The Cyprus Securities and Exchange Commission (CySEC) has proposed five key reforms for binary options trading, designed to tackle issues with the current framework, along with the addition of new conduct principles and protection measures.
The consultation paper is the result of concerns that the current framework is lacking in regards to investor protection, and it is hoped that the proposed standards will ensure the integrity of firms in relation to the Digital Options Contract.
The proposed reforms are:
- The removal of opaque strike pricing: Strike prices to be the same for all, and floating strikes not permitted.
- Lifting restrictions on exiting trades: CIFs to be required to provide a continuous two-way pricing. Clients will not be required to wait until the contract’s expiration point to exit their position.
- Banning sub-minute tenor trades: All contracts required to a minimum tenor of five minutes to eliminate shorter-term volatility, and help protect against ‘binary bets’.
- Quoting potential outcomes in real-time: Prices required to be quoted on an evolving bid-ask spread in order to clearly denote the percentage possibility of the befalling outcome.
- Standardising trading and settlement methodologies: Eliminating individual methodologies so that all algorithms for calculating the expiration and settlement values of the underlying market follow CySEC’s pre-set methodology.