In finance, a binary option is an option in which the payoff can take two possible outcomes, either some fixed monetary amount (or a precise predefined quantity or units of some asset) or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Binary options are also called all-or-nothing options, digital options and fixed return options (FROs).
Binary options according to MiFID regulation
According to European Commission, point (4) of Section C of Annex 1 to Directive 2004/39/EC lists the financial instruments covered by the mentioned Directive. The covers, among others, any derivative contracts relating to securities, currencies, interest rates or yields, or other derivative instruments as well as derivatives relating to commodities that are settled in cash or that can be physically settled provided they have the characteristics of other derivative financial instruments.
As the binary option have the features of a derivative contract settled in cash such binary products appear to meet the definition of ‘financial instruments’ laid down in Section C of Annex I to MiFID.
Therefore a companies wishing to offer services related to binary options in Latvia, it is required by MiFID that such person is authorized to operate as an investment firm according to the Latvian law.
Establishing an investment firm in Latvia
An investment brokerage firm (investment firm) is a capital company that provides investment services and ancillary (non-core) investment services.
The investment firm, which provides services with financial instruments included in the Latvian Central Depository, shall comply also with the regulations of the Depository. The investment firm, which provides services with financial instruments admitted to a regulated market, shall comply also with the regulations of the regulated market.
Requirements for the license
To receive the license for the provision of investment services and ancillary (non-core) investment services, the investment firm shall submit to the Commission an application; information about board and council members, including their education document copies, balance sheet, descriptions of the basic elements necessary for the establishment of an internal audit system, procedures significant for the operation of the investment brokerage company and for the qualitative provision of investment services, including accounting policies and accounting organization, description of the management information system, the provisions for the protection of the information system, including provisions for the protection of the financial instrument record-keeping database, a description of the internal audit system, descriptions of procedures for the identification of unusual and suspicious financial transactions, and descriptions of policies and procedures for the management of significant operational risks; company activity procedure description, an activity plan for at least the next three years, information regarding shareholders etc.
The share capital of investment firm shall differ from EUR 50 000 – EUR 730 000 according to its activity.
The Board members and
council members cannot be punished.
Board members and council and shareholder shall have a good reputation.
The Commission shall
examine the application of investment firm and take a decision on granting a
license within a three-month period upon the receipt of all the
For providing you with more detailed information, we would need additional information regarding possible owners, board, activities etc.