Binary Options CySec Regulation: Everything You Need to Know

Last updated on April 20, 2016

Cyprus Securities and Exchange Commission – Regulating Binary Options

BOTS.com team decided to investigate the CySec regulation and to provide you with a detailed report about the upcoming Cypriot regulation. If you don’t have any idea what regulation is all about, please visit this link (Regulation and Binary Options) to learn more before reading this new article.

All You Need to Know About CySec Regulation

After almost three years waiting, 2013 is expected to be crucial for binary options trading; the first licenses would be granted by the Cypriot regulators to a few leading brokers. Not all brokers would be regulated of course, just a few leading companies which already began process of regulation. Seems like Binary Options is will soon be a safer place for new and veteran traders as well. So what can we expect from the CySec Regulation? Read below!

*Update (November 2015): A lot has happened since regulation was just an optimistic thought. Nowadays a brokerage without at least a CySEC regulation is often viewed as too risky and most traders stay away from such companies. The Cyprus Securities and Exchange Commission (CySEC) is the go-to watchdog for almost all brokerages who want to establish themselves as trustworthy financial entities and leaders in the Binary Options industry.

CySEC is ruling in terms of regulation, and the minimum qualification for a broker these days is a CySEC license. It’s a two way sword however, as some voiced concerns that the Cypriot regulators are making it easy for brokers to get regulated. It is true they are not the most fearsome regulatory authority and they mostly issue warnings about brokers, but we’ve also seen fines given). However, if your broker is regulated, you benefit from a higher degree of transparency because at least you know the name of the company that owns the website/brokerage, they have to declare their address and you can file complaints against them with the CySEC. Long gone are the days when all you knew about your brokerage was their URL (web address) and a phone number. Long gone are the days when your broker simply disappeared in thin air and you had no idea where to start looking for them.

What do the CySec Regulators require from Binary Options Brokers?

Completed application form as provided by the CySEC
Company legal documents (certificate of incorporation, Memorandum and Articles of Association, etc)
Certificates of the registered office in Cyprus (confirming there is a registered company in the Republic of Cyprus)
Clean criminal records and Certificates of Good Standing for the shareholders with special participation, the Board of Directors and employees of the company
Two-year business plan
Financial statements for the past three years

Conditions for granting a license:

Minimum issued share capital
Efficiency of the company’s internal control mechanism (to be described in the procedures manual)
Company’s structure and organisation designed to minimise the risk of conflict of interest between the client and the company or between the clients
Suitability of the company’s shareholders and directors
Company’s technical and financial resources

*Update April 2016: The CySEC has recently decided to turn up the heat on binary options brokers. Well, it’s a thing they should have done a long time ago but as they say in Cyprus: better late than never. Basically, these new rules are focused on transparency in the field of binary options and will make it easier for the investor (you and me) to see what they are buying, how is the price of an option created, who is the quote provider, how is the expiry price calculated (mathematical equation) and many other things like that. Next we are going to list the most important ones but we will also give you a link to the official CySEC webpage so that you can read the full document.

The following contains quotes from Circular No. C126 issued by the Cyprus Securities and Exchange Commission, April 14, 2016. To read the full document follow this link.

Information on the identification of the underlying asset of the binary option

Providing clients with sufficient information before buying the binary option regarding the identification and the type of the underlying asset of the binary option, including the trading venue [e.g. WTI Crude Oil (Dec 15) NYMEX]. This information is fully integrated and clearly displayed at a specific section on the trading platform or a relevant link referral to the website of the CIF is available.

Information regarding bid and ask prices of the underlying asset of the binary option – Strike price of the binary option

Providing to clients a continuous (per second) and smooth presentation of the flow of the bid/ask prices of the underlying asset of the binary option throughout the lifetime of the asset, such as those taken by the feed provider.
Disclosure of the bid/ask prices of the underlying asset of binary option in a prominent way in the trading platform. For example, disclosure of the bid/ask prices on the area where the exercise price is presented, in which clients may buy the binary option.

iii. Adequate explanation/description of the bid/ask, and strike, prices in a prominent way in the trading platform (e.g. via a pop-up message). In particular, with regard to the explanation of the strike price, the methodology used to calculate it, whether it differs/deviates from (bid + Ask)/2 and under what circumstances/conditions this duration is possible.

