the underlying asset of binary option in a prominent way in the trading platform. For example, disclosure of the bid/ask prices on the area where the exercise price is presented, in which clients may buy the binary option.
iii. Adequate explanation/description of the bid/ask, and strike, prices in a prominent way in the trading platform (e.g. via a pop-up message). In particular, with regard to the explanation of the strike price, the methodology used to calculate it, whether it differs/deviates from (bid + Ask)/2 and under what circumstances/conditions this duration is possible.
- In case where bid/ask prices are not available for certain underlying assets (e.g. index DAX and FTSE 100), presenting the last price of the underlying asset and clearly indicating the trading venue.
- Publication of the feed provider details, e.g. in the pop-up where the bid/ask price is explained/described.
- Information on the bid/ask, and/or last, prices, at the expiry of the binary option – Expiry price of the binary option
- Providing to clients the bid/ask, and/or last, prices at the expiry of the binary option.
- Adequate explanation of the expiry price of the binary option and the methodology used to determine the expiry price. In particular, among others: Reference to the relevant mathematical equation for the calculation of the expiry price [i.e. (bid + ask / 2), (last + bid + ask / 3)]; explanation of the prices which constitute the expiry price; explanation of any rounding of the expiry price of the binary option; reference to the feed provider details.
iii. Maintaining historical records with the bid/ask, and/or last, prices at the expiry of the binary option, which they are accessible by clients for the trades they executed.
- The above information is concentrated in a prominent way in the trading platform. This information is fully integrated at a specific section on the trading platform or a relevant link referral to the website of the CIF is available.
- Explanation of the graphs presented to clients
The graphs presented in the trading platforms are accurate, clear and understandable to the average investor as to the describing illustrations. For example, when the buyout, or average bid/ask, prices are presented, a clear reference to the price presented and explanation of the graph.
- Information on the availability of the binary option
- Possibility of entering buy orders of binary option (call and put), at any time and for any binary option that is available.
- In the case of unavailability of purchasing a binary option (call and put), clear and visible information on this fact, as well as the circumstances/conditions under which this product is not available, before clients attempt to enter a buy order.
- Buyout option of the binary option from a CIF
In case clients are provided with the possibility of the option of a buyout of the binary option from the CIF, full and accurate explanation of the buyout methodology.
- Cancellation option of the transaction in a binary option
Providing clients an option to cancel their transaction in binary options, within a reasonable time after its execution, indicating any applicable conditions. The length of this option is not less than three seconds after the purchase of the binary option
- Provision of services in relation to binary options that have investment features
Provision of services in relation to binary options that are constituted and traded in a manner similar to other derivatives and ‘traditional’ financial instruments included in the Law.
Binary options with duration of 30 seconds are not considered to fall under the above.
CySEC requires CIFs (Cypriot Investment Firms) to comply to these new rules “…immediately and not later than three (3) months from the date of this circular”. I believe this also marks the start of a new era for binary options and sets the stage for a more professional, transparent and serious approach to binary trading. Finally we will get explanations regarding our expiry prices, we will get clear and accurate charts and we will know how the price of an option is calculated. Great! Polish your trading skills because binary options are taking over the mainstream trading world.
What are the Benefits of CySec Regulations?
For us, the Traders
When a company is regulated, it definitely means it’s safer and more trustworthy than most other unregulated companies. Nevertheless, as I said before, it doesn’t mean that the unregulated company is unsafe. When a company wants to get regulated it must provide almost all of its financial reports and internal information to the authorities, making all financial reports transparent. Businessmen and companies are never too eager to show the public their financial reports, especially when the company is not a public company. Besides total transparency, the company is required to prove that it’s financially strong enough to withstand all obligations to other parties and to sign an agreement with the authorities.
A website can disappear in hours or even minutes, with all your money. If all you know about your broker is a web address, what are you going to do in the eventuality of a scam? You cannot go to the Police or any other authority saying “I got scammed by someone I don’t know. I have sent them money without knowing their name or their address” because they’ll probably laugh in your face. Well, maybe they won’t laugh but they won’t be able to help without even basic information like “What is the name of the company”. All this has changed once brokers “embraced” the CySEC regulation. Now you know who you’re speaking to and to where you send your money. Considering all this, it is definitely safer to trade with regulated brokers.
For the Brokers
As I mentioned above, no businessmen desire to disclose private financial information and no company wants to reveal its financial situation to the competitors. However, that’s just the way it is. If you don’t want to get regulated, it’s ok, but be aware that your reputation will surely have to suffer and in time, certain legal action could be taken against your company (that’s a possible side effect, but I don’t see something like that happening in the field of Binary Options Trading). Anyhow, regulation could increase competition, increase the reputation of the field and increase safety of transactions, hence, a regulated broker would enjoy better reputation among clients than an unregulated one and of course, a regulated field like binary options could very well attract more crowd. In fact, that is the main advantage of regulation for brokers: more clients. It’s a well known fact that the binary options industry is plagued by scammers and unprofessional companies. This fact translated into a bad reputation for binary options in general and people soon became afraid to invest so the “good guys” had to suffer because of the “bad guys”. Now that CySEC regulation is in full effect, clients are starting to come back to binary options as they feel more confident about the overall environment. Of course this benefits the brokers that choose to become regulated because now most clients choose regulated brokers over unregulated ones.
For more Information about the Cyprus Regulation, Check out CySec official website in this link.
***BinaryOptionsthatSuck.com expects the first Regulation licenses’ to be issued on 2013. Our team will keep monitoring. Please join BinaryOptionsthatSuck.com newsletter to stay updated with the latest development. *Update (November 2015): First licenses were issued and many brokers kept applying for regulation, with new ones joining this safer and more professional environment every day. It has to be said that now, at the end of 2015 the binary options industry is a lot safer than when we first wrote this article.
Many Thanks to Bots.com Team and fellow traders for their detailed research and hard efforts acquiring this information. Finding real and reliable information on Binary Options regulation is a tough job, without the help of my team and readers I couldn’t have written this article. Thanks again and keep up the great job providing such comprehensive information and reviews about BO.