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- Australian Securities and Investments Commission (ASIC) has made a product intervention order banning the issue and distribution of binary options to retail investors.
- The ban will take effect from Monday, May 3, 2021
- ASIC found that binary options are likely to induce losses to retail investors because of the ‘all-or-nothing’ payoff structure
- ASIC reviews in 2017 and 2019 found that approximately 80 per cent of retail clients lost money trading binary options
- The order will remain in force for 18 months after which it may be extended or made permanent.
Australian Securities and Investments Commission (ASIC) has made a product intervention order banning the issue and distribution of binary options to retail investors.
The corporate regulator has used its new powers as they found binary options are likely to induce losses to retail investors.
ASIC said this is because of the ‘all-or-nothing’ payoff structure, where one of the two possible outcomes for a binary option contract is that the retail client will lose their entire investment amount.
Binary options are a risky over-the-counter derivative, where investors can make bets on share price movements. For example, retail clients could wager that the share price of a particular company will be trading above its current price in one hour.
The ban will take effect from Monday, May 3, 2021, and follows on from a similar ban in Britain in 2018.
ASIC reviews in 2017 and 2019 found that approximately 80 per cent of retail clients lost money trading binary options.
“‘Binary options’ product characteristics make them incompatible with investment or risk management use by retail clients,” ASIC Commissioner Armour said.
“ASIC’s product intervention order will protect retail investors from these harmful products at a time of heightened vulnerability.”
ASIC estimates that retail clients’ net losses from trading binary options were around $490 million in 2018.
The size of the market in Australia has since reduced significantly after ASIC issued a warning in April 2019 against providing unlicensed or unauthorised services to clients located in several foreign jurisdictions.
Australian retail clients are estimated to have made net losses of more than $6.7 million in 2019.
ASIC’s binary options ban brings Australian requirements in line with comparable markets and follows the commencement on March 29, 2021, of ASIC’s product intervention order imposing conditions on contracts for difference offered to retail clients.
The order will remain in force for 18 months, after which it may be extended or made permanent.
Civil and criminal penalties apply to contraventions of the product intervention order.
