Canada's securities regulators tightened their prohibition of short-term "binary options" Thursday, but warned that the global nature of such frequently-fraudulent asset-performance wagers will make the ban challenging to enforce in the short term.
With binary options, investors "bet" on the performance of an underlying asset, such as a currency or stock, for a predetermined and typically short period of time – sometimes just hours or minutes. They're often called "all-or-nothing" options; when the time is up, investors are generally supposed to walk away with either a preset payout or nothing at all.
In Canada, there are no firms or persons registered to sell binary options, though Canadians are often solicited through digital means.
The Canadian Securities Administrators, the council comprised of Canada's provincial and territorial regulators, is moving to prohibit the offer, advertisement or trade of most binary options shorter than 30 days, which would account for the vast majority of these "wagers." The CSA is also hoping to gain more support from platforms that help enable their trade.
While countries such as Belgium, France and the Netherlands have taken various actions against binary-options fraud and advertising, Louis Morisset, chair of the CSA, chief executive of Quebec's Autorité des marchés financiers, said he hopes the Canadian ban "will help influence others" to take action, making it easier to crack down on schemes that permeate national borders.
It's common with binary options that no trading actually occurs, and the money spent on the option is simply stolen – in some cases, along with personal information that can lead to identity theft. Investors tend to be enticed into such schemes through social media, online ads, and unsolicited communications, sometimes falsely suggesting that the seller has Canadian operations.
Canadian regulators set up a task force to fight binary-options fraud in 2016, working on a ban with the help of numerous intermediaries through which binary-options "fraudsters" do their work, including credit-card companies, tech companies and advertisers.
Mr. Morisset said the Canadian ban will serve as far more than just a warning for investors. It's also a means to encourage intermediary platforms to prohibit binary-option purveyors, and for other jurisdictions to put similar bans into place.
"With a ban, it's a clear indication that these products are illegal," he said. That makes it "much easier to have discussions with those intermediaries, for them to eventually stop advertisements and facilitating those illegal trades." Social media ads are a major source of solicitation; Twitter, he noted, has already banned ads for binary-options schemes.
Getting caught in the world of binary-options fraud can have drastic consequences: late last year, an Edmonton business owner died by suicide after losing nearly $330,000 to such a scam.
Mr. Morisset said the ban puts Canada's securities regulators among world leaders in battling binary-options fraud. "These products are toxic, and very often fraudulent. Investors should not try to make money off of those very toxic products," he said.
Because most binary options bet on asset-price fluctuations over the course of hours or minutes, Mr. Morisset said he was confident most fraudulent activity would be covered by banning those with time frames shorter than 30 days.
Canada's securities regulators received more than 800 reports and inquiries about binary options in 2016 alone. The CSA has launched a website, binaryoptionsfraud.ca, for investors to learn more, and recommends that investors always check to ensure that individuals or businesses selling investments are registered in the province in which they do business.