Cyprus: The Restriction Binary Options Trading In Cyprus

Last Updated: 19 August 2019
Article by Melissa Fikret
Most Read Contributor in Cyprus, September 2019

What is Binary Options Trading?

Binary Options Trading resembles a method of trading through speculation on the price of different forms of commodities or assets with a predetermined risk which offers potential for profit or loss. It is basically a form of trading which offers two possible outcomes – either the price of a particular asset or a commodity increases or it decreases. The investor must speculate which direction the price will move (upwards or downwards) in a specified time in order to have financial gains from this method of trading.

The Temporary Restriction Measures Implemented by ESMA

The European Securities and Markets Authority (ESMA) which acts as the European Unions' markets security regulator, announced on the 1st of July 2019 that the temporary measures prohibiting the marketing, distribution or sale of Binary Options to retail clients in the European Union would not be further renewed and hence they expired in July 2019.

The reasoning behind ESMA's decision of non- renewal of its temporary prohibition measures was a result of the fact that most members of the European Union had already adopted and implemented permanent national product intervention measures with regards to Binary Options, which are in most instances equally rigid as those which had been previously implemented by ESMA's temporary measures.

Restrictive Measures Implemented in Cyprus

On the 10th of July 2019 the National Competent Authority of Cyprus regarding market security regulation, Cyprus Securities and Exchange Commission (CySEC) announced the implementation of national measures to restrict the marketing, distribution and sale of Contracts for Differences (CFDs).

What are Contracts for Differences (CFD's)?

The contract for differences gives investors an opportunity to create profit from price movement of assets or commodities, without owning or buying the underlying asset but merely by speculating the movement of the price of an asset or commodity. This is accomplished through a contract between investor and broker, and does not utilize any stock, or commodity.

The Need for Investor Protection

Over the course of time investment firms have exhibited and adopted aggressive marketing techniques, essentially without providing investors with the necessary and adequate information regarding the dangers and risks which are inherently ingrained in speculative trading. After Contracts of Differences were sold, investors were often enabled by the broker to trade at almost unrestrained levels of leverage, whilst they were often encouraged and motivated to do so through the employment of additional marketing of bonus promotions offered by the investment firms.

A large number of these investments had undesirable outcomes as many investors ended up losing their entire investment capital and in some cases the results represented negative balances on the investors trading accounts.

In 2015 CySec designed and launched a Supervisory Action Plan which targeted to curb and regulate the misconduct of Cyprus Investment Firms following numerous complaints from disgruntled investors. The results from this Supervisory Action Plan revealed that a large number of Cyprus Investment Firms had been involved in serious misconduct.

In the light of the manifestation of such misconduct on behalf of Cyprus Investment Firms in combination to the expiration of ESMA's security regulation measures, CySec introduced national measures, under the title ''Cyprus National Product Invention Measures''. These measures are essentially reviving the ESMA temporary intervention measures making them into permanent national measures in relation to the marketing, distribution or sale of Binary Options, in or from Cyprus.

In the wake of the permanent implementation of the ESMA measures, CySEC published their Public Policy Statement on the 10th of July 2019 which prioritised the effective Decision on Binary Options to ensure that no Binary Options are marketed, distributed or sold from or in Cyprus.

The Exceptions

Pursuant to Article 42 , of the Markets in Financial Instruments Regulation (EU) No. 600/2014, the marketing, distribution and sale of Binary Options to retail clients is permanently prohibited from or in Cyprus, regardless of whether these are traded over the counter or on a Trading Venue.

However, the Policy Statement explicitly excludes some forms of Binary Options from the above mentioned Policy Decision on Binary Options:

  1. Binary Options for which the lower of the two predetermined fixed amount is at least equal to the total payment made by a retail client for the Binary option, including any commissions, transactions fees and other related costs.
  2. A Binary option that meets all of the three (3) following conditions:
    • the term from issuance to maturity is at least ninety (90) calendar days;
    • a prospectus drawn up and approved in accordance with the Prospectus Directive (2003/71/EC) or in accordance with the Prospectus Regulation (EU 2017/1129) is available to the public; and
    • the Binary Options does not expose the provided to market risk throughout the term of the Binary option and the provided or any of its group entities do not make a profit or loss from the Binary option, other than previously disclosed commissions, transactions fees or other related

The reader may access and read the entire announcement of the Policy Decision issued by CySec regarding the implementation of Permanent National Product Intervention Measures here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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