Watchdogs move to ban binary options over fraudulent schemes
BARBARA SHECTER
Canadian securities regulators are moving to ban binary options trading — following an international lead — after warnings to investors failed to keep people from losing money to fraudulent schemes.
Binary options are very shortterm bets on the performance of an underlying asset, such as a stock index, currency, or share. At the end of the investment period, which sometimes lasts only minutes, the investor receives a predetermined payout or loses the entire amount.
But regulators say that in many cases no actual trading takes place, and the transaction “takes place for the sole purpose of stealing money” after luring in victims with small early returns.
The reform proposed Wednesday by the Canadian Securities Administrators, an umbrella group for watchdogs across the country, would prohibit advertising, offering, selling or trading a binary option to an individual.
“This would include making it illegal for online advertisers to advertise binary options sites,” said Alison Trollope, director of communications and investor education at the Alberta Securities Commission.
In March, provincial securities watchdogs joined forces to try to shut down the mechanisms used to entice investors into binary options trading schemes, which they said were largely fraudulent.
This included trying to persuade social media websites and other online advertising venues to decline ads and promotions for the “get rich quick” schemes sometimes marketed under names including cashor-nothing options, digital options, fixed-return options, or one-touch options.
Louis Morisset, chair of the CSA and chief executive of Quebec’s Autorité des marchés financiers, said Wednesday that regulators are “deeply concerned” by an increasing number of investor complaints and losses tied to binary options schemes.
There were 800 complaints last year alone, even though no one is even registered in Canada to offer this type of trading.
About 95 per cent of the transactions are done using cards and the money is often transferred offshore. Participants also fall victim to identity theft, regulators say.
The use of online advertising and social media to market the schemes makes it difficult to locate those behind them, who market watchdogs believe are primarily operating from overseas.
“The proposed ban is critical to our efforts to help stop binary options fraud in Canada,” Morisset said in a statement Wednesday.
Regulators in Alberta and Quebec will accept comments on the proposed ban until May 29. In Manitoba and Saskatchewan, the comment period runs until June 28. Across the rest of the country, those interested in commenting have until July 28.
Measures to curtail binary options trading are under consideration in international jurisdictions where it has been identified as a problem. Israel has moved to ban binary options, while Cyprus has proposed a ban on bets that last less than five minutes.