CySEC's Demetra Kalogerou Talks Binary Options, Regulatory Headwinds

Forex Magnates checked in with Demetra Kalogerou, Chairman of the Cyprus Securities and Exchange Commission (CySEC).

cysec3.) Binary Options are regulated in Cyprus as a financial Investment instrument while in other jurisdictions around the world they are considered a form of gambling and require a gaming license. How do you see the best way to understand and regulate binary options and can there be changes in the way Cyprus regulates binary options in the future?

The increasing proliferation of the financial binary options was a trend strongly observed in the securities markets in the previous years and particularly in the mid-2012. That is why the CySEC, following consultation with the European Commission, decided to proceed with accommodating them under Financial Instruments pursuant to the European Markets in Financial Instruments Directive, known as MiFID. As a result of this decision, trading in binary options can only be offered by authorised investment firms.

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Thus, firms that prior to this decision were freely offering trading in financial binary options, were obliged to become authorised and supervised by the CySEC in order to be allowed to continue. This development was widely received with very positive comments since it has effectively transferred a previously unregulated part of the financial markets into regulatory focus.

4.) Some FX lawyers and consultants are recommending prospective clients to base their new Forex brokerages and binary options businesses in the UK, warning that vigilant regulators in other European markets may block CySEC registered firms from operating in their countries despite the license and that it is less likely to happen with an FCA license. Do you see a danger that the passporting of CySEC to Europe will not be respected and what is the commission doing about this?

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MiFID clearly sets out the principles for single authorisation for firms which allow them to provide the services or perform the activities for which they are authorised in one EU member state, throughout the entire EU territory. This is in line with the aspiration for the creation of a single European financial market for the enhanced protection of investors and market integrity and any unilateral deviation would potentially constitute breach of EU legislation.

5.) Social and copy trading are very popular in FX and a growing trend in binary option. Some argue that these forms of trading are actually a sort of investment advice or even portfolio management and therefore should be regulated. How do you view copy and social trading?

The focus of regulatory attention in terms of social and copy trading is whether they constitute portfolio management service and investment advice and thus whether they should be considered a regulated investment service. If they should, they could be offered to the investing public only by investment firms authorised to offer the investment services of portfolio management and investment advice.

The CySEC is monitoring the issue and has asked the investment firms that offer a form of copy trading to submit more information. In practice, copy trading differs significantly from company to company. In cases where clients hand over control of their investments to a manager who makes all the buying and selling decisions, then it is considered portfolio management, while in other cases. the clients while copying traders may retain the ability to choose whether to accept copied trades and may disconnect and manage them themselves, in which case it is less likely to be considered portfolio management.

We will continue to monitor practice and collect information on social and copy trading, which is necessary before market policies are formulated. Our primary goal would be to ensure protection of the investors and adherence to the securities regulations.

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