On July 22, 2016, the UK’s FICC Markets Standards Board published a proposed standard for binary options in the commodities markets. Binary options are options that pay out either a fixed amount or nothing, depending on the performance of the underlying commodity over an agreed period of time. The draft standard sets out the characteristics of a type of transaction used by participants in the commodities markets and the expected behaviors of wholesale market participants that enter into them. Although not legally binding, it will apply to all FMSB member firms (currently just over 30 firms) on a global basis once in its final form.
This is the second standard that the FMSB has published recently. Last month, it published a draft standard for Reference Price Transactions for the fixed income markets. The FMSB was established in June 2015 in response to the Fair and Effective Markets Review conducted by HM Treasury, the Bank of England and the FCA. The FMSB’s objective is to improve conduct in the wholesale FICCmarkets. Responses to the consultation are due by October 14, 2016.
The draft standard is available at: http://www.femr-mpp.co.uk/wp-content/uploads/2016/07/16-07- FMSB_CommoditiesBinaryOptions_TransparencyDraft.pdf.