On April 26, 2017, the Canadian Securities Administrators (“CSA”) (other than the British Columbia Securities Commission) published for comments, proposed National Instrument 91-102 Prohibition of Binary Options and proposed Companion Policy 91-102 Prohibition of Binary Options (together, the “Proposed Instrument”), which would prohibit the advertising, selling, and trading of binary options to individuals in Canada (“CSA Notice”).
The CSA Notice provides that all offerings of binary options in Canada are illegal, with binary options remain an avenue for fraud, with certain individuals continuing to mislead potential investors by promoting these products as both legal and legally offered.
Binary options take the form of a wager in which investors bet on the performance of an underlying asset, often a currency, stock index, or share, and the timeframe on this bet is typically very short, sometimes hours or even minutes. These take the form of a yes/no proposition, where at the end of the “investment period,” the investor is either wins or “is in the money,” or loses and “is out of the money.”
Binary options “traders” rely on websites and social media ads to market their product, which makes it difficult to determine their location. The overwhelming majority of binary options sites are rigged to lure in victims with small early returns. In many instances, no actual trading occurs, and the entire interaction takes place for the purpose of stealing money. Once larger sums are invested, the losses begin to spiral, often through unauthorized credit card withdrawals and requests to send money offshore to an unregistered firm. Once a victim has lost their money, it is almost impossible to recuperate their losses.
The Proposed Instrument protects investors by prohibiting the advertising, offering, selling or otherwise trading of binary options with or to an individual. To prevent a party that offers a binary option from avoiding the prohibition by having their proposed client create a corporation or other type of entity to trade binary options, the Proposed Instrument also prohibits advertising, offering, selling or otherwise trading a binary option with or to or any other person or company that is created, or is primarily used, to trade a binary option.
The Proposed Instrument sets out a definition of “binary option” that is intended to capture a range of products that are, or are similar to, products that are commonly called binary options, regardless of how they are named, including but not limited to “all-or-nothing options,” “asset-or-nothing options,” “bet options,” “cash-or-nothing options,” “digital options,” “fixed-return options,” and “one-touch options.” All contracts or instruments, however named, marketed, or sold that meet this definition will be prohibited under the Proposed Instrument.
CSA staff is encouraging interested parties in participating jurisdictions to submit their comments by May 28, 2017. The public comment period expires May 29, 2017, in Alberta and Québec, June 28, 2017, in Manitoba and Saskatchewan, and July 28, 2017, in all other participating jurisdictions. The British Columbia Securities Commission (“BCSC”) has not published the Proposed Instrument for comment, but BCSC staff anticipates doing so in the near future, after obtaining necessary approval.
The Proposed National Instrument is available for download from the websites of participating jurisdictions.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
