Binary Options Regulated Under the Investment Services Act

MEDIA ROOM

On 17th July 2013, the Malta Financial Services Authority (MFSA) issued a circular noting that, following clarifications by the European Commission (EC), the EC has determined that ‘Binary Options’ – a derivative contract with only two possible outcomes that depend on whether the forecast price is correct or not, i.e. based on the direction the price an underlying asset will take within a specified time frame – shall fall within the scope of the Market in Financial Instruments Directive, 2004/39/EC, (MiFID).

Hence, considering both the interpretation as well as the manner in which such instruments are classified and regulated in other EU jurisdictions, MFSA considers such binary options to fall within the parameters of the 2nd Schedule of the Investment Services Act (Cap.370), (the “Act”), which is itself modeled on MiFID. Therefore, a licence in terms of this Act is required.