In case where bid/ask prices are not available for certain underlying assets (e.g. index DAX and FTSE 100), presenting the last price of the underlying asset and clearly indicating the trading venue.
Publication of the feed provider details, e.g. in the pop-up where the bid/ask price is explained/described.

Information on the bid/ask, and/or last, prices, at the expiry of the binary option – Expiry price of the binary option

Providing to clients the bid/ask, and/or last, prices at the expiry of the binary option.
Adequate explanation of the expiry price of the binary option and the methodology used to determine the expiry price. In particular, among others: Reference to the relevant mathematical equation for the calculation of the expiry price [i.e. (bid + ask / 2), (last + bid + ask / 3)]; explanation of the prices which constitute the expiry price; explanation of any rounding of the expiry price of the binary option; reference to the feed provider details.

iii. Maintaining historical records with the bid/ask, and/or last, prices at the expiry of the binary option, which they are accessible by clients for the trades they executed.

The above information is concentrated in a prominent way in the trading platform. This information is fully integrated at a specific section on the trading platform or a relevant link referral to the website of the CIF is available.

Explanation of the graphs presented to clients

The graphs presented in the trading platforms are accurate, clear and understandable to the average investor as to the describing illustrations. For example, when the buyout, or average bid/ask, prices are presented, a clear reference to the price presented and explanation of the graph.

Information on the availability of the binary option

Possibility of entering buy orders of binary option (call and put), at any time and for any binary option that is available.
In the case of unavailability of purchasing a binary option (call and put), clear and visible information on this fact, as well as the circumstances/conditions under which this product is not available, before clients attempt to enter a buy order.

Buyout option of the binary option from a CIF

In case clients are provided with the possibility of the option of a buyout of the binary option from the CIF, full and accurate explanation of the buyout methodology.

Cancellation option of the transaction in a binary option

Providing clients an option to cancel their transaction in binary options, within a reasonable time after its execution, indicating any applicable conditions. The length of this option is not less than three seconds after the purchase of the binary option

Provision of services in relation to binary options that have investment features

Provision of services in relation to binary options that are constituted and traded in a manner similar to other derivatives and ‘traditional’ financial instruments included in the Law.

Binary options with duration of 30 seconds are not considered to fall under the above.

CySEC requires CIFs (Cypriot Investment Firms) to comply to these new rules “…immediately and not later than three (3) months from the date of this circular”. I believe this also marks the start of a new era for binary options and sets the stage for a more professional, transparent and serious approach to binary trading. Finally we will get explanations regarding our expiry prices, we will get clear and accurate charts and we will know how the price of an option is calculated. Great! Polish your trading skills because binary options are taking over the mainstream trading world.

What are the Benefits of CySec Regulations?

For us, the Traders

When a company is regulated, it definitely means it’s safer and more trustworthy than most other unregulated companies. Nevertheless, as I said before, it doesn’t mean that the unregulated company is unsafe. When a company wants to get regulated it must provide almost all of its financial reports and internal information to the authorities, making all financial reports transparent. Businessmen and companies are never too eager to show the public their financial reports, especially when the company is not a public company. Besides total transparency, the company is required to prove that it’s financially strong enough to withstand all obligations to other parties and to sign an agreement with the authorities.

A website can disappear in hours or even minutes, with all your money. If all you know about your broker is a web address, what are you going to do in the eventuality of a scam? You cannot go to the Police or any other authority saying “I got scammed by someone I don’t know. I have sent them money without knowing their name or their address” because they’ll probably laugh in your face. Well, maybe they won’t laugh but they won’t be able to help without even basic information like “What is the name of the company”. All this has changed once brokers “embraced” the CySEC regulation. Now you know who you’re speaking to and to where you send your money. Considering all this, it is definitely safer to trade with regulated brokers.

