History of Binary Options

history of binary optionsBinary options have been around for quite some time. They are now recognized in some countries as viable financial instruments. If you ever wondered about their history and how they came into existence this timeline will bring you up to speed. We only include the most important dates and events that have shaped the binary options industry as a whole.

21 January 2005 – Binary options patent submitted

American Stock Exchange (Amex) and Donato A. Montanaro submitted a patent application for exchange-listed binary options using a volume-weighted settlement index. This invention was relating to financial systems and methods for trading fixed return options on secondary markets such as stock exchanges. The financial system of the invention included  electronic order delivery coupled with an execution system and/or an on-floor trading auction. It was designed to provide an exchange-traded environment.

28 June 2007 – Change of rule to enable binary options

The Options Clearing Corporation (“OCC”) with Securities and Exchange Commission proposed a rule change to enable binary options to be traded on the major stock exchanges.  This new regulation allowed OCC to settle various types of binary options, including “fixed return options” to be listed by the American Stock Exchange (“Amex”) and binary options on broad-based securities indexes proposed to be listed by the Chicago Board Options Exchange (“CBOE”). The document described binary options as also called digital options and all-or-nothing options as cash-setting options that have only two possible payoffs, either pay a fixed amount if exercised in the money and otherwise pay nothing. This settled regulations and guidance for the most significant binary option tradings. View the ruling in PDF

1 November 2007 – New directive established by the EU

The Markets in Financial Instruments Directive (MiFID) has been established and this is a European Union law that provides harmonized regulation for investment services across the 30 member states of the European Economic Area. The main idea was to establish consumer protection in investment services. European Commission’s Financial Services Action Plan changed the way of all european financial markets’ operations. This set measurements, regulations and functioning of investment firms in European Union.

22 May 2008 – Binary options are approved

The US Securities and Exchange Commission (SEC) approved ruling of the OCC proposal and legalized the listing of binary options as tradable contracts on international financial markets. Straight after that, the American Stock Exchange (Amex) became the first international exchange to offer binary options publically. Amex has introduced binary contracts for 20 stocks and exchange-traded funds

9 June 2008 – Become publically traded assets

Binary options were first introduced publicly as a tradable asset on the Chicago Board of Exchange (CBOE). Before that binary options were a semi-official investment product, open only to banks, other institutional and high net-worth investors in the Over-the-Counter (OTC) markets. The standardization of binary options allows them to be exchange-traded with continuous quotations.

News coverage – http://www.reuters.com/article/cboe-binaries-idUSN0943920080609

AnyOption trading platform (based in Cyprus) is the oldest company started offering Binary Options on the internet in 2008.

22 June 2009 – Nadex launches binary option platform

The North American Derivatives Exchange (Nadex) launched new platform and new contracts, introducing binary options to its clients with no-fee trading for the first 4 weeks. This date is considered a time when binary options joined the forex market.

Press release – http://www.nadex.com/content/files/pressrelease-01.pdf

In 2010 – Binary options explodes online

As the internet became more popular and binary option brokers in the USA have established online trading, they’ve made revisions to the odds, risks and fixed rewards associated with binary options. Major brokers implemented policies ensuring that this type of trading became so simple that investors could trade from their homes and even on the move. In effect, the sheer power of the internet allowed users to trade binary options anywhere and at any-time.

3 May 2012 – Enforced regulation of brokers by CySEC

The Cyprus Securities and Exchange Commission (CySEC) announced a policy change regarding the classification of binary options as financial instruments. It started to monitor binary option brokers compliance with MiFID (Markets in Financial Instruments Directive). The effect, from now on, is that binary options platforms operating in Cyprus, where many of the platforms are based, will have to be CySEC regulated within six months of the date of the announcement. CySEC was the first EU MiFID-member regulator to treat binary options as financial instruments. Cyprus was the only financial regulator to come up with rules and regulations for binary option brokers.



11 March 2013 – Malta follows Cyprus in regulation

Malta’s Financial Services Authority announced that binary options regulation would be transferred away from Malta’s Lottery and Gaming Authority and would fall under the financial market regulations MFSA (the Maltese Financial Services Authority). Every company that provides binary options trading would need to be regulated under Investment Services Category 3 and have a physical presence in Malta. In addition every broker would have to have a minimum capital of 730 000 euros. On 18 June 2013, MFSA confirmed that binary options fell under the scope of the Markets in Financial Instruments Directive (MiFID) 2004/39/EC. With this announcement Malta became the second EU jurisdiction to regulate binary options as a financial instrument.


In April 2013 – The UK regulates its binary options market

The UK Government disbanded the Financial Service Authority and established two new organizations in its place. These are the Financial Conduct Authority (FCA) and the Financial Policy Committee (FPC). The Financial Conduct Authority (FCA) is tasked with the development of new regulations and rules that will have to be followed by United Kingdom binary options brokers. The Financial Policy Committee (FPC) will make sure that the binary options brokers licensed in the UK will follow these rules.

6 June 2013 – US Trading Commission gets involved

The U.S. Commodity Futures Trading Commission (CFTC) oversees the regulation of futures, options, and swaps trading in the United States. CFTC and the U.S. Securities and Exchange Commission jointly issued an Investor Alert to warn about fraudulent promotional schemes involving binary options and binary options trading platforms. At the same time they charged Banc De Binary Ltd., a Cyprus-based company, with illegally selling binary options to U.S. investors.

18 July 2013 – Japan regulators step up

Japanese binary options boom started in the beginning of 2012. Japanese Financial Systems Authorities announced revision of binary options market. They published a draft framework, which included informations on investment knowledge for the clients, solution for brokers, disclosure rules, daily trading limits and descriptive trading terms and conditions. JFSA freezed all new products on 26 November 2012 until the regulations are fully created and implemented, which was confirmed on 17 July 2013 on the Forex Magnates Tokyo Summit. On the next day, Japan published their regulations regarding over-the-counter binary options transactions with individuals. The purposes of that was to strengthen the requirements to protect investors and implement the business systems for the over-the-counter binary option transactions by preventing excessive speculative transactions by investors and offering investors transactions suitable for investors regarding over-the-counter binary options.



5 August 2014

In the UK, the Department for Culture, Media and Sport have written a letter to the Gambling Commission suggesting binary options are to be reclassified from “fixed odds bets” to “financial instruments”. This would mean the regulation falls under the remit of the Financial Conduct Authority. By the 18 June  2015 the UK government was consulting on proposals to treat binary options as a financial rather than a gambling product. The result is going to be published in early 2016.  

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