CFTC’s Action Against Unregistered Binary Option Platforms

wackypete2

Legendary member
10,229 2,053
Interesting, but the CFTA has zero enforcement rights in other countries. Regulators in other countries can cooperate with the cftc but action against the offending company is limited. If the company was located in Mauritus or Cyprus the court document would be mostly just a paper action.

Peter
 

moka2

Established member
529 14
"Mauritus or Cyprus the court document would be mostly just a paper action."
Yes but atleast peopel wil be educated about why somebody like CFTC is interested and may protect US unsuspecting investors
Any way can't make out whose side are you on wackypete2?
do you support NO regulations at all? or more effective regulation?
 

pboyles

Legendary member
8,072 1,302
Interesting, but the CFTA has zero enforcement rights in other countries. Regulators in other countries can cooperate with the cftc but action against the offending company is limited. If the company was located in Mauritus or Cyprus the court document would be mostly just a paper action.

Peter

Which, of course, is why they are all there in the first place.
 

wackypete2

Legendary member
10,229 2,053
moka2 said:
Any way can't make out whose side are you on wackypete2?
do you support NO regulations at all? or more effective regulation?

lol. I'm just offering a balanced view :) With that in mind if you are equating "more effective regulation" and "Protect US unsuspecting investors" with the CFTC then you are mistaken. I did make a post in the davefielder thread about the CFTC but I'll repeat it here: The CFTC is not concerned with protecting retail investors or traders no matter how they spin it. Their priority is protecting their member firms (US futures broker/dealers). They are doing this by limiting money moving out of the country and overregulating the spot forex market to the extent that many firms have left. The result is money shifting back to the CFTC member firms. To be fair the CFTC has cleaned up the forex market here a lot but IMO they went to far with regulations.

I'm not trying to argue with you but like I said I'm just providing a balanced view.

Peter
 

moka2

Established member
529 14
So what? if that makes the market more secure from investors point of view ( which stil is not becasue there is no SIPC cover)
what is wrong?
Would you trust your hard earned money in a jursdiction like Mauritious, Malta or Cyprus and that too with OTC
If at all one has to use OTC products would it not be better to be within large jursdiction?
 

wackypete2

Legendary member
10,229 2,053
So what? if that makes the market more secure from investors point of view ( which stil is not becasue there is no SIPC cover)

You are killing your own argument with that statement.

You are not understanding my point, which is fine. Perhaps I overstated my point so to make it simpler, I am all for SOME regulation and I am against NO regulation. Here in the US the CFTC has gone way beyond SOME regulation and none of that is to protect retail investors and traders. In fact it does more harm than good.

Do you think that it's OK for government to tell it's citizens where they can and can't place their investment funds and who they can and can't place those funds with?

Peter
 

Mtdarkness82

Junior member
14 2
Hey, guys. This is my first post here. I have stalked T2W for a long time when I needed information about various articles (today it was paying taxes on binary options, actually), and finally decided to become a member and contribute.

I'm with wackypete here. The CFTC's priorities are not to protect retail investors and their laws reflect that fact. They are merely looking out for them and theirs.

Furthermore, WP is right about the government. They shouldn't have the right to tell me, a free US citizen with a mind of my own, where I can and cannot place my funds, no matter how dangerous or stupid it may be. It should be each investor's responsibility to do the necessary due diligence of investigating a company before sending them any money. With boundless forums and authority sites covering pretty much every category on the internet, including watchdog forums like Forex Peace Army and quality forums with knowledgeable people such as T2W, there are absolutely no excuses and the US government is unnecessary in the matter.

Currently, I have money in Cyprus with a binary options broker that is in the process of becoming regulated through CySEC. As they are working towards regulation, they are in compliance with that regulation and I feel comfortable sending my money over there. I may be wrong about that, but in the end, I will take full responsibility for losing everything if that happens. (Of course, I won't let my money go without a knock-down, drag-out fight!) I opted not to name that particular company because I'm not here to advertise, but there are several fighting for CySEC regs at the moment.
 

moka2

Established member
529 14
Wackypete .. No I am not killing my argument.. I am saying as is POTC is risky than EXchange Traded in that case it is even more risky to trade with an OTC who is thinly regulated...

