Regulators Prepare For MiFID II

Change Is Afoot

The regulatory landscape for binary options has been getting tougher and tougher for the brokers, but this is a good thing. It helps keep the shady, unregulated brokers from doing too much damage and it helps promote the legitimate binary options industry. Now it looks like things are going to get even tougher. The MiFID II is set to take effect early next year and it, along with changes suggested by CySEC, will completely alter the face of EU style binary options as we know it today.

What is the MiFID II. The MiFID is the Market in Financial Instruments Directive, it is the EU’s legislative framework for the regulation of financial markets and protection of consumers. Up to now it did not recognize binary options as a financial instrument and that is where a lot of today’s regulatory issues stem from. Cyprus chose to recognize and regulate binary options which means, because Cyprus is a member of the EU, that those registered and regulated binary options brokers may offer their services across borders within the EU so long as they register with the local authorities as well. Some local agencies took this to heart and allowed the brokers to function, others did not but the prevailing sentiment was that CySEC regulation is legal within the EU.

The MiFID II is a revised version of the original legislation that, among other things, recognizes binary options along with CFD’s and forex for the purposes of regulation. It is scheduled to take effect January 3rd, 2018 and is already forcing change within the industry. This new legislation is aimed at standardizing trading/platform function, increasing transparency, protecting consumers and the public. One of the many changes that have already taken place is the suspension of “old-style” bonus schemes that tie up deposits and prevent withdrawals.

The British FCA is the latest to get on board. The agency says that binary options are the number one asked about subject and made up more than 17% of all complaints in 2016. The reason is that many UK citizens are interested in trading and curious to know which broker’s are safe and which are regulated. The FCA has been on the fence about binary for many years, teasing us with hints they would regulate but never doing so. The agency now says that it expects to have full control of binary options regulation by 2018 in order to comply with the MiFID II and MiFIR (Markets in Financial Instruments Regulation).

CySEC of course has not been sitting still. They have recently revealed the framework for what they’d like to see binary options become, exchange traded. The new regulations would require more transparent pricing of options, a clearly displayed bid/ask spread, pairing buy/sell orders together to manage risks and others that sound very much like NADEX to me. NADEX is of course the North American Derivatives Exchange and the only US CFTC regulated binary options exchange that I use and can recommend at this time.