1971 was the year when options trading were first introduced to the world. During those days, regulation wasn’t yet developed and therefore, trading in binary options was quite complex. As the years went by, binary options trading has evolved and slowly developed into a much less complicated method of trading. That being said, if we go back to the earlier days, binary options were still offered as a part of something bigger (usually contracts) and weren’t traded individually (per asset) as we know them today. Additionally, there was no separated market for binary options trading.
Throughout the years, regulations on Binary options have changed and improved. 2007 was a landmark year for the industry, when the Options Clearing Corporation (OCC) filed a rule change that enabled binary options trading on major stock exchanges. Shortly after that, in 2008, the US Securities and Exchange Commission approved the ruling. By doing that, they officially legalized the listing of binary options as tradable contracts on international financial markets. In the same year, binary options were first introduced publicly as a tradable asset on the Chicago Board of Exchange (CBOE).
However, 2008 wasn’t such a positive year for traders. The stock market crash combined with the U.S. subprime mortgage crisis was eventually the main trigger leading to the total collapse of the Lehman Brothers and Bear Stearns, what ultimately led to the fall of the entire global financial system. Because of all the turmoil that came afterwards, causing investors to loose large amounts of money in a relatively short period of time, there was a lot of pressure build-up for an investment with lower risk profile.
It is safe to say that the advancements in information technology have seen major developments thanks to the field of online binary options online trading. However, regulation bodies were not yet fully developed and therefore, there were no strict policies regarding the legality of how the companies were handling their business. What started as a series of negative stories about many “brokers” created a bad reputation to the industry and a CFTC accusation for an illegal solicitation of U.S. clients sparked a debate surrounding the legitimacy of this market.
To make a long story short, since mid-2012, the Cyprus Securities and Exchange Commission (CySEC) decided to take action and respond to all of the complaints that piled up on binary options brokers by changing the classification of binary options and referring to them as “financial instruments.” From this moment on, binary options were subjected to a very strict regulatory body. In March 2013, Malta followed CySEC’s footsteps and started treating Binary Options as a form of gambling operation enforced by the Financial Services Authority (FSA).
In Japan, the Financial Futures Association (FFA) has set new guidelines that limit binary options brokers to offer trades with an expiration time that’s shorter than 2 hours. Even in Italy, binary options trading have taken a different shift. Consob, Italy’s financial services industry regulator, issued a court order that enables it to block selected IP addresses of Binary options brokers from Italy. Turkish, Spanish and French regulatory agencies have even warned brokers without regulatory status to stop marketing their services in their countries.
How does this affect traders? Well, as long as the broker has a regulatory body overseeing his activities, they will be able to continue and enjoy full protection of their funds. Traders should simply stick to regulated brokers in the U.S., Cyprus, UK, Japan, Malta and Australia. Some brokers even have regulation from 2 or more governing bodies, enabling them to operate in different target markets around the globe.