Securities regulatory authorities for all Canadian jurisdictions, save for British Columbia, (the Participating Authorities) announced the implementation of Multilateral Instrument (the Instrument) and Companion Policy 91-102 on the Prohibition of Binary Options on September 28, 2017.

Binary options are defined in the Instrument as a contract or instrument that provides for only a predetermined fixed amount if the underlying interest meets one or more predefined conditions, and zero or another predetermined amount if it does not. Essentially, this definition captures a range of products that are based on the outcome of a yes/no proposition, also referred to as fixed-return options, digital options or all-or-nothing options. The return is based on whether an underlying asset, event or value meets one or more predetermined conditions as specified in the contract or instrument, during the time period specified therein. The binary options are exercised automatically once the contract or instrument is entered into, either entitling the buyer to the set amount once the predetermined condition is met, or stripping the buyer of the same if they are not. An example of a yes/no proposition on which a binary option could be based is whether or not the value of the Canadian dollar will be above US $0.75 on a particular day. The buyer would choose an outcome and receive an entitlement or be obliged to pay the fixed monetary amount based on their choice of the proposition.

Investment in binary options is often a very high risk proposition and, thus, it often attracts perpetrators of fraud. The Canadian Securities Administrators receive a significant number of complaints from binary options investors, particularly from those trading on online platforms. Such platforms operate as unregistered dealers, and are often based off-shore. The purpose of the Instrument, as stated by the Participating Authorities, is to protect would-be investors from such high risk investments and events of fraud.

The Instrument prohibits advertising, offering, selling and otherwise trading binary options to an individual and to a person or company that was created, or is solely used, to trade binary options. The prohibition is limited to binary options that have a term of maturity of less than 30 days. A binary option trader may receive an exemption from a regulator or a securities regulatory authority, depending on the province, unless they seek to operate in Quebec where no exemptions are allowed.

The prohibition comes into force on December 12, 2017, or, in the case of Saskatchewan, on the day the regulations are filed with the Registrar of Regulations.

The full texts of Multilateral Instrument 91-102 and Companion Policy 91-102 can be accessed here.


The author would like to thank Alexandre Kokach, Student-At-Law, for his contribution to this article.