So here we are nearly a year after the first elements with any teeth of the Dodd-Frank Wall Street Reform and Consumer Protection Act went into effect and still some markets remain disrupted by the lack of rules. One of the troubles with enacting substantial reform acts is that many of the details are left to the existing bureaucracy to form and implement – sometimes with only the most vague guidance from the legislation itself. Trading of binary options on certain assets appears to be one of those vague areas which simply has not sorted itself out, and US binary options trading on certain assets effectively ground to a complete halt at year end December 2011.
Which US Binary Options Trading Is Available
These days the only action left in town is stocks and selected indexes. Foreign exchange and commodities binary options (gold, silver, and the like) are all effectively in limbo for the time being. Needless to say this has put a significant damper on the ability of US traders to act in those markets – either to use the contracts as a hedge against existing positions or as an income strategy. For those using the contracts as a hedging strategy this has forced them to use more expensive, capital intensive methods (either directly in futures markets or by holding more securities). For those using contracts for income, binary options trading on US stocks is about all they have left to work with vis a vis markets.
Reduced Binary Options Trading Clearly Evident on Exchanges
The reduced activity is plainly evident (at least in two cases) on the binary options trading on the CBOE. Based on my conversation with sources inside the CBOE a major market maker in those contracts simply packed up and left. As for the retail side, my sources tell me that lack of contract availability from their end has mostly to do with the lack of a “legal” method of routing trades in the futures markets related to those assets. And so there you are – a reasonably healthy trading market which was rapidly growing in popularity amongst retail traders basically drying up to a trickle while foreign traders continue to have the blessing of binary options trading to use as part of their hedging strategy.
Future of Binary Options Contracts on Futures Unclear
We are here, nearly a year after the teeth of Dodd-Frank began to bite into the derivatives trading world and the future of this market in the US remains unclear. Recently proposed rules regarding position size and other details of implementation proposed by regulators have met with significant resistance from Wall Street and other impacted parties. Some believe that the push back on some of the less controversial rules are a delaying tactic in the hopes of having the opportunity to work with a more favorable Congress post-2012 election. It remains to be seen if the Wall Street stalling tactics can push implementation that far back, but each day of delay means continued reduced opportunities for US traders to use binary options contracts to hedge market and forex exposure – and I can’t imagine that’s a very good thing for the markets. We continue to wait and see what becomes of US forex and commodities binary options markets.
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