The world of binary options is never static. This relatively new form of trading has been gaining popularity for years now and has offered traders opportunities to make some quick profits within a short period of time.
Until now, most binary options brokerages have been anchored in Cyprus and have been regulated by the Cypriot regulator CySEC, which recognized binary options as a tradable financial instrument in 2012. The Malta Financial Services Authority (MFSA) has now officially announced that it has entered the regulatory market in Malta and is categorizing binary options under the scope of the Markets in Financial Instruments Directive (MiFID).
Prior to this step made by the MFSA, binary options firms could apply for regulatory supervision in Malta under the Lotteries and Gaming Authority (LGA). However this organization was set up to regulate the gaming industry and a legitimate financial services supervisory body was required in order to regulate not only the existing financial services providers in Malta, but the huge and ever-growing number of new binary options brokerages. In response to this need, last March the MFSA forged an agreement to transfer the responsibility away from the LGA. All brokers licensed to sell binary options in Malta will be subject to a minimum capital requirement of €730,000 and will be subject to on-site and off-site compliance.
Accepting the classification and accompanying regulation mandated for binary options from other EU Member States, the MFSA stated that binary options will be considered an instrument falling within the parameters of the Second Schedule of the Investment Services Act (Cap. 370). This MFSA classification of binary options contracts is based on the direction in which the price an underlying asset will take within a specified time frame. In this regard, binary options are defined by the regulator as being a type of derivative contract with only two possible outcomes that depend on whether the forecast price is correct or incorrect.
All companies which submit an application or which are currently licensed by the LGA will have to go through the normal license application procedure and an extensive due diligence process which will also include the senior officials of the brokerage. The first binary broker to be regulated by the Maltese Financial Services Authority will probably be OneTwoTrade, which is presently already licensed by Malta's Lotteries and Gaming.
The decision to regulate binary option companies in Malta may put an end to Cyprus's hegemony over the regulatory aspect of low tax jurisdictions. While recent inquiries and investigations into several binary option firms in Cyprus have increased speculation regarding this trading instrument, one wonders if these Cyprus based companies will simply leave Cyprus in order to pursue what they consider new and less stringent regulation in Malta. We will have to wait and see.