Do not invest more money than you can afford to lose.
The Trade and Industry Appeals Tribunal of Netherlands has ruled against the appeal of local financial watchdog, the Authority for the Financial Markets (AFM), against the licensing of binary option broker Optieclub.nl B.V., doing business as OptionClub, the regulator said earlier this week. The court declared the AFM’s appeal to be without foundation.
After the AFM rejected earlier OptionClub’s license application, the District Court of Rotterdam instructed the regulator to grant the broker a licence. The AFM then appealed the court’s decision, but faced rejection on the part of the appeals court. As a licensee in a EU member state, OptionClub automatically gains access to the markets in all countries of the European Economic Area (EEA). It can (after receiving authorisation, if required) open offices, target clients in, and provide financial services in all member states without having to obtain additional license. The broker has already received authorization to do business in the UK, Germany, France, Spain, Italy, Sweden, and Denmark.
“The AFM is disappointed with the ruling,” the watchdog said in a statement, referring to the latest decision. “Optieclub is a party offering binary options online. In the view of the AFM, binary options by nature qualify as a game of chance and Optieclub is in contravention of the Betting and Gaming Act,” it added, noting that binary options do not meet criteria that financial service providers must take account of, such as cost-effective, useful, safe and comprehensible operations.
The regulator said that, in addition to the above-said, it refused to grant a license to OptionClub since it finds it finds it to act “in contravention of the rules governing ethical business operations”. According to the appeals court, however, the AFM is not in its authority to establish contravention of the Betting and Gaming Act, which falls under the jurisdiction of the Dutch Gaming Authority. Moreover, the court did not consider the fact that OptionClub offers trading in binary option instruments to be an indisputable breach of socially acceptable standards.
The news about the OptionClub license comes about three weeks after the AFM announced it is collaborating with the country’s Minister of Finance to prepare a bill that would ban the advertising of toxic investment products, binary options included, to consumers in the Netherlands. In its latest statement, the regulator again put an emphasis on the risks of trading in this type of binaries. Recently, it has been taking a strong stance against binary option instruments, as it considers them risky.
“The advertisements for these investments entice consumers with the prospect of earning a lot of money quickly. The reality is that people very easily lose all of their investment,” it noted.
The Netherlands is not alone in their fight against binary options. Many other authorities in Western Europe also support the idea that binary options should be banned, but this is a hard task to take on. They are taking steps towards prohibited their advertisement, as a start. France also announced recently that it is in the process of developing a bill that would prohibit online advertising of “highly speculative and risky financial contracts”, such as binary options, forex and contracts for difference (CFDs) with a leverage greater than 5:1. Germany is another country where authorities consider the possibility to ban the marketing of such instruments, but this is rather just an idea at this point and is not expected to happen in the near future.
So far, Belgium is the only country in Western Europe which has taken actual steps. It banned from 18 August the distribution via online channels of over-the-counter (OTC) binary options, spot forex, and CFDs with leverage.
Binary options are a very controversial trading instrument. They are the closest thing to gambling in the online trading world. Investors guess whether the price of a certain instrument, would go upwards or downwards within a pre-determined time frame. Once the time is up, the option is deemed expired and the bet is settled. Depending on the outcome, a trader either collects a profit, or loses money.
In most jurisdictions, binary options are regulated, in others they are not lawfully allowed, while in third they are not forbiden, but neither are there any authorized brokers that offer them. In the UK and Cyprus, the country of choice for most brokers licensed in Europe, binary options are regulated. In Great Britain, they fall under the supervision of the Gambling Commission, while in Cyprus they are regulated by the Cyprus Securities and Exchange Commission (CySEC). Both authorities have alerted about receiving an increased number of complaints against binary option brokers. In this concern, the Cypriot financial watchdog introduced earlier this year tougher rules on entities that offer this type of instruments.