In the new, redesigned Forex Magnates Quarterly Industry Report (QIR) for the third quarter of 2013, the American approach to regulating the method by which binary options can be offered in the land of the free is examined in detail.
The establishment of binary options companies which facilitate online trading of fixed contracts with two possible outcomes, led to a rapid and very recent growth in the number of firms offering such products, fuelled by Cypriot financial regulator CySec deeming it a financial product and providing a regulatory structure under which binary options could be provided in 2011.
This paved the way for a number of binary options platform technology providers to market trading products to white label partners and brands, of which there are now over one hundred internationally.
Japan followed suit, with the Japanese Financial Services Agency having set out full regulatory rulings on binary options, providing a framework for it to grow as an industry in what is the largest retail trading market in the world.
United States Takes A Different View
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In the United States, the parameters differ considerably from those of everywhere else in the world, with the main differentiating factor being that it is illegal for companies to offer over-the-counter (OTC) binary options. Instead, all transactions must be processed via a dedicated exchange.
Currently, there are two binary options exchanges in the United States, both based in Chicago. The North American Derivatives Exchange (NADEX) is part of IG Group and is a CFTC regulated exchange which provides full daily, publicly available reports detailing every trade which took place, categorizing the expiry value, buyer payout and seller payout figures, currency pair, type of trade and date.
The alternative to NADEX is Cantor Exchange, whose Senior Managing Director, Rod Drown explained to Forex Magnates that, “In many of the global binary options markets, the business of finding customers and making markets is tightly coupled into a single firm. In the United States regulatory environment, these two activities are separated so that customers are free to trade with many market makers.”
The United States poses unique challenges to firms wishing to offer binary options on the domestic market. A thorough overhaul of the U.S. regulatory and legal structure surrounding financial products was a result of dramatic changes in the country’s financial markets after the 2009 financial crisis.
The full and detailed investigation in the Forex Magnates Quarterly Industry Report contains comprehensive detail on operating costs for companies wishing to consider entering the US market, along with the requirements and stipulations for starting a binary options company, regulatory considerations, cost models and dialogue from senior figures within all of the major binary options platform providers and the heads of the two American binary options exchanges.
The Quarterly Industry Report for Q3 (QIR) can be purchased here.