May, 2016

May 30th, 2016 – Hong Kong & New York: The Financial Commission today – announces that it has successfully completed the certification of Binary Options Platform offered by Broctagon IT Solutions Pvt. Ltd, based on the rigorous process of evaluating comprehensive technical information requirements.

This review aims to check key points throughout the platform execution process to help ensure that an equitable decision process can be provided when reviewing claims from traders using such platforms. Also, as part of the review process, the Commission has established a detailed list of points to verify covering the following sections:

Platform Security
Platform Capacity
Instruments and orders types
Pricing and Execution Policy
Reporting and record keeping
Business Continuity/Disaster Recovery Plan

Michael Lau, Chief Marketing Officer of Broctagon IT Solutions Pvt. Ltd commented, “After several years in Retail FX technology business it is nice to see that there is finally a global organization, such as Financial Commission, which can expeditiously and effectively resolve conflicts within our industry in a friendly and a professional manner. This service is way overdue. We are proud to be a part of this initiative.”

In response to Broctagon’s Binary Options Platform certification, Financial Commission Chairman Peter Tatarnikov said: “ In order to provide clients with fair dispute resolution we must fully understand system’s execution mechanism and price determination process. Unfortunately, there is no singular standard that all binary options platforms shall adhere to and this is why trading technology certification is very important and needed. Today we gladly welcome Broctagon to our organization and believe it is a great step to leverage its credibility and grow its business globally.”

ABOUT BROCTAGON

Broctagon is one of the leading technology providers in Asia’s financial hub, and was officially established in 2014 with regional headquarters in Hong Kong, and their IT team spread across Singapore, India, China and Russia.

Conducting businesses in China for more than a decade, Broctagon’s diverse management team not only comprises of ethnic Chinese roots but possess extensive knowledge and deep understanding of Chinese culture and business practices. Broctagon’s MT4 Binary Options technology which seamlessly integrates Binary Options to MT4 platform, coupled with its unique CRM and reporting systems specific to the needs of the Asian brokers, has also led one of their pioneering brands to receive the honorable title of “Best Binary Options Broker Asia” in the 2015 Global Banking & Finance Awards. Broctagon’s products and services have added value to the businesses of their clients and aided them in achieving industry-wide recognition.

ABOUT THE FINANCIAL COMMISSION

The industry-driven independent organization provides an unparalleled dispute resolution process between online brokerages and their end-customers, helping to avoid costly arbitration and/or regulatory complaints which typically leave the customer and brokerage with a negative relationship experience and customer disloyalty. The announcement marks the start of a potential new wave of member applicants from the binary options industry to join the Commission.

Technology developers seeking membership status with the Financial Commission can learn more about the process and expected requirements as part of the technology certification process in advance of applying for membership or in the preparation of submitting an application.

For more information, please contact The Financial Commission: [email protected]

Platform Security
Platform Capacity
Instruments and orders types
Pricing and Execution Policy
Reporting and record keeping
Business Continuity/Disaster Recovery Plan

ABOUT BROCTAGON

ABOUT THE FINANCIAL COMMISSION

For more information, please contact The Financial Commission: [email protected]

Come See our Exhibitor Booth 101 at IFX Expo International this May in Cyprus!

The Financial Commission will be exhibiting at the 2016 IFX Expo International which will take place on 24-26 May, 2016 at Palais des Sports – Spyros Kyprianou, Limassol, Cyprus.

The organization joins a list of 103 confirmed exhibitors and representatives from hundreds of financial services providers expected to attend the exclusive industry gathering.

The Importance of Industry Events:

The announcement follows prior events that the Financial Commission participated in including in Hong Kong, Russia and England.

Participation in the IFX Expo International event supports the industry and provides market participants with the chance to learn more about how the Financial Commission operates.

This includes how the organization is helping its members improve the services they offer to clients using a 3rd party dispute resolution process afforded via membership status within the Financial Commission.

