Australia Seeks to Ban Binary Options TradingTisha Walden | 29 Aug 2019
It may not be long before binary options are banned across Australia. The country’s corporate regulator recently unveiled a new proposal to bar locals from engaging in the popular trading practice.
The Australian Securities and Investments Commission (ASIC) recently posted a consultation paper in which it has highlighted concerns about over-the-counter (OTC) binary options and contracts for difference (CFD) investments. A good example of the latter would be foreign exchange trading.
In additional documents published alongside the paper in question, ASIC noted that licensed issuers gained gross trading revenue of $490m from binary options and another $1.5bn from CFDs in 2018. The earnings can largely be attributed to a combination of net losses from clients, and costs and fees charged to the same clients.
According to ASIC, around 80% of clients who trade binary options lose money. In comparison, 72% of those clients who trade CFDs lose money in the process. Unlike online casino games that have a clear-cut payout ratio and that are closely regulated and monitored for fairness, binary options are also far more volatile, and far less easy to regulate.
Concerns Raised Around Losses
Out of concern for the amount of money being lost by traders, ASIC has now suggested a ban of all Australian-based trading brokers who aim to service local binary options clients. The ban would also include stricter controls on the distribution of over-the-counter CFDs to retail consumers.
According to ASIC commissioner Cathie Armour, the organisation has taken strong action to protect binary options and CFD traders for many years now using its available range of regulatory tools. However, she said, the organisation is still concerned that consumers are suffering significant losses and harms from trading these products.
Armour says that a complete ban would prevent clients from losing money while trading. She further iterated that ASIC believes that binary options offer no authentic economic or investment worth, and are unlike other gambling products like pokies or table games, or sports betting.
Stricter Regulations to Come
New CFD trading restrictions in Australia would include the implementation of leverage limits and a standardised approach to automatic close-outs of trading clients’ CFD margin call positions. ASIC is also seeking to take firm actions after a number of interventions (such as the ASIC Client Money Reporting Rules) have failed to curb consumer losses within the sector.
The organisation has been recognised for taking enforcement action last year to address misconduct in the trading sector, but regardless, the local market for CFDs and binary options is continuing to grow. Now that the number of clients has more than doubled to a million people over the past 2 years, ASIC must take rapid action to ensure their safety.