World’s Best Regulated Binary Options Brokers

Ever since the binary options market was liberalized in 2008, the issue of regulation has been a very topical concern among market observers and market players alike. When the OTC market hosted the earliest form of binary options trading in the early 1970s, the markets were not officially regulated by a supervising government agency, but rather by an organization that was formed by brokers, dealers and institutional market players at the time; a form of self-regulation.

 

Wall Street Brokers

 

When the markets evolved in 2008 at the instance of the Securities and Exchange Commission of the United States, a regulatory framework for this new financial vehicle was put in place and handed over to the Commodities and Futures Exchange Commission (CFTC). Thus, the only exchange for online trading of binary options (NADEX) as well as the exchange-traded binary options, were all brought under the regulatory purview of the CFTC. However, other online binary options companies began to spring up. Companies who could produce platforms that could be customized as a turnkey solution for different brokers began to come into the marketplace. Companies who had the money soon found out that with as little as $25,000 to $30,000, the turnkey platforms complete with a backend solution and payment integration with multiple processors could be acquired, and a binary options brokerage operation could be setup without the necessary financial backbone to support settlement of withdrawal transactions. It was not long before all manner of problems came up. Why?

 

REGULATORY REQUIREMENTS

 

The regulatory requirements for binary options brokers will differ from one region to the other. Generally speaking, regulatory protocols in forex, options, futures and the stock markets require brokers to have a minimum capital base to be able to cater to transactions. For the binary options market, these have not been clearly defined except for brokerages operating in the UK under the FCA, US under the CFTC and Australia under the ASIC. For binary options brokers operating in Malta, it is required that brokers meet a minimum financial capital base, and this has been set at 730,000 Euros. It is also mandatory that all funds that constitute the trading capital of traders be kept in a separate account from those which the brokerage company uses in their day-to-day operations, so as to forestall any detrimental effects to traders’ funds in the event of bankruptcy. In the UK, segregation of traders’ funds has been an inviolable part of the regulatory deal, with firms mandated to report compliance to this rule on a monthly basis.

 

Trading

 

These regulatory requirements are recent events, as brokers in the binary options market in jurisdictions all around Europe and Asia were hitherto unregulated. With the resultant unbridled entry into the market of many brokerages which were nothing more than bucket shops, many traders were taken to the cleaners when withdrawal request overwhelmed unregulated brokers who were neither adequately capitalized nor were traders’ funds segregated. The internet was riddled with complaints of unpaid withdrawal requests from all over the world. Subsequent warnings by the CFTC concerning online binary options trading served to create more tension.

 

With confidence in the binary options market dropping fast, some regulatory agencies located in countries where most of the complaints were coming from decided to act swiftly to prevent the contagion from spreading to other markets. The Cyprus Securities and Exchange Commission (CySEC) took the pioneering step of classifying binary options as a financial derivative market worthy of regulation and issued a circular in mid 2012 mandating all binary options operators in Cyprus to fulfill regulatory requirements or face severe sanctions. As if waiting for a cue to act, other regulatory agencies in Japan, Malta soon followed suit, making sweeping changes that enforced the regulation of binary options brokerage activity in their respective countries.

 

Two years down the road, it is now clear that regulated binary options is now the norm and not the exception. Traders no longer have to endure financial loss to brokers who are not regulated. An unregulated broker is a scam operation waiting to prey on unsuspecting traders. In order to protect the teeming public and indeed our esteemed readers, we now give you a list of regulated binary options brokers, who can now be classified as the world best binary options brokers.

 

COUNTRY-SPECIFIC REGULATORY SITUATION


Malta

 

The transfer of binary options from the oversight of the Malta Lottery and Gaming Commission (where a binary options trade was hitherto recognized as a “bet”) to the Malta Financial Services Authority (MFSA) in accordance with the revised European Union MiFID guidelines 2004/39/EC, set the stage for the recognition of binary options as a financial instrument to be regulated.

One brokers in Malta now conforming to this regulation is Binary Options Malta Ltd (majority stake owned by BAHN Group Ltd).

