After the publication of the latest circular by the Cyprus Securities and Exchange Commission (CySEC ), it has become clear how the watchdog intends to tackle the unfair practices that some brokers have been using.
With the introduction of historical quotes and the ability for clients to see bid and ask prices, the regulatory framework outlined for binary options companies has become more cumbersome at first sight.
Looking for an answer to the question of whether the regulator has gone too far, Finance Magnates reached out to a number of industry insiders including brokers and technology providers.
The Brokers
With the brokers that in most cases depend on their technology providers to adhere to regulatory requirements, we approached two companies that are providing services to end clients - one that is white labeling a third party’s platform and one that is building its own platform.
It is these types of changes that strengthen the financial aspect of the product
Commenting to Finance Magnates, a spokesperson of Banc de Binary said: “We applaud any change that deepens the transparency, the knowledge and the control offered to clients when it comes to understanding the financial product in particular, and the capital market as a whole.”
“We are still examining and learning the contents of the circular and we will make sure that all regulatory changes required by CySEC will be implemented into our platform. It is these types of changes that strengthen the financial aspect of the product,” he elaborated.
Challenging the new regulations however are some firms that have already started to move towards compliance before the publication of the circular. One such company is IQ Option, a brokerage that has gained notable popularity due to its proprietary Trading Platform that already displays historical quotes.
The industry itself is now threatened by the practices of some unfair brokers
A company spokesperson said: “We applaud the changes and are going to fully comply with the new requirements of the regulator. The industry itself is now threatened by the practices of some unfair brokers. We are constantly facing these issues and have to work with PR to tackle the problem face on. A number of countries have issued trading bans on advertising and registration on some binary options websites, like for example Germany and France.”
Elaborating on the contents of the regulations, IQ Option’s representative confirmed that the circular is adequately protecting clients.
“The introduction of display of historical quotes, the specific exchanges where futures products are traded and the mandatory requirement to display the methodology of price calculation of the quoted and expiration price are all welcome,” the spokesperson commented.
According to IQ option, the new regulations will impact the market substantially - it will result in consolidation which will allow only the bigger companies to remain in business.
The Tech Providers
Looking at the issue from the perspective of technology providers, a number of companies have been actively engaged in new developments related to the revamp of the CySEC regulated binary options market. Two major tech providers - Markets Pulse and TechFinancials - have had substantial experience with operating in regulated markets worldwide.
regulations better serve traders and provide more comfort with the product, attracting larger audiences
With Markets Pulse having a major presence in another strictly regulated market, the company’s CEO Mickey Winitsky provided some insight about how the firm is tackling challenging regulations.
”At this point we have compliance officers working with our team to ensure all the requirements will be met in a timely manner. We are confident that with our experience in meeting requirements from regulators such as FFAJ & JFSA - prior to mandatory deadline, in 2013, ASIC and several others, our clients will continue to comply with CySEC. Our architecture is designed to support several regulatory requirements and can be easily and safely modified accordingly,” he explained.
Elaborating on the incoming changes to the business from the new regulatory structure, Winitsky added: "At this point it is hard to predict the exact effects of CySEC changes. It is my belief that regulations better serve traders and provide more comfort with the product, attracting larger audiences and resulting in greater longevity of the industry.”
We are committed to working with CySEC and other regulators worldwide to develop trading systems that support regulatory requirements
An endorsement of the new regulatory regime introduced by CySEC has also come from the first publicly listed technology provider in the industry, TechFinancials.
The company’s Executive Director Jeremy Lang said: “We are committed to working with CySEC and other regulators worldwide to develop trading systems that support regulatory requirements."
Elaborating on the sound changes that CySEC has introduced to its initial draft proposal, Lang added: “The TechFinancials Group fully supports the Commission's desire to improve transparency and fairness to clients trading binary options and is pleased that several of its recommendations have been adopted during the consultation process.”
“We believe that the impact of these changes will be positive both for brokers, traders and technology suppliers,” he concluded.
Coping With Changes to the Product
The binary options industry is yet to fully mature, and CySEC’s circular along with recent regulatory and media developments have been exposing a number of fraudulent brokerages operating in the industry.
Brokers will have to commit additional resources to educate its clients about the product following the implementation of new requirements. The main advantage of binary options products for retail traders is their simplicity.
While for years the business has been about 'above' and 'below', CySEC’s regulatory changes are introducing new challenges like explaining to clients the difference between bid and ask quotes, as well as expiration calculation methodology.
Just like the exchange traded products in the U.S. are not as simple as clicking on 'call' and 'put', the changes introduced by CySEC will complicate the user experience. This is the price that the industry pays for ensuring fair treatment of clients and a longer term sustainability of the industry.
