MFSA Circular – Binary Options

On the 17th July 2013, the Malta Financial Services Authority (MFSA) issued a Circular to the financial services industry confirming its position in respect of investment services provided in relation to binary options. The Circular follows clarification by the European Commission of the relevant issues in terms of the Markets in Financial Instruments Directive, 2004/39/EC, (MiFID) and expressly confirms that binary options do fall within scope of the said MiFID Directive.

Accordingly, on the basis of the European Commission’s initiative as well as the manner in which binary options are classified and regulated in other EU Member States, the MFSA has provided practitioners and operators with much needed clarity and certainty in confirming that binary options are indeed considered to be instruments falling within the parameters of the Second Schedule of the Investment Services Act (Chapter 370, Laws of Malta) which is itself modelled on the MiFID Directive.

It is now clear that any person carrying out or intending to carry out in or from Malta any investment service in relation to binary options requires a licence in terms of the said Investment Services Act.

Binary options are contracts which are based on the direction the price an underlying asset will take within a specified time-frame. Binary options are therefore a type of derivative contract with only two possible outcomes (binary in nature) that depend on whether the forecast price is correct or incorrect.

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