For a while now, the Cypriot regulator CySEC has been trying to tighten its control over Cypriot Investment Firms (CIFs), thus rendering a safer environment for us binary options traders. Recently they have published a Consultation Paper that outlines new requirements and rules applicable to CIFs. However, the new rules are not yet set in stone as the consultation will run until March 3, 2017, when the CySEC will issue a circular outlining any definitive changes. But first, let’s take a look at an earlier change introduced by the Cypriot regulator.
Earlier Protocols: Bonus Slashing, Withdrawal Procedures
The CySEC quickly went from being one of the more accommodative regulators to a rather feared watchdog, issuing fines and warnings, improving the transparency that brokers have to offer and clamping down on binary options brokers who use high pressure tactics and fake names for their representatives. Great, but they are not stopping here: in November last year, the CySEC announced a ban on bonuses as a tool to attract new clients, following an updated version of a Questions and Answers document published by the European Securities and Markets Authority (ESMA). Sources: CySEC Circular C168, ESMA ‘Q&A’ document. On top of banning bonuses, the CySEC also limits the leverage offered for CFD’s and spot Forex but this is less important for binary options so we are not going to focus on these points.
All this Bonus slashing gives birth to a new situation: regulated firms/brokerages cannot offer a bonus (which is an important tool for getting new clients) but unregulated brokerages will continue to offer bonuses. Doesn’t this make an unregulated brokerage more appealing to new customers? Yes, it does! It’s a reality that many clients chase high bonuses (even if we don’t recommend it) and that many clients still invest with unregulated brokerages (…even if we don’t recommend it). To me it seems that this new requirement could throw traders into the “loving” hands of scammers and crooks, but hey, CySEC knows best… However, the document states that “CIFs must avoid the practice of offering bonuses” and “CySEC anticipates that CIFs will not launch any new bonus schemes…” so as you see, the wording is not exactly strict. Is this a ban on bonuses after all?
Withdrawal, Withdrawal, Withdrawal!!!
Let’s forget about Bonuses for a moment. The same document linked above states the following: “In case of a positive cash balance in the retail client’s trading account, CIFs must process the client’s request to withdraw funds on the same day that the request to withdraw funds was made, or on the next working day if the client’s request is received outside of normal trading hours.” So from now on, if your broker tells you that it will take 5-7 days to process your withdrawal request, please shove CySEC Circular C168 in their face and tell them to read Section 2. ii. Of course, this only applies if you are trading with a CySEC regulated broker.
Proposed Protocols: Minimum Expiration Time, Strike Price, Possibility To Exit Before Expiry
On February 13, 2017 the CySEC issued a Consultation Paper, outlining the new potential changes to the regulatory framework of Binary Options. Nothing is definitive until March 3, when a circular will be released, containing all the changes that made it to the final form. Next, we will go over an overview of the proposed changes in the regulatory obligations of CIFs when offering binary options to their clients. To read the full Consultation Paper, click here.
Types of Binary Options – Existing Framework:
Types of Binary Options – Proposed Framework:
Single binary option, with one fixed strike price, predetermined before execution.
Ladder binary option, with multiple strike prices, also determined before execution
Option Price – Existing Framework:
Option Price – Proposed Framework:
Continuous provision of both a price to buy and a price to sell the same Digital Contract
Method for determining Expiration values – Existing Framework:
At the discretion of the CIF (broker)
Method for determining Expiration values – Proposed Framework:
Based on a predetermined methodology, determined by CySEC
Option Duration – Existing Framework:
On the discretion of each CIF
Option Duration – Proposed Framework:
On the discretion of each CIF but not shorter than 5 minutes
Strike Price – Existing Framework:
Unknown to traders until executed
Floating, not fixed
Strike Price – Proposed Framework:
Known to traders before execution
Exit before expiry – Existing Framework:
Not possible in most cases
Exit before expiry – Proposed Framework:
The Dawn Of A New Era For Binary Options
We will have to wait until at least March 3 to see which one of these protocols will be implemented but overall it think the client will benefit from more protection and a more transparent environment overall. Surely, some of the smaller brokerages will have a hard time implementing all these provisions and they will probably lose a big chunk of their client base. If you ask me, that’s not a bad thing because it’s time to get rid of the bad apples of the industry. Survival of the fittest: either give us traders a safe and transparent product, or get out.