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Regulatory (FX, BO, EMI, PI, AIFs)

CySEC | Trading in binary options

CySEC | Trading in binary options

The Cyprus Securities and Exchange Commission (“CySEC”) has issued the Circular No. C126 providing a general overview  of the requirements for Cyprus Investment Firms (CIFs) offering services related to binary options or intending to do so.

The relevant legislative framework regulating the business obligations of CIFs towards their clients is Chapter C, Part V (Provisions for the protection of investors) of the Investment Services and Activities and Regulated Markets Law of 2009.
   
In a nutshell, the trading platforms for reception and execution or transmission must  meet inter alia the following conditions:

  • Provide adequate information and full explanation to clients about binary options in order to ensure transparency. 
  • Operate in a way ensuring fairness for clients.

The CIFs providing or intending to provide services related to binary options must review the following points in order to ensure their compliance with the relevant law and regulations.

  • Information on the identification of the underlying asset of the binary option 
    • The CIF must provide clients with sufficient information before the purchase of the binary option in respect to 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]. 
  • Information on the bid and ask prices of the underlying asset of the binary option (Strike price of the binary option) 
    • The CIF must provide 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.
    • Disclosure of the bid/ask prices of the underlying asset of binary option in a prominent way in the trading platform. 
    • Adequate explanation/description of the bid/ask, and strike, prices in a prominent way in the trading platform.
    • In case where bid/ask prices are not available for certain underlying assets presenting the last price of the underlying asset and clearly indicating the trading venue.
    • Publication of the feed provider details with all the necessary explanations
  • Information on the bid/ask, and/or last, prices, at the expiry of the binary option (Expiry price of the binary option)
    • Reference to the relevant mathematical equation for the calculation of the
      expiry price.
    • 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.)
    • 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 all the trades they executed.
    • The above information should be concentrated in a prominent way in the trading platform. 
  • Explanation of the graphs addressed to clients
    • The graphs presented in the trading platforms must be accurate, clear and
      understandable to the average investor.  
  • Information on the availability of the binary option 
    • Indication of the possibility to enter buy orders of binary options (call and put) at any time and for any binary option that is available.
    • In the case of unavailability of a binary option (call and put), clear and visible indication on this fact is required. Such information as well as the circumstances/conditions under which this product is not available must be visible to the clients before they 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, they must have access to the full and accurate explanation of the buyout methodology. 
  • Cancellation option of the transaction in a binary option
    • Clients must be provided with the option to cancel their transaction in binary options within a reasonable time after its execution. Any applicable conditions must be indicated clearly. The length of this option should not be less than three seconds after the purchase of the binary option.

Implementation of the required arrangements & procedures

What actions should be taken by the concerned CIFs?

The CIFs providing BO trading services or intending to do so must proceed immediately to the review of the arrangements/procedures in place in order to ensure that their platform complies with the requirements of the  relevant Law and regulations.

In case additional arrangements must be made, the CIF must ensure that all requirements are met within three (3) months from the date of the Circular C 126 (published on the 14 April 2016).

Please note that the above information is provided for general purposes only and does not constitute legal or regulatory advice. If your CIF provides binary options trading or intends to do so, please refer to the Circular in question and contact directly our Regulatory & Compliance Advisory Team.

 

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