Quebec’s financial regulatory body, the Autorite des Marches Financiers (AMF), said on Wednesday it has proposed the formal prohibition of the sale of binary options to citizens in the province. This makes Quebec the first province in Canada to officially consider the ban on such instruments.
“The Authority is concerned by the growing number of complaints received regarding the trading of products commonly called “binary options”, whichare offered illegally to retail customers in Quebec via unauthorized on-line trading platforms,” the Quebec watchdog said in a notice.
The AMF is working on a draft project with which it would amend the derivatives regulation. The draft also offers other measures concerning the identification of hedgers and the delivery of financial statements.
Following is the excerpt of the AMF draft proposal that concerns binary options:
“No person may offer to an individual a binary option or derivative where:
- at maturity, the holder is entitled to either a predetermined fixed yield if the underlying interest meets a predetermined condition, or a zero yield if the underlying interest does not meet a predetermined condition;
- the holder cannot buy or sell the underlying interest;
- maturity is less than 30 days;“
The draft has been published for a 30-day comment period, which expired on 4 March.
In Canada, capital markets fall under the regulation of provincial watchdogs and legislation rules may vary in the different provinces. Binary options are not forbidden in any of the provinces, but there is not a single entity or individual authorized to provide binary option trading services in the country.
In the online trading world, binary options are the closest thing to gambling. In this type of trading, 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 addition to comparing binary options to a wager contract which resembles a game of chance, the AMF also noted that binary option traders often times fall victims to identity theft or are unable to pocket their rewards.
“Binary option platforms generally promise fast profits which are not paid out to investors. They’re run by people who are acting illegally and embezzling victims’ funds,” said Louis Morisset, AMF president and CEO. “We are committed to rigorously and proactively enforcing the prohibition. In doing so, we are taking a leadership role in the global push by regulators and financial institutions intent on protecting the public,” he added.
Quebec is first in Canada, but not globally
Thanks to their controversial nature, binary options have been under the scope of numerous regulators. In the US, trading in such instruments is restricted to on-exchange execution only (via Nadex or Cantor Exchanges). Meanwhile, European countries have expressed intentions to restrict retail access to binary options.
In August last year, Belgium banned the distribution via online channels of over-the-counter (OTC) binary options, spot forex, and CFDs with leverage. France has also banned the online advertising of “highly speculative and risky financial contracts”, such as binary options, forex and CFDs with a leverage greater than 1:5. In addition, the Netherlands and Germany have also announced they consider the ban on the advertising of such instruments.
Israel, which is not an EU member state but is a major European binary options hub, also imposed a ban on trading in such instruments in the country. Recently, the Israeli regulator also said it is to ban the advertising of binaries to retail clients abroad, which would put an end to major brokers will not be able to operate locally-based call centers.