 

Cyprus

 

Binary options are now a no-go area for unregulated firms in Cyprus, and more firms are scrambling to comply with the new rules. The following firms are now regulated in Cyprus to offer binary options trading.

a)      Cedar Finance (T.B.S.F Best Strategy Finance Limited)

b)      ZoneOptions (Rodeler Limited).

c)      TraderWorld (FT Traderworld Ltd)

d)      24Options (Cbay Financial Services Ltd)

e)      OptionFair (BO Trade Financials Ltd).

f)       AnyOption (Ouroboros Derivative Trading Ltd)

g)      EZTrader (WGM Services Ltd)

 

This is not an exhaustive list and some brokers have already initiated the process. We will update the list as more information becomes available.

 

Japan
After the Financial Services Authority (FSA) and FFAJ in Japan announced sweeping changes to the regulatory structure of the binary options market as well as what types of trades binary options brokerages can offer clients, not many companies have been able to comply with the new regime. As such, we have just one brokerage as having been confirmed as compliant with the new regulatory structure of binary options in Japan: FXTF’s HighLow binary options brand.

 

However, MarketPulse is about to launch its new FFAJ-compliant platform, while platform makers Tradologic and SpotOption have incorporated the new trade types into their platform to make them compliant with the new guidelines set out by the FFAJ. It is therefore hoped that many turnkey partners will tap into the new way of trading as far as binary options in Japan is concerned. SpotOption now offers Ladder options, while Tradologic has launched its Binarix 100 platform.

 

US (NADEX, Cantor Fitzgerald, AMEX and CBOE)

 

Regulated Binary Options

 

In the United States, two forms of binary options trading exist and the laws are very clear on what companies are approved to offer trading in each form. There are two regulated online binary options exchanges. For a long time, the North American Derivatives Exchange (NADEX) used to have a monopoly in the market. NADEX is regulated by the CFTC. Recently however, Cantor Fitzgerald LP launched Cantor Exchange, offering forex binary options on the EURUSD, GBPUSD and USDJPY. The other form of binary options trading is exchange-based, and is performed on the floor of the Chicago Mercantile Exchange, owned the CME Group. Brokers who are members of the CME will offer the listed binary contracts such as the CME Hurricane Index Binary option.

 

Australia

 

Australia’s regulatory watchdog is the Australian Securities Investment Commission. Australia’s situation is peculiar in the sense that almost all binary brokers operating there are branch offices. DirectFX, which is primarily a forex broker, looks set to become the first indigenous binary options broker. It plans to offer a licensed binary options plug-in to its existing MT4 platform.


UK

 

In the UK, binary options is regulated by the Financial Conduct Authority (FCA, formerly FSA). As such, all binary options firms have been regulated from the outset, as the FCA is very stringent in its application of the rules. The UK is where we have firms like StockPair and IG Index (UK branch).

 

How to Differentiate Between a Regulated Broker and an Unregulated Broker

 

It is very easy to tell the difference between a regulated broker from an unregulated broker.
a)      Regulated brokers will have no reservations stating on their website exactly what their regulated status is by listing their license number, regulating authority and the country their headquarters are located in. Unregulated brokers do not usually volunteer such information.
b)      Unregulated brokers usually have no information on their company ownership and structure, as well as exact location.
If in doubt, a trader can easily contact the regulatory authorities in any country where a binary options broker claims to do business in. This will usually sort out any questions as to whether a broker is regulated or not.

 

REGULATORY AGENCIES

 

4

 

The following regulatory agencies regulate and oversee binary options brokerages in their respective countries:

 

a)      US: Commodities and Futures Trading Commission

b)      UK: Financial Conduct Authority (FCA, formerly Financial Services Authority)

c)      Cyprus: Cyprus Securities and Exchange Commissions (CySEC)

d)      Malta: Maltese Financial Services Authority (MFSA)

e)      Japan:  Financial Futures Association of Japan (FFAJ)

f)      Australia: Australian Securities and Investment Commission (ASIC)

 

 

 


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