Japan’s FSA reviews the binary options market, freezes new activities

Updated: more details on the drafted framework: 1. Providing investment knowledge for the client (1). Risk and product details disclosure (2). Client P/L disclosure (3). Self-restraint of Marketing 2. Restraint excessive trading (1). Criteria of the Account Opening (KYC like knowledge, experience, income etc.) (2). Upper limit of trading 3. Providing effective hedge function (for […]

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Updated: more details on the drafted framework:

1. Providing investment knowledge for the client

(1). Risk and product details disclosure

(2). Client P/L disclosure

(3). Self-restraint of Marketing

2. Restraint excessive trading

(1). Criteria of the Account Opening (KYC like knowledge, experience, income etc.)

(2). Upper limit of trading

3. Providing effective hedge function (for client)

(1). Configure “expiry time” of the option for more hedge- to use.(e.g. x hours etc.)

(2.) Check for client’s trading purpose

4. Providing product with relevant trading terms and conditions

(1). Calculation method of trading terms disclosure (e.g. premium, payout ratio, strike price, etc.).

(2). Definition of “sold-out”

(3). Data keeping (5yrs) with internal monitoring

As revealed here in a guest post 2 weeks ago the FFAJ (Japan’s Financial Futures Association) is considering creating binary options specific framework.

Presently, the JFSA has also has decided to review the booming binary options market in Japan, which has emulated the rapid growth that took place in forex trading a few years ago. In 2012, binary options were actually the main growth driver for the struggling forex market in Japan which otherwise was on a free fall since the leverage caps took place in the past 2 years.

Currently, the JFSA is restricting new players or technologies from entering the market until a ruling is creating. However is hasn’t restricted existing players from continuing to operate. Several work groups were established by the regulator to try and determine the regulatory framework for the market. For instance one of the issues concerning the regulators is which kind of options should be allowed and which should not. High/Low and 60 second binary options is something the regulator is monitoring very closely in particular. It’s also possible that they will initiate hedging requirements for binary options that are primarily market making products.

Speaking to several technology providers operating in Japan we’ve learned that those firms with existing operations are set to profit from the interim situation – as they aren’t being restricted by the regulators. Only new entrants are being influenced.

We’ve also learned that the main topics that will be discussed by the regulator include:

  • High/Low option – can it be considered an option?
  • Time frame of an option – 60s? 10m? how short can be considered a gamble or an option?
  • How brokers control risk (hedging, risk control functions, etc)
  • Educate clients about binary options as hedging instrument

The decisive meeting is currently set for December 12th. However with Japanese elections on December 16th the cards may be shuffled again and the decision making process as well as the meeting’s date may change again.

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2 Comments

  1. melanie

    5. No exercise into the underlying so does it qualify as being termed an ‘option’ anyway ?

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  2. Michael Greenberg

    that’s one of the issues they are faced with..

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