The Regulation Of Binary Options
This article is about European style binary options and binary options brokers, for more information on U.S. exchange listed binary options refer to the page on CFTC binary options.
Binary options and binary options brokers have a well earned reputation for fraud. This is because the industry was largely unregulated for many years. Another reason is because many countries view binary options as gambling. This does not mean that all binary brokers and platforms are scams, quite the contrary. There are quite a few, about 90 at the end of 2012, that have always operated with professionalism. These platforms offer true binary options trading and are leading the charge to get binary options recognized as a sound financial instrument. Regardless of where you live regulations should always be considered when choosing a broker.
CySEC Regulates Binary Options
Recently, mid 2012 to be exact, the binary options industry received its first official recognition. The Cyprus Securities and Exchange Commission(CySEC) officially recognized binary options as a financial instrument in order to impose regulation on the industry. Because of the banking laws in Cyprus and its member status in the European Union Cyprus has become a haven for many financial institutions including banking, retail forex and binary options. The large number of binary brokers operating out of the country is what led them to make this distinction. Now, all binary brokers operating in Cyprus are required to comply with the CySEC regulation. The rest of the industry, the legitimate part of the industry, is now seeking to receive CySEC certification because it helps to legitimize them in the eyes of traders and world banking officials. CySEC certification also allows brokers to operate in the 30 member countries of the European Economic Arena.
The First CySEC Regulated Broker
The first Cyprus based binary broker to receive the certification is Banc De Binary. Since dozens of great brokers have become regulated by CySEC and other agencies throughout the EU. AnyOption, 24Option and PowerOption are only a few.
What Does CySEC Regulation Mean?
What does CySEC regulation mean? The CySEC was founded in 2001 to regulate the Cyprus financial markets. When Cyprus entered the EU in 2004 it made adjustments in order to comply with the broader EU regulation and the Markets In Financial Industries Directive (MiFIB). There are four key mandates for the CySEC.
1) Supervise and regulate the Cyprus Stock Exchange including transactions, listed corporations, brokers and brokerages.
2) Supervise and regulate licensed investment services companies.
3) Grant licenses to investment firms, brokers and brokerages.
4) Impose sanctions and penalties on brokers, firms, financial services, consultants and any others who fall under their jurisdiction and that are not in compliance with regulation.
The MiFIB, which has been amended as the EU and the needs of its financial markets have evolved, is the foundation of the EU financial services action plan. The MiFIB seeks to provide harmonized and regulated financial markets throughout the European Union. Its purpose is to increase competition and consumer protection, providing a safe and sound financial market that spans the entire European Economic Arena.
European Economic Arena Financial Passport
One key factor of the MiFIB, and one reason why so many binary brokers are seeking the CySEC certification, is the Eurozone MiFIB Passport. The MiFIB distinguishes between investment services and ancillary services. If a company, broker, brokerage etc is deemed to be a financial service then it falls under the broader spectrum of MiFIB regulation and is then able to operate in any country of the European Economic Arena. What this means for binary options brokers and platforms is that when they are accepted by the CySEC they are then also accepted by the European Union and have access to all financial markets in the Arena.
What Does Regulation Mean For The Binary Options Industry
Aside from recognition, reliability and legitimacy there are four reasons why regulation is good for binary options brokers and traders.
1) Money is held in a trust account. Without regulation deposits into binary trading accounts may not be held in trust. Monies not held in trust are in danger of theft, fraud or poor business practices by the broker.
2) Third party accountability. Regulated brokers are subject to third party accountability to ensure fair play. Non-regulated brokers may choose to have a third party watch over their operations but it is not a requirement unless they are regulated.
3) Transparency. Regulated brokers must allow governing bodies and the public to see inside their operations. This is another way to ensure fair play and to protect traders from unscrupulous brokers and poor business practices.
4) Standardized options. Regulations enforce a standardization of binary trading and available assets. Non-regulated brokers may offer off-the-wall assets or other types of binary trading that more closely resembles gambling than market speculation. Standardized options also allows binary platform providers like SpotOption to “make markets” in binary options.