Australian regulator proposes binary options ban

Binary options could be banned in Australia under proposals unveiled by the nation’s corporate regulator.

Australian Securities and Investments Commission (ASIC) has published a consultation paper in which it outlines its concerns about over-the-counter (OTC) binary options as well as contracts for difference (CFD) investments, such as foreign exchange trading.

In documents published alongside the paper, ASIC said licensed issuers received gross trading revenue of $490m from binary options and $1.5bn from CFDs last year “which can largely be attributed to a combination of net client losses and fees and costs charged to clients”.

ASIC said 80% of clients who trade binary options lose money while 72% of clients who trade CFDs lose money.

Citing its concerns about the amount of money being lost by consumers, ASIC has proposed banning all Australian-based brokers from having Australian binary options clients. It would also impose stricter conditions on the issue and distribution of OTC CFDs to retail clients.

“For many years ASIC has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us. However, we are concerned that consumers continue to suffer significant harm from trading these products,” said ASIC commissioner Cathie Armour.

“A complete ban would prevent retail clients from losing money trading binary options. We believe binary options provide no meaningful investment or economic use, and have product characteristics similar to gambling products.”

New restrictions to CFD trading would include the imposition of leverage limits, and the implementation of a standardised approach to automatic close-outs of client’s CFD positions in margin call.

ASIC said it is seeking to take draconian action after a series of interventions have failed to have the desired impact on the sector and consumer losses.

It has in recent years taken enforcement action to address instances of misconduct and last year introduced the ASIC Client Money Reporting Rules.

The Australian market for binary options and CFDs is growing rapidly, with the number of clients more than doubling in the past two years to one million people.