The majority of Canadian securities regulators recently published for comment proposed rules making it clear that offerings of binary options in Canada may not be advertised, offered, sold or otherwise traded to an individual in Canada. The CSA emphasized in its notice that currently no offering of these products, including by a broker, dealer or platform, has been authorized in Canada. Further, all offerings of these products in Canada are illegal, with only a limited and narrow exception for transactions with highly sophisticated investors.
The CSA notes that many binary options offerings in Canada, as well as the platforms selling them, have been identified as vehicles to commit fraud. In many cases, no trading takes place on these online platforms at all and the operation is purely a fraudulent scheme to take money from individuals, including through cash advances processed on the target’s credit card.
One of the central questions the CSA seeks comment on is whether the proposed definition of “binary option” captures contracts or instruments that should not be captured. “Binary option” is defined in the proposed instrument as a contract or instrument that provides for only:
(i) a fixed amount if the underlying interest referenced in the contract or instrument meets one or more predetermined conditions, and
(ii) a lesser amount or zero if the underlying interest referenced in the contract or instrument does not meet one or more predetermined conditions.
In Ontario, the comment period for the proposed rules is open until July 28, 2017. If you would like assistance in drafting your comment letter or would like to discuss further, please contact our Regulatory Compliance Group.