The iFX EXPO is the premiere finance business to business expo uniting more than hundred of exhibitors and more than two thousands of attendees from all around the world.
There will be top executives of the leading cutting edge marketing firms, technology, payments, service and fx / binary platform providers from Europe and across the world.
The event supports various aspects of the financial services space in foreign exchange and related markets through various collaborative means covering a wide range of topics from Marketing and how to improve client acquisition to Technology and industry innovation.
The Financial Commission will demonstrate its value to participants through its exhibitor booth 101 where representatives from the organization will explain the benefits provided by membership with the Financial Commission.

In addition, the Financial Commission expects to meet new market participants who could be potential candidate member firms, including Forex, Binary Options and Cryptocurrency related brokerages and technology developers.

For more information please contact us at [email protected]

RFED – Retail Foreign Exchange Dealer

CFTC

In 1974, the US Congress established the Commodity Futures Trading Commission (CFTC) – the federal regulatory agency with jurisdiction over futures trading.

The same law authorized the creation of a “registered futures association,” thus opening the possibility for the creation of self-regulatory organizations on the national level. That is how NFA was established in 1982, after it won the position while competing with another trade association called the Futures Industry Association (FIA) which was not selected.

In 2000 and 2008, Congress passed a law for certain types of companies requiring them to register with the CFTC and to become members of the NFA.

companies performing second party functions in transactions on Forex market (dealers)
fund managers on Forex markets
trading advisors on Forex markets
representative brokers on Forex markets
forex pool operators

In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave the CFTC rulemaking authority and oversight over swaps, swap dealers and major swap participants. Subsequently, the CFTC passed regulations requiring swap dealers and major swap participants to register with the CFTC and become Members of NFA.

NFA

The National Futures Association is a self-regulatory organization for the US derivatives industry including exchange-traded futures, OTC foreign exchange market (forex) and swaps.

NFA develops and implements policies and services to ensure the security and integrity of the market and investors protection.

Membership with NFA is mandatory for all companies operating on this market. Currently, NFA has about 4,100 member companies and 57,000 registered specialists.

NFA is a non-commercial, independent, self-regulatory organization which is entirely financed by membership fees.

1.Basic requirements for RFED

Type	Requirement	Details
Minimum equity capital	$20,000,000	Level of early warning – 150%. I.e the dealer must maintain a minimum level of equity capital in the amount of $ 30m. Important: Being below $ 30m does not lead to revocation of the license, but the broker must notify the NFA each time the level of private capitalization falls below this rate.
Risk capital	6% Major Currencies, 20% Exotics	Risk capital is calculated separately on the basis of open currency positions of the dealer, which is kept on the firm’s own book (not overlapped on the counterparty positions). The sum of risk capital is an integral part of the formula for calculating a dealer’s own net capital. (Example: the sum of all assets – liabilities towards clients – risk capital – expenditures = net capital)
Membership fees	$125,000	Paid annually
FX trading offering	Individuals and legal entities	________
STP of FX Trades	Yes	Approved counterparties only: US companies and banks, as well as companies, regulated under recognized jurisdictions. Foreign banks with a market capitalization of at least $ 1 billion. It is also possible to approve an unregulated counterparty, however, the NFA requires to provide accounting certified by licensed auditors.
Futures	Yes	On-exchange traded contracts only. Additional capital requirements and segregation of funds will apply.
Options	Yes	Only stock options. Additional requirements to capitalization and obligatory segregation of funds.
FX leverage	50:1	Calculated in a form of margin in US dollars. Therefore, the minimum margin required is 2%.
Futures margins		Please see marketplace specs.
CPA Audit	Every 12 months	Audit of the financial statements prepared by a certified auditor (Certified Public Accountant audit).
NFA Audit	Every 12 months	Held in the company’s office by the NFA staff.
AML Training	Every 12 months	Held by accredited compliance professionals/certified auditor.
Ethics Training	Every 36 months	Held by accredited compliance professionals/certified auditor.
FinCen	Twice a month	Examination of the client base for any presence of individuals, firms requested by FinCen
4G CFTC	Upon request	Examination of the client base for any presence of individuals, firms requested by CFTC

