Following guidance from the European Commission, the MFSA has recently issued a circular advising that binary options are to be considered as instruments falling within the ambit of the Second Schedule of the Investment Services Act (Cap. 370 of the Laws of Malta), which is itself modelled on the MiFID Directive (Directive 2004/39/EC). It is now clear that any person carrying out investment services in relation to binary options in or from Malta would require an investment services licence.

Binary options are derivative contracts, in which the payoff depends on whether the underlying asset increases or decreases in value. It is structured as an all-or nothing payout structure where, by way of example, investors betting on an increase in stock price, face two possible outcomes upon the expiry date of the contract: they either receive a pre-determined amount of money if the strike price is met by the expiration date, or nothing at all if the price of the underlying security is trading below the option strike price at expiration. 

For more information on this topic please contact Laragh Cassar on (+356) 2123 8989.