Industry News

Binary options are not problematic, but illegal, offshore firms defrauding investors with binary options trading schemes are, IIAC letter states

By James Langton |

Although Canadian securities regulators are seeking a ban on binary options trading, the Investment Industry Association of Canada (IIAC) is proposing that registered investment dealers should be allowed to offer properly regulated trading in these vehicles.

Binary options are not intrinsically problematic, says the IIAC in a comment letter to the Canadian Securities Administrators (CSA), it's the illegal, offshore firms that are defrauding retail investors with binary options trading schemes that are truly the issue.

"The IIAC and its members urge the CSA to prevent illegal binary options trading in order to protect investors and contribute to the integrity of our industry," the letter states. "We believe this must be done by allowing IIROC-regulated brokers to offer binary options."

A regulatory ban on binary options trading likely won't deter criminals from operating their schemes, the IIAC's letter says. Instead, the IIAC suggests that international law enforcement agencies, including the RCMP, must be engaged to shut down these schemes and that securities regulators should step up their efforts to warn investors about these scams.

At the same time, the IIAC also says that regulators should consider "the possibility of registering certain regulated firms to trade this product legally, with no risk of fraud, and with a strict regulatory framework to protect Canadian investors."

In particular, the IIAC recommends that brokers regulated by the Investment Industry Regulatory Organization of Canada (IIROC) should be allowed to offer binary options to retail investors. As it stands, the IIAC warns that the CSA's proposed ban could disrupt legitimate binary options trading with sophisticated, institutional investors.

"Dealing with an IIROC-regulated firm will allow investors who wish to trade binary options to properly understand the product as well as the significant risks involved," the IIAC's letter says. "Furthermore, there would be no risk of fraud in regulated and legal trading as is present on illegal trading platforms."

Photo copyright: gonin/123RF