CySEC proposes reforms for Binary Options Trading

The Cyprus Securities and Exchange Commision (CySEC) has been concerned with the deficiencies of Binary Options trading and the lack of sufficient protection towards investors. For this reason it has released a consultation paper with the proposed 5 key reforms to eliminate the problems lying within the current framework and at the same time institute new conduct principles and measures as to ensure the protection of retail investors.

The proposed reforms are:

  • Remove opaque strike pricing. Floating strikes are not permitted and strike prices have to be the same for all.
  • Banning sub 5 minute tenor trades. Contracts must have a minimum tenor of 5 minutes. This will help in protecting against ‘binary bets’ and remove shorter term volatility.
  • Quoting potential outcomes in real time. Prices have to be quoted on an evolving bid-ask spread in order to clearly denote the percentage possibility of the befalling outcome.
  • Standardising trading and settlement methodologies. All algorithms for calculating the expiration and settlement values of the underlying market have to follow CySEC’s pre-set methodology. Individual methodologies are not accepted.
  • Lifting restrictions on exiting trades. Clients do not have to wait until the contract’s expiration point to exit their position. CIF’s have to provide a continuous 2 way pricing.

According to Demetra Kalogerou, Chair of CySEC, the reforms aim to enhance the nature, characteristics and trading methodology of this kind of retail financial instrument. Furthermore the proposed standards in relation to the Digital Options Contracts will try to eliminate the concerns and ensure that the firms act in a truthful and professional way.

The above reforms are under consultation until the 3rd of March 2017. After the end of the consultation period CySEC will issue a circular on the definitive changes to be made.