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December, 6 2019
Binary Options Restriction | Cyprus 2019
For a long time, binary options trading was a popular financial tool for traders. It is one of the easiest ways for a beginner to start trading. Such options were available in many European countries, and Cyprus was no exception.
However, not everything is as simple as it might seem. Since there were some diceiving brokers in Cyprus, it made people wary as to whether brokers based in it are the right choice or not. Cyprus is part of the European Union and, should follow the European strict trading rules, especially in the case of binary options.
Restriction of binary options
On the 10th of July 2019, the National Competent Authority of Cyprus regarding market security regulation, Cyprus Securities and Exchange Commission (CySEC) decided to implement the national measures to restrict the marketing, distribution, and sale of Contracts for Differences (CFDs).
In other words, CySEC regulation complies with the European Securities and Markets Authority’s (“ESMA”) temporary product intervention measures, which first implemented a prohibition of binary options and marketing in July 2018.
Before the ESMA Decision on Binary Options, CySEC monitored several CIFs providing the provision of investment services in Binary Options.
Also, CySEC’s particular Supervisory Action Plan (the “Plan”) developed for the FX trading and binary options industry applied supervisory and enforcement efforts between 2015 and 2018. Using the Plan, CySEC noticed practices that caused concerns for the investors’ protection and resulted in the imposition of fines and licenses withdrawals.
CySEC discovered that CIFs offering investment services in binary options used aggressive marketing approaches and did not always ensure right information to customers about the possible risks in trading. As a result, the clients can’t fully understand the risks, and naturally, they also can’t make the proper investment decision.
As a result, the marketing, distribution and sale of Binary Options to retail clients is permanently prohibited from or in the Republic of Cyprus, irrespective of whether these are traded OTC or on a Trading Venue, pursuant to article 42 of MiFIR.
The binary options excluded from the ESMA Decision on Binary Options and the renewals thereof, and therefore from NPIMs, include:
- a binary option for which the lower of the two predetermined fixed amounts is at least equal to the total payment made by a retail client for the binary option, including any commissions, transaction fees and other related costs; and,
- a binary option that meets cumulatively the following three (3) conditions:
- the term from issuance to maturity is at least ninety (90) calendar days;
- a prospectus drawn up and approved in accordance with the Prospectus Directive (2003/71/EC) or in accordance with the Prospectus Regulation (EU 2017/1129) is available to the public; and
- the binary option does not expose the provider to market risk throughout the term of the binary option and the provider or any of its group entities do not make a profit or loss from the binary option, other than previously disclosed commissions, transaction fees or other related charges.
All in all, CySEC decides that crypto-assets bringing excessive risks because of their high volatility and proposes lower leverages than ESMA. Also, the consultation paper offered by CySEC aims to ensure an enhanced approach for a suitable client classification by the firms, while the proposed rules continue to give investor protection.
Posted by: A.G. Paphitis & Co Law Firm