Cracking Down on Binary Options
Securities regulators across Canada are cracking down on advertising, offering, selling and trading in binary options.
Binary options take the form of a wager in which investors bet on the performance of an underlying asset, often a currency, commodity, stock index, or share online. The timeframe on this bet is usually very short, sometimes hours or even minutes. When the time is up, the investor either receives a predetermined payout or loses the entire amount. The problem is that in many instances, no actual trading occurs and the transaction takes place for the sole purpose of stealing money.
“It’s, in essence, a gambling medium disguised as a financial product. The general idea is that you try to forecast the value of a particular commodity, stock, currency pair in the in the near future so within minutes, sometimes, seconds,” says Jake van der Laan, director of enforcement and chief information officer with the Financial and Consumer Services Commission of New Brunswick (FCNB).
“For example, you can buy a binary option that would pay you money if the Canadian dollar went above 75 cents at three o’clock sharp this afternoon. If at that point in time the Canadian dollar was above 75 cents, you’d get a payout. If it wasn’t you would lose all your money in most cases.”
The companies selling these false get-rich-quick schemes are not based in Canada, but in other jurisdictions in the world with a very poor or no regulatory framework or environments. They basically operate unchecked.
“Because of the internet, they can access targets in jurisdictions well outside where they are actually operating. The problem is many of these are just operating fraudulently and throw up these servers that enable people to trade,” says van der Laan. “They try to hook you in and give you some money early on but over time after you put more money in, you suddenly lose everything and you’re left holding the bag and they got all your money.”
Right now van der Laan says the majority of complaints the Canadian Fraud Centre is getting are related to binary options. It’s such a problem that the Canadian Securities Administrators (CSA) have put together a taskforce to address it. The CSA has also published for comment National Instrument 91-102 Prohibition of Binary Options. Once passed by all of Canada’s securities regulators, the rule will prohibit advertising, offering, selling or otherwise trading a binary option to an individual.
“Once it’s passed as a rule, this instrument will, in essence, prohibit binary options from being traded to Canadians, provided those binary options meet certain requirements with respect to how long they are in effect for. It’s the short terms that are a concern,” says van der Laan.
“Binary options and options, in general, are used and are legitimate financial instruments that corporations use on occasion to hedge their risk or manage resource cost they are anticipating that fluctuate with those markets. But for the average consumer, trading a binary option offshore that closes in seconds or minutes is just a bad idea.”
If someone believes they have fallen victim to a binary options scam, they are advised to contact their provincial securities regulator. If you’re in New Brunswick, that would be FCNB. It’s also important to contact your bank and any other institution associated with personal information passed along.