It has only been one month since the Financial Futures Association of Japan (FFAJ) presented the elaborate and lengthy rulings that will govern binary options companies. The rulings came as a response to technology providers that supply and develop the global binary options brokerage trading platforms.
Only a week later, those technology providers released their updated platforms at Japan’s Magnates Tokyo Summit.
Let’s examine some of the aspects of the rulings in detail.
Global regulators had expressed concerns over the way brokers who offer OTC binary options set their prices and what would happen if complaints occur. This concern is why the US National Futures Association limits binary options trading to exchanges under its jurisdiction.
The FFAJ permits companies to keep an OTC model, but the company is charged with increasing transparency of the transactions. They must also create a trading environment for customers that allows them to freely trade right up until judgement time, much like the environment for exchange-listed options. This is done to manage unexpected losses.
Concerns were expressed that gifts like cash-back incentives or bonuses together with binary option transactions might unduly influence investor’s judgement. The FFAJ felt this was an inappropriate way of attracting customers as opposed to affiliate advertisements. Therefore, the FFAJ advised that binary options companies do not engage in such practices.
Concerns Over Client Suitability
Other concerns were addressed by the FFAJ regarding the attributes of clients. It was felt that some clients lacked the knowledge and means of the field they would be investing in. As a result, the FFAJ ruled that companies must give each client a questionnaire prior to clearing them for trading. This would allow the company to assess each client’s knowledge so that they could be assigned a trading level appropriate to their individual knowledge and means.
The FFAJ further ruled regarding payouts, stating that any option value changes within a trading span must be reflected as a change in the option premium or trade price. These changes are no longer allowed to expressed as purely a payout amount.
The new rulings are expected to help further legitimize the field of binary options and make them more attractive to new investors. This field is expected to continue to grow and evolve as new regulations are enacted to reflect that growth.