Initially the regulation of binary options was overseen by gambling commissions but as the US CFTC, the Japanese FSA, the EC have acknowledged binary options as investments, regulation has been taken more seriously with standard financial services policies being invoked.
Since their introduction during the mid-2000s, binary options have been considered by many traders to be the ‘wild west’ of financial investing because they were classified as just another variant of gambling as opposed to a proper financial instrument. For example, many premier binary options brokers are located in offshore tax havens, such as Cyprus. This feature is quite worrisome just to begin with considering the fragile sate of the financial and banking structures of that tiny nation.
Until recently, the binary options market has also only had to comply with minimum laws and regulations. Consequently, the internet has become swamped with broker malpractices, such as locked-up funds and withdrawal nightmares, etc. To specifically address and resolve such problems, this industry is now undergoing rapid changes as most of the world’s main countries are presently introducing stricter regulatory control over binary options brokers which operate and/or residing within their legal jurisdiction.
After a broker obtains a license from the appropriate regulatory authority, then it must comply strictly with the stipulations enforced by that body in order to trade binary options legally. This essentially means that clients will enjoy greater security for their deposited funds as well as gaining enhanced transparency for all their investing activities. In addition, regulation can be used as an important gauge for assessing the integrity and honesty of a broker.
For example, regulated binary options brokers are compelled by law to operate a segregated bank account in order to store the deposits of its clients. This facility must be completely separate from its own finances. This stipulation is imposed in order to safeguard the funds of customers from adverse developments, such as bankruptcy or other financial calamities. A broker must not use this segregated account in any way whatsoever to service its own financial needs. In addition, regulated brokers are inspected by the appropriate official bodies on a regular and specified basis to ensure that all its operational activities comply with the legal requirements.
Most the major regions in the world possess their main binary options regulator. The following table lists some of the major ones:
The regulation of the binary options market is currently evolving rapidly around the global. The following sections define the present status of some of the major countries and regions.
The CFTC was founded in 1974 as a direct result of the Commodity Futures Trading Commission Act approved by the US Congress during that year. The main task of the CFTC nowadays is to regulate the futures market including binary options and Forex, in order to protect traders form frauds and unscrupulous brokers.
To directly address this ever-evolving industry, the USA introduced new regulations and laws to control commodity trading in 1974. Consequently, the CTFC was created as an independent authority with the prime task to oversee and police this important market sector. The main mission of this agency was to safeguard the interests of Americans from dishonest practices and scams that can arise from commodity trading.
As such, the CFTC strove to maintain an option and futures market that was financially stable, competitive and totally transparent with no hidden costly surprises for the unwary. Essentially, the CFTC was empowered with the authority to protect the general public from fraudulent pursuits.
The recent introduction of the Dodd-Frank Act has also had significant impacts on the binary options industry in the USA. The Dodd-Frank Act was design primarily to provide more security and safeguards for US investors following the disastrous consequences caused by the 2008 financial crisis.
Binary option trading has gained in popularity in modern times because of its ease-of-use and relatively low levels of uncertainty and risks. However, this landscape has been dramatically altered by the Dodd-Frank act. For instance, investors can no longer legally trade the stocks and currency markets using binary options. However, executing binary options using commodities or indices as their underlying assets is still totally legal. These stipulations will have massive future implications for this industry in the USA.
Possibly, the biggest impact of the Dodd-Frank act is that it has directly led to brokers now being formally classified as USA-friendly or not USA-friendly. The former group can accept USA citizens as new clients whereas the latter cannot.
Since the beginning of 2013, the Eurozone binary options market has been policed and regulated by the Cyprus Securities and Exchange Commission (CySEC). The primary purposes of the CySec are identified as follows:
1. Regulate the binary options industry within the Eurozone.
2. Assess and oversee the operational activities of all brokers offering binary options services with the prime purpose of detecting money laundering, criminal activities and fraud, etc.
3. Verify the integrity and reliability of all information supplied to the general public by companies and brokers servicing the binary options market including advertisements, financial reporting and promotional materials, etc.
4. Validate that all monetary transactions performed by binary options brokers are transparent and honest and completed in a timely manner.
5. Safeguard the funds deposited by traders with their binary options brokers in order provide a level of protection from bankruptcy or other serious financial calamities, etc.
Since 1st January 2013, new legal stipulations are now being instigated that will substantial impact the binary option market within the Currency Bloc. For instance, binary options will now be classified as proper financial instruments and not just as another of type of gambling. Consequently, all brokers must now trade in accordance with the charter stated in the Financial Markets Acts of 2007 -2009.
The binary options industry in the United Kingdom is policed and regulated by the Financial Service Authority (FSA). The FSA has the legal mandate to define appropriate guidelines capable of controlling the financial services sector of the UK, including its binary options market.
The FSA has its headquarters located in London with a regional office in Edinburgh. The United Kingdom was the birthplace of binary options as most of the original brokers established their initial locations there. However, many of them have now departed in favor of other countries offering more preferential operational regulations and tax benefits.
British citizens are permitted to trade binary options legally whether they do so using UK-based or foreign-based companies. There are no legal restraints placed on them whatsoever that will limited their binary options trading activities. The top three binary options brokers presently operating within the UK are considered to be BBibary, OneTwoTrade and BetOnMarket.
