The Cyprus Securities and Exchange Commission (CySEC) has just released a new circular that is drastically changing the business operation model of regulated binary options companies. The document released by the regulator obliges substantial changes to the software that is currently being provided by most technology providers in this industry.

According to the new requirements the new products will have to comply with a set of regulations. Clients of binary options brokers will have to receive adequate information about the contracts that they have been trading to ensure transparency, while brokers will need to “operate in a way that is fair to clients”. Binary options brokers and their technology providers have until the middle of July to comply with the changes.

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Binary options with a duration of 30 seconds are not considered to fall under the new regulations.

Transparency Becomes a Priority

The changes come after numerous complaints from clients in the European Union to their local regulators that have triggered the European Securities Markets Authority (ESMA) to pressure the Cypriot watchdog to rein in corrupt practices in the industry that are putting traders at a disadvantage.

Looking at the specific requirements for trading platforms, CySEC starts with strict requirements about the underlying assets that are traded by the clients. For example if a client is trading crude oil, the relevant futures contract from which the prices are displayed on the platform has to be displayed (i.e. WTI Crude Oil May 2016 NYMEX).

Bid and Ask Prices and Expiration Rates Changes

The second requirement for binary options trading platforms concerns the price stream that they are looking at. In contrast to the current single price feed, brokers will have to display continuous feeds with bid and ask quotes throughout the lifetime of the option. The field with the bid/ask price feed must be clearly visible to the client right next to the exercise price of the binary option.

Binary options brokers will also have disclose their methodology when calculating the strike price of the option and publicize the providers of the feeds they are using. At the expiration of the binary option a pop up message with the strike price, the bid, ask and the last price (if applicable) should be on display for the client. Any rounding will also have to be disclosed.

Canceling a Binary Option Purchase

After an initial consideration of introducing a cancellation option on every purchase for up to five seconds, the CySEC has shortened this period to three seconds. Clients that believe that they got an unfair execution price will have the ability to cancel their purchase within three seconds.

If a brokerage is offering a buyout of the option of the client, it must disclose the methodology used when determining the conditions of the buyout.