Market Regulation – Why Regulate?
Binary Options, as we know them today, are a recent financial instrument dating back to 2008.
However Market Regulation of Binary Options only appeared in 2012 by the Cypriot Regulator CySEC.
Today, this organism is probably the most respected regulator of Binary Options Brokers.
However Options are very old. The first recorded options speculator was Thales, a Greek philosopher and astronomer. According to Aristotle, Thales “having observed through his study of the heavenly bodies that there would be a large olive crop, he raised a little capital while it was still winter, and paid deposits on all the olive presses in Miletus and Chios, hiring them cheaply because no one bid against him.”
A bountiful harvest and a great demand for the olive presses proved that Thales’ predictions were correct, and with his leasing contracts already paid, he hired out the presses with large profits.
The financial crisis of 2008 coincided with the decision by the SEC (Securities and Exchange Commission) to approve listing cash-or-nothing binary options. Following this decision, binary options were no longer limited to being traded only on the exchange. Between 2008 and 2009 the first Binary Options Brokers began to appear operating with the model we know today.
Binary options were not initially seen as a financial instrument, such that in Malta, until 2013, they were regulated by the authority that regulates casinos and gambling and not by the body that regulates financial instruments.
Market regulation: CySEC
In May of 2012 the CySEC (Cyprus Securities and Exchange Commission) announced a change of policy in relation to the classification of binary options as financial instruments.
Binary options platforms operating in Cyprus (where a large proportion of those operating in Europe are established) had six months from the date of the notice to deal with regulations.
It was thus the first European regulator to enforce market regulation in the binary options market.
The first CySEC regulation was issued in January 2013.
Market Regulation: other regulators
Today there are several regulators in various parts of the globe.
However, not all regulators can have the power of CySEC nor its rules are so protective of customers.
A good part of the other regulators are in offshores.
Many of these regulators do not really have much power to do something, so if your brokerage has only offshore regulation, it is important to know how good a regulator is and to know more about the broker.
Market Regulation – A Broker who is regulated by a body like the CySEC ensures that:
- The Broker’s Platform is secure, reliable and works with official financial data
- That the customer’s money is insured
- That transactions are monitored by a third party to ensure impartiality
- That the Broker has a financial background
- That the Broker works in accordance with the regulation of the financial market where he operates
The CySEC uses punishment through fines to deter Brokers from impropriety, potentially fining a Broker around 1 million USD.
In this way the trader has the protection of a body that exists to make sure that the rules are complied with and that there is honesty and transparency.
However, if we are trading with a Broker who is not regulated by CySEC or another official body, we have no protection because nobody has the ability to intervene against unregulated Brokers, and that is why Market Regulation is so important.
This is why we should only open an account at a regulated Broker, such as the ones in this table, and why we don’t run after bonuses or offers from other Brokers who later only bring problems.
Since 2015 CySEC has been improving the rules so that brokers increasingly use non-abusive practices and clarify their customers about the risks. Nowadays, all the publicity material of a regulated broker has to alert to the existence of risks.
At the end of 2016, CySEC issued a new directive prohibiting the use of Bonuses, because it understood that it was a way to entice people to deposit amounts higher than they were originally arranged and that the rules for granting the bonuses as well as the rules to which they the customer was subject because of these same bonuses that were abusive. You can read the information of CySEC > HERE <
The rules that the regulator has been putting to brokers are in the sense of clarifying the market and making it simpler and fairer for the customer.
On the other hand, the client must look for the brokers that are regulated, otherwise, they will go after offers that others can give, but in the end, they get tricked by brokers who are not regulated, that do what they want with the money, using all these abusive methods that CySEC and other European regulators have been prohibiting.