2. Key responsibilities of the member:

Complete an Annual Questionnaire online with NFA;
Complete the electronic Annual Registration Update;
Pay the NFA dues on the anniversary date of the firm’s registration;
Maintaining of up to date contact information of employee responsible for communication with regulator on USA PATRIOT Act 314(a) requests;
Supervise the operations of any GIBs and/or Branch Offices, including conducting an annual onsite inspection of every GIB and Branch Office;
Examine sales department work and conduct inner audit report;
Send the firm’s Privacy Policy to every current customer;
Contact active customers who are individuals, at least annually, to verify that the information obtained from that customer under NFA Compliance Rule 2-30(c) remains materially accurate, and provide the customer with an opportunity to correct and complete the information. To ensure that the clients have received and familiarized with the risks warnings and other essential documents;
To conduct the annual review of the disaster recovery plan and make adjustments. Mandatory record-keeping.
Review the security, capacity, credit and risk-management controls, and records provided by the electronic trading systems and certify that the requirements outlined in NFA Interpretive Notice 2-36(e) have been met. Prepare a certification, signed by a principal who is also a registered AP, and provide a hardcopy to NFA with the submission of the annual audited financial statement.
For Forex Dealer Members (FDMs) designate one or more principal(s) to serve as Chief Compliance Officer(s) (CCO). Each CCO, as outlined in Compliance Rule 2-36, must certify annually to NFA that the FDM has a process in place to establish, maintain, review, modify and test policies and procedures that are reasonably designed to achieve compliance with the CEA, CFTC Regulations and orders thereunder, and NFA Requirements. Each CCO must also certify that the FDM has compliance processes in place and that the CCO has apprised the FDM’s CEO (or equivalent management personnel) of the FDM’s compliance efforts to date, as well as identified any significant compliance problems and the CCO’s plan to address those problems. Each FDM must file this annual certification with NFA at the time it files it annual certified financial report.
Provide clients with NFA website link, which contains the information regarding the company, its directors, history of violations, etc. This information should be also sent to all new clients when opening an account.