MtDarkness
Are you saying that US govt should not stop other country based
financial product providers from markareting to US citizens?
In that case US govt every right to contol what financial products are marketed in USA just like any other country
If I try and market US based financial products in Australia without a proper financial licences from Australian govt I can go to jail! you can call Australia as a communist country for that if you like but I rather have a better regulator than dog eat dog situation
How exactly is "and none of that is to protect retail investors and traders. In fact it does more harm than good." and "The CFTC's priorities are not to protect retail investors and their laws reflect that fact. They are merely looking out for them and theirs"
Lets be specific.
If Nadex can get regulated and provide Binary in US and FXCM, IBFX, IB , operate legally in USA why these hundreds of $2 companies based in Cyprus do not do the same?????
Answer = many of them just dishonest those who are not dishonest (meaning genuinely trying to work as an excahneg and match diff clients and not trade againt ounters) just wish to get in the market without any scrutiny.. if push comes to shove they wil run away with client money overnight...
I think this has turned in to typical argument in US Big Govt Control = Left v/s Free capitalism
and since that is an ideological argument there is no winner
Talk about facts I am all ears
M
 

Mtdarkness82

Junior member
14 2
Ok, lets talk facts. The NFA and CFTC require a MINIMUM of $20 million in capitalization to get regulated. So why are they not pushing for US regulation? That's quite obvious. They likely do not have $20 million in cash. Second, the CFTC's regulations on binary options limits what you can actually provide when it comes to a platform. Will you have the persistent 5-15 minute expiries as you do with EU brokers in the US? Nope. That's like trying to get 100:1 leverage as a US trader- Not happening. And I understand that many would chafe at those kinds of restrictions as they stifle a broker's ability to create and provide an innovative binary options platform.

Next, you're right, my problem with many of the NFA and CFTC's restrictions comes from my libertarian nature, so sure, I believe a limited central government and a more powerful local government is much more preferable. We can leave that alone and deal with simply what is or isn't and not what should or shouldn't be.

Another fact: No one called Australia communist. That's just silly. But I will say this- you're wrong about what you said. You would go to jail only if you were operating that business in Australia. The Aussie government isn't going to fly some police outside their own borders and come get you from Cyprus (or anywhere else you work out of), just to drag you to Aussie jail, if you are from another country, and as long as you're compliant with your country's laws, you're good. Now, if Australia got Cyprus to make it illegal to market to Australians, then you're done cause you're no longer in compliance with your own country's laws. That's what this thread is about- the US trying to pick a fight with companies they have no jurisdiction over. And good luck, US, with trying to stop the internet. lol

And here's something about CySEC regulation. I have paid very close attention to the details regarding this as I like trading binary options and really want to see that multi-billion dollar industry pick up and flourish in the States. It seems to me like you are against binary options in general and consider regulation in Cyprus to be thin, so I'm going to assume that you haven't read up on it. I apologize if that's not the case, but I just want to be thorough. So lets discuss the facts there as well.

To apply for licensing with CySEC, you must be in compliance with their regulations during the application stage and maintain compliance after licensing, or you lose said license. This means that a company at all times MUST:

-segregate traders' accounts from all other accounts, meaning my $2,500 is set aside and untouchable by anyone but me when I make a trade (win or lose), a deposit, or a withdrawal. So even if a company goes bankrupt, my money is still there.

-keep at least $1,000,000 in capitaization (it's only 750,000 for forex brokers)

-be transparent with their expiry prices

-minimize conflict of interest with winning traders (like a true exchange)

These regs are VERY similar to what the CFTC wants, except for the capitalization. Segregation of funds, expiration prices able to be monitored, etc. and I am very comfortable sending my money to a regulated or licensed broker. READ: That doesn't mean Cyprus will be scam free, and I am very well aware of that. But there is no guarantee of that EVER. Just look at MF Global. They managed to "lose" $1.6 billion in customer's money, and they were supposed to be US regulation compliant, meaning segregating customer accounts from company holdings (just like in Cyprus). The CySEC site does have a form available to all to make a formal complaints for all companies- regulated or not.

So no, I'm not really saying that the US Government shouldn't stop companies from other countries from marketing non-US derivatives to US customers. I'm saying that they can't. If the company in question is based in Ireland (including all servers), unless Ireland has a law (and they might, IDK) that states, "When marketing to US customers, you must follow US regulations and laws in doing so", these guys in question have done nothing illegal. The only hope the US really has is indicting anyone American that was involved or convincing Ireland to change their policies and thereby making the Irish company's actions illegal. A cease and desist to a company out of US reach is nothing but a formal piece of paper saying "stop doing that, you're making me mad". They have no authority over citizens of Ireland as long as they stay in Ireland.

As far as the laws the CFTC passes goes, that is merely my sentiment. I mean, US Government does what they want and makes up excuses for their actions and dresses up everything they do. That's the nature of my country, I'm ashamed to say. Look at the Fiscal Cliff deal passed yesterday. Read the general headlines and you'll get the general feeling: "Yay, Fiscal Deal Reached through compromise!" Actually read into the stories and you understand the reality of it all: Nothing is really worked out yet cause the House hasn't voted yet, and even if they DO approve, the big problems everyone is concerned about weren't solved but merely put off for 2 more months. I know my government. I know that nothing is really what it seems. And I know it's damn convenient that the CFTC's decisions that are out to "protect investors" just happen to (coincidentally, I'm sure,) also protect their monopoly on binary options availability in the US.

