Well, that didn’t take long. After the CFTC sued Intrade and Trade Exchange Network for marketing options products to US customers yesterday, Binary Options Exchange Nadex was out today with a note to its clients about the CFTC’s actions. In the email sent, Nadex informed its customers about the legal actions from the CFTC against the “unregistered” binary options providers and stated that they commended the regulators on their work. The letter also reminded readers that Nadex is a US regulated entity, and as such “supports the US regulator’s efforts to crack down on illegal off-exchange market activity, particularly when that activity is directed at retail traders. Recent events have demonstrated the importance of regulation and oversight to protect the markets and especially the retail trader from fraud and abuse.”
It will be worth watching how the current events effect Nadex’s business. In its last full year earnings report, IG Group stated “Our US business, Nadex, remains a long term project but we are seeing some very early signs that it is gaining traction, with a steady increase in the number of members trading.” And “Volumes on the Nadex exchange in the USA continue to grow steadily albeit from a low base. Although the revenue here remains immaterial to the Group as a whole, this is a potentially important medium term avenue for the Group.” Therefore, while IG Group has promising expectations for the Nadex unit, the overall size of the business appears to be fairly small. As such, it will be interesting to see if the CFTC’s actions increase awareness to binary options in the US and whether Nadex will be able to take advantage of it.
The full note to clients below:
CFTC’S ACTION AGAINST UNREGISTERED BINARY OPTION PLATFORMS
As the only CFTC-registered exchange that provides retail traders with direct membership and the opportunity to trade a complete array of binary options on forex, commodity futures, stock index futures and economic events, the North American Derivatives Exchange, Inc. (Nadex) commends the U.S. Commodity Futures Trading Commission (CFTC) for its aggressive action yesterday to protect U.S. traders. The CFTC filed a civil Complaint charging two companies based in Ireland, Intrade and Trade Exchange Network, with offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers, all in violation of the CFTC’s ban on off-exchange options trading. In announcing this action, the CFTC’s Director of the Division of Enforcement stated, “It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction’ contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt.”
As a Designated Contract Market and a registered Derivatives Clearing Organization subject to regulatory oversight by the CFTC, Nadex fully supports the US regulator’s efforts to crack down on illegal off-exchange market activity, particularly when that activity is directed at retail traders. Recent events have demonstrated the importance of regulation and oversight to protect the markets and especially the retail trader from fraud and abuse. The marketplace has seen a proliferation of unregistered platforms offering binary options to US residents and this action by the CFTC sends a strong message to the operators of those platforms that such activity will not be tolerated.