3.Retail Foreign Exchange Dealer report requirements

Report description	Submission date	Details	Submission channel
Forex Daily Report	Daily, due by noon on the next business day	Customer funds on deposit and where they are held, Customer open positions, amount due to customers, names of counterparties. Qualifying institutions holding assets used to cover the firm’s liabilities owed to its retail forex customers must report the balances in the firm’s account(s) held at the qualifying institution to NFA on a daily basis. See NFA Financial Requirement Section 13 for specific reports required.	NFA electronic system
Forex Monthly Report	Monthly, due within 17 business days of month end	Operational information, specifically number of retail and ECP forex customers, as well as how many customers are active, US domiciled or foreign domiciled. See NFA Financial Requirement Section 13 for specific reports required.	NFA electronic system
Forex Quarterly Report	Quarterly, due within 17 business days of quarter end. This is based on the calendar year, not the firm’s FYE.	Performance disclosures required by CFTC Regulation 5.5(e)(1)(i)-(iii). Including the total number of non-discretionary retail forex customer accounts maintained by the RFED for the prior quarter, indicating the percentage that were profitable vs. non-profitable. See NFA Financial Requirement Section 13 for specific reports required.	NFA electronic system
Daily Trade Data Reports (“FORTRESS”)	Daily, due by 11:59 p.m. the same day	Each member must file a daily electronic report of trade data containing the data and be in the format prescribed by NFA. The information must be prepared as of 5:00 p.m. and filed with NFA by 11:59 p.m. the same day. See NFA Compliance Rule 2-48 for specific reports required.	Forex Transaction Reporting Execution Surveillance System (FORTRESS)
Financial Reports (unaudited)	Monthly, due within 17 business days of month end	In accordance with the requirements described in CFTC Regulation 1.10(d)(1)	WinJammer system
Certified Financial Reports(audited)	Annually 1-FR-FCM due 90 days after fiscal year end;FOCUS due 60 days after fiscal year end	In accordance with the requirements described in CFTC Regulation 1.10(d)(2)	Mail
Subordinated loan agreementsstandard forms are available from NFA	If applicable	The loan, and all changes and amendments, must be approved by NFA before the effective date. If approved by DEA, please file approval letter with NFA.	Mail
NFA questionnaire	Annually, to coincide with annual dues	NFA will send a new questionnaire for brokers every year	NFA electronic system
Notice of undercapitalization	If applicable	Immediate notification when capital falls below the level set in NFA Financial Requirements Section 12. A 1-FR- FCM/FOCUS must follow within 24 hours as required by CFTC Regulation 5.6(a).	Notification by telephone, confirmed by fax or WinJammer, fax statement or file via WinJammer
Non-current books and records	If applicable	Same day notification. Written report stating corrective action due within 48 hours as required by CFTC Regulation 5.6(c).	Fax or WinJammer
Substantial reduction in capital	If applicable	Within 2 business days of the reduction in accordance with CFTC Regulation 5.6(f)(1) or (f)(2).(30% decrease in capitalization exceeding the minimum level)	Mail or WinJammer
Material inadequacies noted by CPA in audited financials	If applicable	Notification within 24 hours. Written report stating corrective action due within 48 hours in accordance with CFTC Regulation 5.6(d).	Fax or WinJammer
Request to change fiscal year end, orRequest extension of time to file financial reports	If applicable	File a copy of the request and NFA’s response with regional CFTC. If the firm is also registered as a B/D, must file request and DEA response with NFA and regional CFTC in accordance with CFTC Regulation 5.12(f) and (g).	Mail or WinJammer
Adjusted net capital falls below the early warning requirement/eligibility to guarantee IBs requirement	If applicable	Notification of the NFA within 24 hours in accordance with СFTC Regulation 5.6(b).	Mail or WinJammer
Forex liabilities owed to customers exceeds forex assets	If applicable	Immediate notification required in accordance with CFTC Regulation 5.6(g).	Notification by telephone, confirmed by fax or WinJammer, fax statement or file via WinJammer
Change in security deposit amounts established by the FDM	If applicable	The FDM is required to immediately notify NFA if the FDM changes the security deposit amount established for a particular currency pair being offered to retail forex customers. See NFA Financial Requirement Section 12(f) for further information.	WinJammer
Chief Compliance Officer Report	Annually	Report must be filed within 60 days after the FDM’s fiscal year end. See NFA Compliance Rule 2-36 for further information.	WinJammer
Risk Exposure Reports	Quarterly and whenever a material change occurs	Report must be filed within five business days of providing to the FDM’s senior management. See NFA Compliance Rule 2-36 for further information.	WinJammer
Risk Management Program	As applicable (submitted on January 4, 2016 and thereafter upon request)	Policies and procedures designed to monitor and manage the risks associated with the activities of the FDM. See NFA Compliance Rule 2-36 for further information.	WinJammer
Bulk Transfers	If applicable	At least five business days in advance of a transfer, the RFED must provide notice under certain conditions. See CFTC Regulation 5.23 for further information.

Come See our Exhibitor Booth 101 at IFX Expo International this May in Cyprus!

The Financial Commission will be exhibiting at the 2016 IFX Expo International which will take place on 24-26 May, 2016 at Palais des Sports – Spyros Kyprianou, Limassol, Cyprus.

The organization joins a list of 103 confirmed exhibitors and representatives from hundreds of financial services providers expected to attend the exclusive industry gathering.

The Importance of Industry Events:

The announcement follows prior events that the Financial Commission participated in including in Hong Kong, Russia and England.

Participation in the IFX Expo International event supports the industry and provides market participants with the chance to learn more about how the Financial Commission operates.

The iFX EXPO is the premiere finance business to business expo uniting more than hundred of exhibitors and more than two thousands of attendees from all around the world.
There will be top executives of the leading cutting edge marketing firms, technology, payments, service and fx / binary platform providers from Europe and across the world.
The event supports various aspects of the financial services space in foreign exchange and related markets through various collaborative means covering a wide range of topics from Marketing and how to improve client acquisition to Technology and industry innovation.
The Financial Commission will demonstrate its value to participants through its exhibitor booth 101 where representatives from the organization will explain the benefits provided by membership with the Financial Commission.

