Friday, 8 November 2013

Classification of Binary Options Service Providers as Category 2 Investment Services Providers

There has been some debate recently within the industry as to whether a binary options business may be classified as a Category 2 investment services provider. Circulars previously issued by the MFSA had seemed to suggest that such businesses would be deemed to be Category 3 investment services providers, irrespective of the exact activities performed by the operator i.e. whether or not the operator bore the risk of the transactions by taking the opposite side of the order. Of course this is not ideal, as it means that businesses which are relatively low risk intermediaries would need to adhere to capital and reporting requirements designed for higher risk operators.

Further to discussions with the regulator, it has become clearer that if the operator is acting as a "riskless principal", essentially receiving and transmitting orders in a manner similar to that of a Forex STP Broker, then the operator may be classified as a Category 2 investment services provider. This is a welcome and sensible development. It should be noted however that in such cases the Category 2 investment services providers would be expected to route orders through to another regulated entity.

Having said the above, it should be noted that the sector is still in its infancy in Malta and prospective applicants are encouraged to discuss their ideas openly in order to determine the correct regulatory classification.

You are read our detailed Malta Binary Options publication here:

http://www.ccmalta.com/publications/malta_binary_options

Dr Charles Cassar
Chetcuti Cauchi Advocates

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