Shy Datika is one of the most knowledgeable people in the financial markets as well as binary options specifically as he has been there since the birth of the industry, as the founder and CEO of anyoption.
Now with major changes looming on the horizon, Finance Magnates met with Datika at the anyoption headquarters to hear his views on the current market as well as the future of the industry in general and his brokerage specifically. He talked about the IPO, how regulators should best protect traders, the costs and challenges of regulations and exciting new initiatives.
How do you see the regulatory landscape?
The changes in binary options regulations are part of a worldwide trend trying to increase financial transparency, just look at the fines tier 1 banks are getting for Libor manipulation and lack of transparency. While providing transparency the basic business context in the market has to stay intact, and the clients must be taken care of.
There is a fine line between positive and strong regulation changes – which its actions provide protection to its clients, or regulation that brings the opposite effect to the market and its clients and exposes the clients to new risks.
Regulators should ensure there is farther horizon and room for growth with transparency, even beyond the 100% growth it demonstrated year by year thus far.
How does anyoption protect its clients?
Since day one, we have built anyoption in a very organized manner even though we started in a new market as small as can be. My vast experience in the financial sector, banking, insurance and investments market, has helped in preparing the company to the level of reporting and analysis required day 1 like that of a mature company. Simple things such as appointing a compliance officer in 2008, or separating company funds and clients into separate bank accounts, to ensure complete separation of information and data, and other processes and procedures that are not obvious for a small and new startup.
Obviously these processes are harder to manage and carry with them additional costs, and most market participant avoid due to the added overhead. Sure, it’s as simple and straight forward as can be to manage all in a single account, – but it’s clear that client funds are NOT the company’s money. Coming from an organized market as the financial investments sector one is familiar with all these concepts and especially know what client money is, and how to treat it right. I am proud to say these methods and professional approach was adopted by anyoption before there were any binary options regulations by CySEC.
Are there issues that regulators are missing?
Regulations can be positive in many aspects; defiantly in protecting client funds. Having said that, there are situations where over regulations can destroy a market. Hence it is as important to protect the market makers who are supplying the service as those need to be able to build a sustainable business. No one wants the firms to lose money right, but rather to adjust for transparency and efficiencies. Just like in any other market regulation should enable service providers to grow with the market and enable innovation of new products for a win win and healthy market for its clients.
I am a strong believer in a strong cooperation with the regulator, as market experts we are able to work together and ensure positive changes. At anyoption we work with both the Israeli and Europe regulators constantly. Before the new law in Israel came out, I was involved with the drafts since 2006. The regulators usually don’t come from inside the industry, the current regulators did not work in the binary options industry before, they are open to learning and brainstorming before they put the final decision to which the market must comply with.
Where do you see regulators causing difficulties?
We are seeing CySEC moving the market towards a very significant change now. From an entity that issues licenses with rather weak inspection capabilities, to one that has very strong inspection capabilities. These change come as a result of the regulator knowledge and experience following the banking credit crisis, and the pressure put on CySEC by other European regulators, such as ESMA.
The new changes can bring a 180 degrees shift in the binary market;
In the last four months they issued a staggering amount of Circulars (regulatory notices), that companies need to respond to or comply with within a two-week time frame. This is almost impossible, as no company can change its technological array or its marketing array in two weeks. We can’t take down a campaign in two weeks, especially if it is run by an affiliate and not directly by the company. I believe the ‘urgent’ feedback shows the regulator does need more insight into the market processes and workflows before as it may harm the market.
Regulation is needed and I welcome it, especially if it’s a across all players. In the past decade, there are firms such as anyoption that carry a strong brand name and are known by traders and suppliers to be honest, good on our word, and fulfil our commitments on time. However, there are many unregulated brands out there. Firms working in Europe which are unregulated, outside of Europe unregulated, with unregulated affiliates – and that has to stop!
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This creates today an unbalanced market to compete in, giving an advantage to unregulated firms. They (unregulated firms) create a bad reputation to the whole binary options industry and cause ESMA and others to issue warnings against the total binary options market instead of going after the unregulated firms. 90% of complaints are against processes and workflows within the unregulated firms and their affiliates – The new regulation must ensure that with its ability for inspect, they ensure a fair and equal market.
The regulators in the USA, have shown a major shift in the market when they addressed all the unregulated brands and came down with hard demands on them, and I hope this will bring a positive change in Europe as well.
About the 5 second cancellation suggestion:
This is unprecedented in the financial market, I don’t know of a market maker, broker, exchange or trading arena where clients can cancel a trade. If I hedge a trade with a liquidity provider and a client cancels his trade after five seconds, what do I do with the hedge? Sell at a loss?!
This is against the entire business model of this market. During major news event such as an interest change by the Fed a trader can open a call and a put, cancel the losing trade after five minutes and have amazing guaranteed profit – this cannot happen. The regulator is trying to prevent a scenario where the unregulated companies do not offer the client the price he asked for, rather provide a different price, and if the client notices he has the ability to ‘reject’ the new suggested price offered by the unregulated service provider.
This fine line of rejecting a trade the client never asked for and rejecting the trade the client did ask for, can be detrimental to those regulated and fair providers that will have to adhere to the regulator and therefore reduce the payouts to 50%. We will have no choice! And the clients will lose because he will not be able to get 85% profit again when he is right.
What is the cost of all these regulations?
The direct costs are hundreds of thousands of dollars per month, adjusting one’s technology, dozens of internal and external lawyers and compliance experts that we employ. Indirect costs are so big it is hard to quantify – the whole marketing and customer acquisition processes change. Like in all markets when regulation is applied correctly it narrows the market and many providers exit. This is one of the advantages as it brings confidence to the market, clients and suppliers that only the right players are there.
How do you see the industry adapting?
I strongly believe the market will shift into a massive consolidation, where there are a small number of larger players. The market will be divided into a few strong platforms and “skins.” The challenge for the regulators will be to go after the unregulated firms and get them out of the market – stop banks and payment providers from working with them. This will stop new brands from popping out like mushrooms, and bring a new and healthy growth of new and innovative products.
As for the changes of the 5 sec cancelation and other changes, I have confidence in the regulator to do the right thing with the feedback from the market and adjust to help market growth.
What can we expect to see from anyoption in the near future?
We were looking to go public last year but the market environment changed very fast and we had to take time to adjust. In 3 to 4 quarters with the changes behind us we will launch to an IPO.
We are looking at the moment at a number of acquisitions around the world to add value to our existing product and market offerings. We are in the last stages of acquiring an ASIC license regulated company in Australia.
Also in Israel we are in the process of finalizing our license to be part of the new ISA regulation. ISA has accepted Binary Options as a financial product, and is in the process of outlining the acceptable client base and I am confident they will reach the same point as the European and US regulator.
About products, innovation and diversification
A great example of anyoption innovation is Bubbles. We are going to introduce a new product that is on the border between gaming and financial trading called bubbles. We are changing binary options from something that is numbers based to something much more visual and fun.
We are looking to offer products beyond binary options in 2016. Lower risk products such as structured products that are currently only available to big hedge funds and alike. This is offered now in structures of millions, tens of millions of dollars, we want to offer structured products in small amounts, $100,000, make it accessible to retail+ clients.
As my experience from the financial market and Fintech our vision continuous to grow into new products, as I am a strong believer that any company must stay innovative and offer new and different products to its client base.