For more information please contact us at [email protected]

Binary Options

One of the newest trading instruments to gain popularity in recent years are binary options. Although various regulators have moved at different speeds towards either regulating these tradable products or not, binary options are typically classified as either gaming or gambling product, or into the category of derivatives.

Binary options are typically available alongside forex, CFD offerings, and/or traditional vanilla options contracts that are traded either alongside listed-products on many of the world’s stock exchanges or in over-the-counter (OTC) markets and off-exchange.

The classification or lack thereof, for binary options, largely depends on the relevant regulatory jurisdictions and any efforts made within various countries towards a required framework for the products to be legally implemented by companies and offered out to clients.

What are Binary Options?

The reason binary options are called ‘binary’ is because of the nature of risk when buying options which is limited to the entire premium (i.e. the cost of the trade). It gives the appearance that it’s an all-or-nothing trade or a trade that results either in a 100% gain or 100% loss, hence a dual or binary nature.

However, this is not always the case as some binary options trading instruments can be exited early, or feature other risk-management features depending on the contract specifications, and underlying market movements, as well as the brokerage or exchange offering the products.

Options Risk Profiles Across Products

For some people, this type of investment appears highly aggressive or akin to gambling. In reality trading listed options in the US stock markets can be the same or even-more risky, and typically requires advanced approval for level 1, 2 and level 3 options trading (reserved only highly experienced and sophisticated investors) as certain options trading can carry unlimited risk (i.e. risk greater than the initial deposit or margin collateral).

Therefore, despite binary options labeled by some as a gimmick or sounding like a gambling product, the many billions of US Dollars worth of options that trade on the US stock markets operate in a similar manner where the premium paid is the maximum risk when buying either long calls or short puts in the options market. Conversely, selling options short or writing naked puts to collect premium from buyers can carry unlimited risk in some cases, whereas trading binary options in this case would be safer. At the end, it really depends on the specific product features and the trading venue where the contracts can be traded.

Trading Community Observations

Despite the risks, investors and speculators love trading options of all sorts as they can serve as a tool to hedge either the underlying instrument or correlated asset and/or enter the market for fix amount of time and price target. This contrasts spot trading which can be subject traders to getting a stop-out or margin call from underlying price movement that can result in a prematurely liquidated trade whether in equities or forex and other markets.

With the right approach, various options contracts including binary options can serve a purpose within an investor’s portfolio or traders’ strategy, and based on suitability and risk-appetite and other common attributes that vary per customer.

The reason for any negative association with this industry is the unfortunate number of unscrupulous brokers that have emerged in recent years – many of which operate either illegally or lack any regulation or oversight, and who employ questionable ethics in their business and towards their clients. The same occurred within the foreign exchange market as it evolved along with related regulations across the world in the last twenty years, and despite ongoing challenges that still exist.

Therefore, a strong self-regulatory effort is needed and Financial Commission can help companies offering these products achieve that through the membership criteria and advantages provided to clients when firms become members.

Legal Status and Reforms

Overall each regulatory jurisdiction has their own opinion or lack thereof regarding binary options and either attempts to classify these products within any local framework and based on existing laws or has not yet done so. As a result, the consensus towards these products varies across different countries.

This means that some regulators allow binary options trading with proper licensing, whereas others have banned it completely, meanwhile some countries not having done anything on whether binary options are permitted or not locally.

Regulations normally lag behind new technologies or approaches and the same can be said for these products, while the length delay appears to be shortening as reforms have been put in motion in some countries.

Contrary Approaches

In some countries, Binary Options (BO) have been criticized by regulators and other authorities (e.g. Italy, France), together with proposals to classify these instruments as gambling. Elsewhere, they all fall under a ban, such as in Canada and Israel. Yet this could be a stepping stone for any future reform and to clean up firms operating in these locations, and after numerous warnings have been issued against related companies.