For the Brokers

As I mentioned above, no businessmen desire to disclose private financial information and no company wants to reveal its financial situation to the competitors. However, that’s just the way it is. If you don’t want to get regulated, it’s ok, but be aware that your reputation will surely have to suffer and in time, certain legal action could be taken against your company (that’s a possible side effect, but I don’t see something like that happening in the field of Binary Options Trading). Anyhow, regulation could increase competition, increase the reputation of the field and increase safety of transactions, hence, a regulated broker would enjoy better reputation among clients than an unregulated one and of course, a regulated field like binary options could very well attract more crowd. In fact, that is the main advantage of regulation for brokers: more clients. It’s a well known fact that the binary options industry is plagued by scammers and unprofessional companies. This fact translated into a bad reputation for binary options in general and people soon became afraid to invest so the “good guys” had to suffer because of the “bad guys”. Now that CySEC regulation is in full effect, clients are starting to come back to binary options as they feel more confident about the overall environment. Of course this benefits the brokers that choose to become regulated because now most clients choose regulated brokers over unregulated ones.

For more Information about the Cyprus Regulation, Check out CySec official website in this link.

***BinaryOptionsthatSuck.com expects the first Regulation licenses’ to be issued on 2013. Our team will keep monitoring. Please join BinaryOptionsthatSuck.com newsletter to stay updated with the latest development. *Update (November 2015): First licenses were issued and many brokers kept applying for regulation, with new ones joining this safer and more professional environment every day. It has to be said that now, at the end of 2015 the binary options industry is a lot safer than when we first wrote this article.

p.s

Many Thanks to Bots.com Team and fellow traders for their detailed research and hard efforts acquiring this information. Finding real and reliable information on Binary Options regulation is a tough job, without the help of my team and readers I couldn’t have written this article. Thanks again and keep up the great job providing such comprehensive information and reviews about BO.

