The Canadian Securities Administrators announced Thursday they have banned short-term binary options, which have generated hundreds of complaints.
"Binary options are the leading type of investment fraud facing Canadians today, and the impact of this kind of scam on individuals is staggering," said Louis Morisset, chair of the CSA and chief executive of the Autorité des marchés financiers, in a release.
The CSA's ban makes it illegal to market, set or trade in binary options shorter than 30 days.
Binary options, which are legal in some places, are an all-or-nothing bet on the performance of an asset, such as a currency, a commodity, stock index or share, the CAS. Their timeframe is typically very short, sometimes hours or just minutes. At the end of the time, the investors either gets a preset payout or nothing at all.
However, the CSA, which is a council of provincial and territorial securities regulators, cautions that in many cases, no actual trading occurs, and the bet takes place solely for the purpose of taking the investor's money.
"In addition, those who have provided credit or personal information to binary options sites frequently fall victim to identity theft," the CSA said.
The options are sometimes marketed under such names as
- All-or-nothing options.
- Asset-or-nothing options.
- Bet options.
- Digital options.
Last year, securities regulators across the country received more than 800 complaints about binary options scams.
The CSA said the perpetrators of the scams are often based overseas, which can make it impossible for investors to get their money back in the event something goes wrong.
The regulatory group is also encouraging anyone who has invested with an offshore binary option trading platform to immediately contact their provincial or territorial securities regulator.
Jason Roy, chair of a CSA task force on binary options and a senior investigator with the Manitoba Securities Commission, said the group has been working with credit card companies, tech firms and advertisers used by scammers to crack down on the problem.
"It will all add up to few Canadians being exposed, and fewer Canadians being cheated, " Roy said in a statement.