The Canadian Securities Administrators (CSA) is stepping up its fight against offshore binary options trading schemes with a proposal to formally prohibit advertising, offering and trading in binary options with retail investors in Canada.
“The purpose of the [proposed rule] is to protect would-be investors from becoming victims of binary options fraud and from becoming victims of an illegal promotion of an extremely high-risk product,” the CSA says in a notice published on Wednesday, “by raising awareness among investors that these products are illegal and by disrupting the advertising and facilitation of these products.”
The CSA has long warned investors about unregistered offering binary options, which are essentially bets on the performance of an underlying asset, such as a currency, commodity, or stock. Not only is this type of trading highly risky, but dealing with unregistered, offshore firms can also carry the possibility that the scheme is an outright fraud.
Read: CSA task force to tackle binary options
“In many instances, no actual trading occurs and the transaction takes place for the sole purpose of stealing money,” the CSA’s notice says. “In addition, those who have provided credit or personal information to binary options sites frequently fall victim to identity theft.”
In some cases, trading may actually take place, the CSA says, but “it is typically extremely difficult and often impossible to win on the bet (because the platform controls the odds and often the reference value of the underlying interest). In some cases, even if an individual theoretically does win, the winnings may appear as a credit on a trading account on the platform but their money is not transferred or returned.”
The CSA stresses in its notice that although it’s now proposing an explicit ban on binary options, that doesn’t imply current offerings of binary options in Canada are legal. As it stands, the CSA says that binary options are considered either derivatives and/or securities in Canada, which means that firms must be registered to deal in them.
“Many of these products and the platforms selling them have been identified as vehicles to commit fraud,” the CSA’s notice adds. “All current offerings in Canada are … illegal, with only limited and narrow exceptions for transactions with highly sophisticated investors.”
Despite repeatedly warning investors against dealing with firms offering binary options, regulators report that they continue to get complaints from investors who have lost money to these schemes.
“We are deeply concerned by the increasing number of investor losses and complaints resulting from binary options,” says Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers, in a statement. “The proposed ban is critical to our efforts to help stop binary options fraud in Canada.”
The proposed rule to ban binary options is out for comment until May 29, in Alberta and Quebec; June 28 in Manitoba and Saskatchewan; and July 28 in the other jurisdictions. The B.C. Securities Commission (BCSC) is awaiting approval before it published the proposed rule for comment in B.C.
Earlier this year, the AMF proposed a ban on offering binary options in Quebec. Now, the AMF is considering withdrawing that proposal and recommending the adoption of the CSA proposal instead.
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