ASIC’s binary options ban extended until 2031

ASIC has extended its product intervention order banning the issue and distribution of binary options to retail clients until 1 October 2031.

Since it came into effect on 3 May 2021, ASIC’s ban has been fully effective in preventing retail clients from losing money trading binary options in Australia. ASIC’s extension of the product intervention order ensures binary option protections in Australia remain in line with those in force in comparable markets overseas.

ASIC has today released Report 736 Response to submissions on CP 362 Extension of the binary options product intervention order. The report summarises ASIC’s analysis of the impact of the order, using data from five licensed binary option issuers. It highlights issues raised in submissions to Consultation Paper 362 Extension of the binary options product intervention order and details ASIC’s responses to those issues.

In the 13 months to 3 May 2021, before the ban took effect, ASIC found that retail clients incurred significant aggregate net losses trading binary options. For example:

• 74–77% of active retail clients lost money trading binary options
• retail client accounts made net losses of $14 million in aggregate
• loss-making retail client accounts made net losses totalling $15.7 million, while profit-making retail client accounts only made net profits of $1.7 million.

ASIC Deputy Chair Karen Chester said, ‘Binary options are harmful, high-risk financial products resulting in millions of dollars in losses for retail investors before our ban. Extending our binary options ban until 2031 ensures this important protection for retail investors will continue.’

Background

Binary options are over-the-counter (OTC) derivatives that allow clients to speculate on the occurrence or non-occurrence of a specified event in a defined timeframe. This can include an event related to movements in the price of a financial product, a market index or an economic event (e.g. central bank interest rate decisions).

The product intervention order came into effect on 3 May 2021 after ASIC reviews in 2017 and 2019 found that approximately 80% of retail clients lost money trading binary options. ASIC found that binary options are likely to result in cumulative losses to retail clients over time because of the following product characteristics:

• an ‘all or nothing’ payoff structure, where one of the two possible outcomes for a binary option contract is that the retail client loses their entire investment
• short contract duration (e.g. the average contract duration of binary options traded with one provider was less than six minutes)
• negative expected returns (i.e. the present value of the expected payoff for a binary option contract is lower than the initial investment).

The extension follows approval by the Honourable Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, following submission of our report and recommendation.