The Malta Financial Services Authority (MFSA) has issued a circular containing the additional conditions introduced for Investment Service Providers within Investment Services Rules in relation to binary options trading. The new conditions were issued in order to complement existing rules, particularly as binary options trading is considered to be a high risk practice.
Whilst those entities whose applications are still being processed are immediately subject to the new conditions, each existing license holder has a period of one year within which to become compliant in relation to shareholding structure conditions.
The circular contains certain conditions surrounding shareholding structure of Malta-licensed binary options operators. In order for an operator to be able to offer binary options, a Category 3 Investment License is required, also meaning that the operator requires a minimum initial capital of € 730,000, or more if required by the MFSA on a case by case basis.
It is important and interesting to note that the MFSA's interpretation of "instrument" is in line with the European Commission's interpretation of the term. Hence, "tradability" of the instrument is not a fixed requirement. However it is noted that "binary bets" do not qualify as an "instrument" and therefore are not licensable. The circular also explicitly explains that contrary to spread betting, binary options trading involves fixed gains and losses.
The fundamental activities of binary options trading, also referred to as "core licensable activities", need to be carried out in Malta and a full-time locally based risk manager is required. Trading data must also be held at the Malta head offices by the license holder and an adequate online trading platform and off-site back-up system are also required. The circular also lists the required facilities that must be made available to the client and implemented on the trading platform in order to ensure customer protection.
All the new conditions instroduced to binary options trading in the circular will ensure that the highest regulations standards are maintained among Malta-licensed financial services operators.
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