posted in Binary Options Articles • 4 Comments

4 Responses to “Binary Options CySec Regulation: Everything You Need to Know”

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Bogdan C
12/06/2012 17:14

Well it's a lot of things
Well it’s a lot of things here to explain. The vanilla options are about buying or delivering an underlying asset at a given price (the strike). The price, or the premium of the option is the price of the operation itself: “how much would you pay to buy at expiry a given underlying at a given price ? or how much would you pay to sell it a given price?” . And for the seller would be “how much would you like to get to assume the risk to deliver the buyer an underlying at a price which you may not like, or to buy from the buyer this underlying at a price you may not like at the expiry” ? While binary options are more straightforward. I call them “bets with a market value”, and are divided into expiry, or european binaries, and touchies, or american binaries. But actually whatever can be defined as a bet is a binary option, such as Obama vs Romney or the end of the world on Dec 21. An expiry option sounds like “What’s the chance for this to finish higher than X at expiry?” while a touch sounds like “What’s the chance for this to touch X until expiry?”. The most interesting by far are the touchies, because the price at expiry is only once, but it can take many paths until it gets there. Consequently, the reverse of an Expires Higher option is the Expires Lower, but the reverse of a One Touch is the No Touch. Another special class is the Double Touch, which requires the market to blast two touch levels , one higher, one lower. Its opposite is “No Double Touch”, which requires the market to not blast both touch levels. 99% of the websites consider erroneously that the opposite of a Double Touch is a Double No Touch, which requires that the market touches none of the two margins, but this one is the opposite of an Either/Or touch, which requires that the market hits at least one of the touch levels.
Now the most important topic is the implied volatility, also known as volatility in any option-related topic that does not refer historical volatility. Historical volatility is the standard deviation measured on the underlying. Implied volatility is that volatility number which equates the option price. So if someone tell you that this “13000 March Call” for DJIA is X, the implied volatility is the volatility which, placed into the model, gives you the same price as the requested one.
Vega in particular is the sensitivity of the option to changes in implied volatility. For instance for a One Touch option vega is a bell-shaped price-volatility function, with the tip of the bell more skewed towards the touch as the implied volatility is higher. This is for the One Touch. The expiries have a different curve. I can’t really see them too separate. To me, at least when I trade binaries, I feel both as a unique parameter. As I trade 5-minute options, for me is pretty simple to see the volatility, as prices jump suddenly after important market movement has happened or when important market movement has to come. For instance, when macroeconomic releases coincide with the opening of the american markets.
Theta is simpler to understand. One Touch options have a continuous decaying theta, as they are in the money only in the event of a touch. No touch options have a continuous growing theta, as they are out of the money only in the event of a touch. Expiry options have a positive or negative theta. If the market is on the winning side, theta is positive, if the market is on the losing side, theta is negative. These options look very much like a soccer match. Say you bought a bet that A team bets B team. Score is now 1-0 for the A team. As the match is going on and time passes by, the value of this option is slowly going up, because the time left for team A to not win is less and less. The buyer of an option that B team wins is in the symmetric position, as he sees the option diminishing every minute, as there is less and less time for the B team to equalize the score. Theta gain/decay accelerates as time to expiry passes by. Needless to say, if the score is equal, both options are losing, so both thetas are going down.
In the end, the best way of knowing how greeks work is to watch and trade real binaries, that are instruments that have established strikes , not these gambling jokes that have the current quote as a strike. Look at 5-minute binaries, and in one hour you can see 12 full cycles, that could be seen in 12 hours of one-hour options or 12 days of daily options. And then you will understand the influence of the greeks. As for studying the greeks themselves, read at least the books I’ve recommended or look on Hamish’ site https://www.binaryoptions.com .
essop
12/06/2012 06:32

please explain theta and vega also
please explain theta and vega also explainvo and bo thanks
Scitious
12/05/2012 16:08

Bogdan what
Bogdan what? C? You almost got me confused and thinking you are the real Bogdan G.
And one more thing: why do you involve Theta and Vega when talking about Binary Options? Greeks don’t apply to BO, just to VO (and of course some other types of options). Furthermore, by “selling” are you by any chance referring to “writing” options (Sell to Open)??? You seem confused and mix BO and VO
Bogdan C
12/04/2012 22:24

As usually
As usually, regulation doesn’t care about the quality, it doesn’t influence actually anything that the trader depends on: offered products and pricing, platform facilities, pricing and execution. It’s what I try to do with my website thebinarystandard.com. So, brokers are limiting and twisting the instruments to the point they become actually something else than the name that’s on them. For instance I should be given the right to Buy/Sell an option at any given time (except some seconds before expiry). Not having one of these rights enabled creates actually a different option, no longer a “One Touch”, because the option features are different compared to the “book” version of the option. And the examples can continue, with a lot of limitations, including in the offered option types, in order to push the trader towards a faulty trading. Strategies like selling volatility or theta gaining are completely blacklisted by 90% of the binary brokers, that design their products and platforms specifically so that the trader will not even think about several strategies. For instance, which brokers offer quick options? (like 5m expiry)? Which brokers offer Double Touch ? Which brokers allow selling options ? Of these, which brokers allow selling Double Touch ? And who among them allows a customization of the option’s behaviour? (for instance liquidation triggers with AND/OR conditions) ? This is a mass deception, induced by dozens of binary brokers that come with the same variations of that Spot Option platform, while the institutionals are getting more and more bang for the buck with the new platforms resulted from the Frank-Dodd Act – not only that platforms offer a plethora of products, these are even multibank quoted! I am trying to push for a new platform model, so that we, the binary traders, are better served! A platform to allow trading bespoke options, customized the way WE perceive the risks, not the crap that the brokers want! However, there is no indication that the monolithic group of SpotOption branded group would be willing to make a change…