If you conduct an extensive search into national and local laws, you should be able to validate that there are no legal stipulations preventing Canadian citizens from trading binary options. In fact, a number of highly respected brokers reside and operate within Canada.
This country was regarded as a minnow in this business even up to the middle of 2012. However, a surge in interest since then as seen the numbers of Canadians trading binary options accelerate. One of the primary reasons for this development is that Canadians do not need to fear any legal outcomes from their trading activities.
As such, Canadians seeking to commence binary options trading must locate, as a primary objective, the most reputable brokers that are available. They specifically need to research the terms and conditions of all potential candidates in order to fully understand just how safe they deposited funds will be.
Revered analysts in the binary options industry recommend the following brokers as good selections for Canadian citizens; TradeRush, 24Option, Anyoption and Banc De binary. However, before enrolling with any of them, ensure that you conduct thorough online studies of client reviews. In particular, you need to focus on evidence confirming that any broker of interest does not perform malpractices of any type but, instead, will provide optimum protection for your funds.
The Australian binary option industry is regulated by the Australian Securities and Investments Commission (ASIC). The ASIC tracks and licenses businesses operating within the financial sector to ensure that they operate fairly, honestly and with integrity.
By doing so, the ASIC assists in promoting and endorsing Australia’s reputation for conducting financial operations which are transparent and fair to all interested parties. The ASIC has the responsibility to regulate bodies such as financial companies, banks, mortgage brokers and credit unions, etc. The prime objectives of the ASIC are the following:
1. Enforce all applicable laws and regulations controlling the Australian financial service sector.
2. Collect, validate and present the financial records of member companies in a timely fashion to the general public. This data must express an accurate description of the fiscal performance of these firms over specified time periods which can help investors make informed decisions.
By providing such quality information, the ASIC generates increased investor confidence in binary option brokers that are registered with and regulated by it. The ASIC also provided increase safeguards for the funds deposited by traders. In addition, the ASIC strives to supply customers with further protection using the following additional services:
1. Promotes the provision of best operating practices by operating in conjunction with the fiscal services sector.
2. Encourages education by supporting the National Financial Literacy Strategy.
3. Develops increased trust via the provision of an ongoing customer support service.
The popularity of binary options trading has certainly enjoyed a boost in South Africa during recent years similar to that experienced by many other countries around the world. Essentially, citizens of South Africa can legally trade binary options within an industry that is subjected to minimum regulations. With reference to the country’s 2004 Securities Service Act, a binary option is classified as a ‘derivative instrument’ and provided with its own definition as a form of ‘security’.
The Bond Exchange of South Africa (BESA) created a new trading platform in 2007 together with its key partners enabling investors to trade binary options within South Africa for the first time. After the registrar of security services endorsed this platform, South African citizens started to use it to invest in the financial markets in December 2007. Since then, the popularity of binary options has experienced a significant surge. Experts have identified the main reasons for this development as the ease-of-use of this form of trading together with reduced levels of uncertainties and risks.
However, recent studies have confirmed that the binary options industry in its current form is not subjected to any form of legalities by any of the main regulatory bodies existing within South Africa, such as the Financial Services Board or the Securities Services Acts, etc. Consequently, this is a business providing little or zero protection for South African investors. In fact, such a lax regulatory market provides an environment suitable for the exploitation by unscrupulous brokers who can undertake malpractices with little legal come-back.
The United Arab Emirates (UAE) has two separate financial regulatory areas that independently oversee their binary options businesses. These are the Dubai International Financial Center (DIFC) and the remaining part of the UAE. The DIFC is governed by its own internal financial service regulator called the Dubai Financial Services Authority (DFSA). Outside the Dubai jurisdiction, the rest of the UAE is monitored by its own financial services regulator which is monitored by the Ministry of Economy Planning, the Central Bank of the UAE and the Emirates Securities and Commodities Authority (ESCA).
The DIFC was created in 2004 with the prime intent of producing a top-class financial facility within the Middle East. The DIFC has substantial powers enabling it to persecute offenders for misdemeanors, such as money laundering and fraud. This organization also regulates all the binary option activities undertaken within its region of control. The DIFC comprises the following internal bodies:
1. The DFSA has the responsibility to devise the primary policies intend to control the future direction and main objectives of the DIFC.
2. The Dubai International Financial Exchange (DIFX) has a main function of providing investors with a bigger and more liquid asset market which includes binary options trading.
3. The DIFC Registrar records and licenses all binary options brokers intending to undertake business within the DIFC.
The rest of the UAE differs from the DIFC in that it does not possess just one financial services regulator monitoring its binary options business. The Central Bank oversees the regulation of investment and banking activities while the ESCA tracks certain sectors of the securities and investment business.
The Federal Financial Markets Service (FFMS) is a Russian federal executive body which regulates Russian financial markets including the nation’s binary options industry. The FFMS was launched during the early part of 2004 in compliance with a major government degree. This new body replaced the previous Federal Commission for the Securities Market as well as accepting the responsibilities of other major government departments.