I am so sorry this is so terribly long. There was a lot to reply to and explain, and more still, but honestly, this wall of text has got to end! lol I hope you can kinda get where I am coming from with this so far and I hope your trading (whatever your market of choice may be) goes well in the new year!
 
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moka2

Established member
529 14
Thanks for the details good that we are getting close to facts
You said " It seems to me like you are against binary options in general "
M: NO I have nothing against BO as a product as such in the sense that it offers a innovative product ( short expiry , known risk reward, what I have problem is
A) it is OTC so conflict of interest
B) It is a one way bet no trading opportunity , close before expiry
C) Many so called brokers are not transparent about many things and either not regulated at all or in a country where if things go wrong it will be very difficult to get your money back, language, distance , system of recovery and most imprtant lack of any Insurance like SIPC

Back to facts
1) Sysec requires 1 Million capitalization as compared to 20 mil in USA according to your info
Good, that may keep away lot of fly by night people away and as a consumer I would prefer that
By the way is the 1 mil proportional to client base? or fixed
So do you think all these BO brokers from Cyprus and Malta have 1 million deposited of their own money ( not client funds)? before they start the business. Wow!!!
the rate at which they are popping up I doubt everybody has 1 million upfront... if they had the smart once will pull together the money and get regulated in USA/UK and many of these question will go away
2) About "You would go to jail only if you were operating that business in Australia." NO I can go to jail if I even if the overseas company promotes the overseas business here.
3) "So even if a company goes bankrupt, my money is still there."
In theory that is how it is supposed to work
However few things I found out being on the creditors committee when a Australian OTC brokers collapsed with 47 mil
- The seg funds are pulled together not as individual seg account that means if things go wrong you may suffer along with others
- There could be fraud and the seg fund account money is taken away ( that is what happened with Sonray ( Saxo white label in AUS) The auditor is supposed to check it but they failed too)
SO if this can happen in supposedly law abiding Australia what chance you have with a unregulated broker?
By the way I referred to Australia as communist as a joke because in the past in this debate as soon as I raised the Consumer protection issue comments flew ranging from Leftists to commy basxxx
Any way back to facts

My entire point is IF one can build Binary with following advantages why on earth go to a semi, un regulated broker offering an OTC!
And that alternative is Exchange traded Option spreads

- Complete SIPC insurance cover if broker goes down
- Complete transparency in pricing and volume
- No conflict of interest with broker or the exchange
- Can trade out before expiry
- Thousands of assets and strike intervals

- Can be combined with other equity strategy

Now tell me in every above respect why the UP Down BO based in these overseas places better then the above alternative?
M
Disclaimer: I do not work directly or indirectly in Financial services Industry and have no financial interest.
 

Mtdarkness82

Junior member
14 2
I can completely understand where you are coming from. Personally, if it were possible to have a company similar to BdB, Stockpair, 24option, etc in the states, I would definitely trade with them over someone based in Cyprus, but unfortunately, only NADEX exists and their trading sucks, imo. There are only 2 hour expiries, and they are only available during US market hours, meaning 6 expiries per day. I trade off the 5 minute chart, and so this just doesn't work for me at all. That's the reason I have gone with someone outside the US in the first place. But it's not as bad as I think you are making it out.

There are many, many companies out there that are not transparent, I agree. I wouldn't trade with them for that fact alone. And many of them (Marketsworld comes to mind), do pose a conflict of interest. When I win, they lose. Again, I wouldn't trade with them, though I did use their free demo account to develop many aspects of the strategies I use today. And, no I don't use a broker that allows me to close out my option before the expiry, though that isn't an issue with me as I trade on such a short term.

BUT

I'll use real sites as examples here-
Regarding conflict of interest: Banc de Binary is only an exchange between the traders and their 3rd party market maker. They make a percentage of the trades (though all foreign BO's are stacked against the trader) regardless of the end result of the trade. For instance, If a trader stakes $100, and his payout is 75%, the market maker actually pays out 80%, BdB keeps 5% and the trader gets $75. If the trade is a loss, 95% goes to the market maker and BdB keeps 5%. Either way, BdB makes money and reduces the conflict of interest between the broker and the trader. 24option is actually an exchange between traders, but I have yet to get an answer on what happens during times of low liquidity- do they take the trades or do they have a 3rd party market maker. As of now, I'm not sure on that one. Either way, they take a percentage of the win (I put up $100, someone else puts up $100, the winner takes $85 from the loser and 24option keeps the rest).

Regarding transparency: Anyoption has a page where you can look up past expiries for any option they offer and they give their formula for calculating those expiries. On top of that, they make it clear that they get their data feed from Reuters, so all you have to do is get that same information, make the same calculation, and you can see that they are being honest with their expiries.

