On September 28, 2017, the securities regulatory authorities in all Canadian jurisdictions, other than British Columbia (CSA), issued CSA Multilateral Notice of Multilateral Instrument 91-102 Prohibition of Binary Options and Related Companion Policy (Instrument) in response to an increased number of complaints received relating to the marketing of binary options. Subject to the necessary approvals, the Instrument will come into force on December 12, 2017.

The Instrument defines a “binary option” as a contract or instrument that provides for only (a) a predetermined fixed amount if the underlying interest referenced in the contract or instrument meets one or more predetermined conditions, and (b) zero or another predetermined fixed amount if the underlying interest referenced in the contract or instrument does not meet one or more predetermined conditions. The underlying interest could include a security, index, currency, precious metal, price or other thing. Some examples provided by the CSA of yes/no propositions that a binary option could be based on include: a change in the value of a currency, the outcome of an election or a change in a benchmark interest rate. Binary options are sometimes referred to as: all-or-nothing options, asset-or-nothing options, bet options, cash-or-nothing options, digital options, fixed-return options and one-touch options.

A binary option automatically exercises. This means that the option holder does not have the ability to choose whether to buy or sell the underlying asset. Often, the time period specified in the product’s contract for meeting the predetermined condition is very short. Sometimes, it is mere minutes.

The Instrument states that no person or company may advertise, offer, sell or otherwise trade a binary option having a term to maturity of less than 30 days with or to:

  • a person or a company established or used exclusively for trading a binary option; and
  • an individual.

Trade includes a person offering or soliciting transactions using a website or alternative electronic mechanism and acts in furtherance of a trade.

Of particular concern to the CSA was the fact that a number of online binary options platforms are unregistered dealers who operate off-shore. Although trading may occur on some platforms, the CSA have discovered that it is extremely difficult for investors to ‘win’ on their bets. For the most part, such platforms are fraudulent and the investor’s advanced payment on their credit card is simply taken without a trade ever occurring.

Once the Instrument is implemented, no offering of the type of binary options contemplated by the Instrument, even via a registered broker, dealer or platform will be permitted. Currently, there are no authorized platforms offering these options in Canada.

The CSA also reminded market participants that binary options that are not subject to the Instrument are nevertheless derivatives and/or securities in each jurisdiction of Canada and therefore subject to local securities legislation including with respect to registration, prospectus requirements, market conduct and disclosure, as applicable.