Back in January, after announcing that it had received CySec regulation, binary options broker Banc De Binary also announced that it was in talks with the CFTC in regards to US regulation. The broker then subsequently rescinded that announcement, stating that it was inaccurate.
Apparently Banc De Binary’s talks with the CFTC were not about them getting regulated in the US, but being kicked out. The CFTC has just announced that it is charging Banc De Binary for “Violating the CFTC’s Off-Exchange Options Trading Ban and Operating as an Unregistered Futures Commission Merchant”.
The CFTC today alleges that Banc De Binary, which claims to be headquartered in Wall Street, violated “the CFTC’s ban on off-exchange options trading by offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers. The CFTC’s complaint also charges Banc de Binary with operating as an unregistered Futures Commission Merchant (FCM).”
According to the CFTC’s complaint, Banc de Binary operates an online trading website through which customers can buy or sell binary (“call” or “put”) options, predicting whether the price of a certain commodity will increase or decrease in a given time period, by its very nature, an exact definition of OTC (off-exchange) online binary options.
Specifically, from May 2011 through March 2013, Banc de Binary operated an online trading website which allowed U.S. customers to trade options products prohibited by the CFTC’s ban on off-exchange options trading. Through its website, Banc de Binary allegedly unlawfully solicited and permitted U.S. customers to buy and sell options betting on the prices of wheat, oil, platinum, sugar, coffee, corn, foreign currency pairs, and stock indices.
The CFTC’s complaint also charges Banc de Binary with operating as an unregistered FCM from July 2011 through March 2013. Finally, the complaint alleges the company did not limit its options offerings to eligible contract participants, allowing U.S. customers to trade without requiring any information about their trading history or net worth.
David Meister, the Director of the CFTC’s Division of Enforcement, made a public statement on the matter: “If a company wants to offer U.S. persons the opportunity to buy and sell predictions on the direction of commodity prices, the company must play by the rules or suffer the consequences. The applicable rules are on the books for good reason – to protect market participants and promote market integrity – and we will serve the public by enforcing them.”
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The CFTC seeks civil monetary penalties, an injunction preventing Banc de Binary from engaging in certain commodity options activity with U.S. customers, and other remedial ancillary relief, including restitution, disgorgement, and rescission.
The CFTC acknowledges the Securities and Exchange Commission, the United Kingdom Financial Conduct Authority, and the Cyprus Securities and Exchange Commission for their assistance in the investigation of Banc de Binary.
CFTC Division of Enforcement staff members responsible for this case are David S. Slovick, Margaret Aisenbrey, Jessica Harris, Mary Lutz, Kathleen Banar, Rick Glaser, and Richard Wagner.
The CFTC today also announced the issuance of a joint CFTC and SEC Consumer Alert on fraudulent schemes involving binary options and their trading platforms. The Alert warns customers that the perpetrators of these schemes allegedly refuse to credit customer accounts, deny fund reimbursement, commit identity theft, and manipulate software to generate losing trades.
CFTC Issues Fraud Warning
In addition to this, the CFTC has issued an Investor Alert on its site in order to make clear the regulator’s position relating to binary options and the platforms which are used to trade such instruments. They explained that the warning was due to complaints that both the CTFC and SEC about fraud among binary firms.
The CFTC’s Office of Investor Education and Advocacy takes a very conservative approach to customer protection within its jurisdiction and seeks to warn potential clients about certain malpractices which can take place including binary brokers apparently refusing to credit client accounts, denying fund reimbursement, exposure to identity theft and manipulation of software to close trades in the broker’s favor.
The warning is extremely concise and very candid indeed. Forex Magnates intends to follow this up with viewpoints from the industry on the matter. (Read the entire CFTC opinion)
Despite the warning the CFTC did single out NADEX as being a regulated entity that was legally offering binary options as they stated “to date, only one entity that offers binary options has been granted status as a designated contract market— the North American Derivatives Exchange, Inc. All other entities that are offering binary options that are commodity options transactions are doing so illegally.