And as far as early closure, I know for a fact that 24option does offer an early close feature where you can sometimes close in or out of the money to limit your loss and also take some profit before the market swings against you. They are not the only ones either. Several brokers offer this.

I used these 3 as examples because they are some of the few applying for license in Cyprus.

As far as capitalization goes, I'm almost positive it is a fixed $1,000,000. But understand that CySEC requires a minimization to the conflict of interest (3rd part MM's, exchange traded BO's, etc.) so that is more to keep those that aren't serious about BO's away from creating a platform. Those applying for license must have met this requirement as well, so BdB, 24option, Anyoption, and several others must maintain that cash on hand to stay in compliance as they work towards licensing. As far as them having $1,000,000 goes, several have been in business for a couple of years now trading binary options unregulated up until this past year and considering that BO's are a multi-billion dollar industry, it seems perfectly normal to me for the larger companies to have the capital on hand. Maybe one of them will manage to produce the necessary capitalization to bring their platform to the CFTC and get regulated here. I guess we will see.

You're right. There could be fraud going on anywhere. That's why I mentioned MF Global. They traded and lost with their customer's money (that was supposed to be in segregated accounts) and they ended up losing 1.6 billion dollars that I'm not sure the traders ever got back. They were regulated by the CFTC and NFA, but that didn't much matter when it came down to it. So no, you're never safe, even with massive amounts of regulation. I think that was Wackypete's point. Some regulation is good to keep honest brokers honest, but more regulation on top of even that is just a waste because it's not really protecting anyone. Thieves will always be thieves and there is no stopping that.

Exchange Traded Option Spreads? I haven't looked into it, but I will probably read up on it tonight so I can get back to you on that. I don't like spreads or commissions though. They get in the way of me making money. lol So that alone could be a deal breaker for me since that's why I got started with BO's in the first place.

Anyhow, it seems like you know what you are talking about. I am glad to have had a chance to discuss this with someone with an alternative perspective who is also well educated. Props. ^_^
 

moka2

Established member
529 14
1) "Regarding conflict of interest: Banc de Binary is only an exchange between the traders and their 3rd party market maker."
Let me check wheer does it say in it's paperwork?
Even if it is true the you don;t know how good the external third party is? they can default
Now comapre to an exchnage like CME, NYSE, ASX, NSE etc they make sure that all players ( be an individual or a Market maker player) has teh Margin money up front and also THE EXCHANEG DOES NOT NOVATES EACH TRADE
Other thing is in low ilquidity they either have to not offer teh product if they can't match tardes internally or take the Risk tthemselves.. TRUE exchanges won't take any risks
And that means never conflict of interest with a True exchaange
BO followers miss this point
2) "I used these 3 as examples because they are some of the few applying for license in Cyprus.
SO they are not yet liecnesed ! LOL mate why would you trade with them when they don;t even have CySEC cover!
3)"There could be fraud going on anywhere. That's why I mentioned MF Global."
Some part of MFG might be covered by SIPC
But SIPC atlkeast gives covers as follows
What SIPC Covers - Investor Protection
{What SIPC Covers... What it Does Not The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC.

Among the investments that are ineligible for SIPC protection are commodity futures contracts }

Once again mate I am not talking about futures brokers ... I am talking about Option brokers who are covered under SIPC insurance.... Futures brokers are not neither are FX
SO apples to apples
BO from Cyprus brokers goes bely up your money is gone
BO made up of Exchange Traded Option, brokers goes bely up your money is protected by SIPC in USA

Tell me what cover at all Cyprus provides?
3) "As far as capitalization goes, I'm almost positive it is a fixed $1,000,000."
SO not sure there and even if you are correct that is 20 times less than what US regulations require
4) "Exchange Traded Option Spreads? I haven't looked into it"
It is very simple you are just combining 2 o[ptions to give you a limited risk / reward outcome
you can look in broker like IB, OPtion KING, Options Express, Think or Swim

Lets take a Index option (Cash settled)
DJX 134.13,
You think DJX is going to settle down
Buy DJX JAN 13 135 strike CALL / Sell DJX JAN 13 136 CALL
If DJX settles beyond 136 your payout = 100 so profit =100-37 = 63
Max loss = $37

And you can do this on hundreds of stocks/ Index etc
these are simple vanila options

The positive I can think of about the BOs you mention is short expiary and easier platform nothing else is positive

Just to go on this bandwagon of Oh big brother Govvt is bad so lets have the dodgy brokers and let them scre the not so prudent investoprs is a callus attitude by these vested interest ( I am not implying that you are one of them)
And hence everytime a pointed question is asked they just go on tangent
Moka
 
 
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