On the other hand, in the most developed countries in terms of the regulation of financial markets, these instruments are classified as financial derivatives and are regulated accordingly – for example countries such as the USA, UK, Japan, Cyprus and other European countries under MiFID Directive (although the French AMF regulator considers MiFID insufficient to offer a license for firms to offer BO in France).

In order to understand the reasons for the negative relation to these instruments from a number of countries, Financial Commission analyzed official statements and publications from regulators and other authorities, excerpts of which have been paraphrased and collated in the table below.

The main problem	Causes	Solutions
Denial of service providers (non-regulated), to meet their obligations to customers. For example, in its release, the Commodity Futures Commission noted that the big number of claims related precisely to the failure to satisfy the requests for withdrawal of funds belonging to clients. Cancellation of a positive result that the client had received from transactions with binary options (i.e. cancelled profit)	Because there is high demand for new instruments such as binary options, it becomes a weapon of choice for fraud. New, so-called screen, under the guise of which the funds are raised. Binary options are attracted not only retail investors with no experience, but also the businesses without it. As a result, this leads to bankruptcy for companies scammed. Undeveloped market. Not a standardized market, causing it no effective hedging instruments.	State regulation and oversight will help to deter fraud, to solve the problem of unqualified personnel in the industry, as well as to monitor the adequacy of firms own capitalization to ensure fair dealing and the safety of customer funds.
Aggressive practices of sales and insufficient disclosure of risks. Often, the use of a very similar position to gambling. (Get rich quick & easy) Provision of “poor quality” analytical support – in this paragraph notes the work of personal trading advisors	No requirements / standards concerning the process of attracting customers Lack of requirements for managing and trading advisor.	Governance of marketing and sales processes, as well as requirements to people, engaged in sales. Internal audit and information storage requirements.
Manipulations in the platforms. Changing the terms of the options, after the trade is conducted. Input unexpected, non-prescribed limits, and creating other difficulties to the client.	Lack of control over pricing. Lack of standards and rules for carrying out transactions. The absence of dispute settlement mechanisms, and a lack of expertise. The low level of product awareness	Regulation and monitoring of the pricing process. Standardization of contracts. Ensuring consideration of ways and the settlement of disputes. Reporting and storage of information requirements. Control of honest disclosure to the client

It is important to note that some regulators explain binary options as gambling because they see it as a market of purchasing predictions rather than actual securities and where the probability of correct market predictions at short time intervals is highly random. Thus making these trading instruments based on guessing rather than the overall forecast over either a short, medium or longer term period. In addition, these views may be taken in order to fit binary options within the existing gaming regulations applicable, if no such rules apply within the financial investment authorities for a given jurisdiction.

Some broad opinions from the other side are that these definitions are just as suitable as any other speculative transactions on the market. Also, if the underlying asset of a binary option is a security, and the payment of the cost of the contract is determined by the volatility of the underlying asset in a financial instrument, then trading in such instruments should be monitored by the appropriate supervisory authority.

Jurisdictional Differences

Looking at the experience of the US and Japan, it is clear that a compromise was found and implemented by introducing specific conditions for providing BO trading. Regulators are trying to help increase awareness for clients regarding binary options so that investors trade binary options more consciously, as some believed that trading in very short intervals is devoid of any analytical component. Also, trading longer intervals eliminates the possibility of price manipulation.

For example, in the United States, the minimum option duration is 5 minutes, and in Japan it is 2 hours, and issues like these vary across parts of the world. Initially, binary options were very standardized products yet have become more varied and diverse in recent years, as different providers continually customized their related products and platform offerings over time. In addition, across various jurisdictions, binary options are required to meet certain standardized criteria related to their contract specifications and/or functions.

The Financial Commission is able to help the binary options industry by supporting firm’s own self-regulatory efforts through a voluntary membership structure using an external dispute regulation (EDR) platform that the organization provides and through its Dispute Resolution Committee (DRC) that brings extensive experience across the online brokerage industry. In addition, companies must meet minimum standards to join the Financial Commission as well as demonstrate ongoing compliance as needed in order to maintain membership – such as in cases of customer claims or disputes that are brought to the Financial Commission to be heard.