Is Binary Options Trading Legal in the United States? (CFTC and SEC Status)

The CFTC states that binary options are legal to trade in the United States on regulated exchanges known as Designated Contract Markets. The CFTC also says a platform soliciting money from U.S. residents that is not registered with the CFTC or SEC is likely fraudulent.

What the Rules Say

The CFTC states: "Binary options are legal and available to trade in the U.S. but they must be traded on a regulated U.S. exchange." The CFTC adds: "These exchanges are Designated Contract Markets (DCMs)." The CFTC also notes: "There are registered binary options exchanges in the United States." The CFTC explains: "Some binary options are listed on registered exchanges or traded on DCMs that are subject to oversight by the CFTC or SEC."

In an investor alert dated 6 June 2013, the SEC and CFTC stated that they had received numerous complaints of fraud associated with binary options websites. The alert explains that much of the binary options market operates through internet-based trading platforms that are not necessarily complying with applicable U.S. regulatory requirements. The alert says that under the federal securities laws a company may not lawfully offer or sell securities unless the offer and sale are registered with the SEC or exempt. The alert notes: "For example, some binary options may be securities." The alert warns: "If there is no registration or exemption, then the offer or sale of the binary option to you would be illegal." The alert also explains: "Registration provides investors access to key information about the terms of the product being offered."

The CFTC states that many offshore companies engaged in commodity binary options transactions are not registered with the CFTC, and tells investors to avoid them. The CFTC warns that a binary options platform doing business in the United States and soliciting money from U.S. residents that is not registered with the CFTC or SEC is likely fraudulent. The CFTC advises: "To more easily avoid scams and false promises, you should work with a CFTC-regulated exchange within the U.S." However, the CFTC cautions: "Registration is not a guarantee against fraud, but it can help you weed out those operating outside of U.S. law." The CFTC explains that registration matters because it means the exchange meets regulatory requirements for liquidity, safety and customer protection enforced by the CFTC or the SEC.

The SEC and CFTC alert is dated 6 June 2013; the two CFTC pages cited here carry no date in the text we reviewed. Check the CFTC and SEC websites for current information.

How to Check a Firm

The CFTC advises investors to check the registration status of the company, and the broker's registration status if dealing with a broker. The CFTC instructs investors: "If they say yes, verify that they are registered with the CFTC and National Futures Association."

The 2013 SEC and CFTC investor alert outlines verification steps before using a platform. These checks include: "Check to see if the binary options trading platform is a designated contract market." The alert also advises: "Check to see if the binary options trading platform itself is registered as an exchange." In addition, the alert instructs investors to check whether the platform has registered the offer and sale of the product with the SEC.

If a firm does not appear on the relevant register, treat that as a reason to stop and check further before sending money.

Frequently Asked Questions

Are binary options legal to trade in the United States?

The CFTC states: "Binary options are legal and available to trade in the U.S. but they must be traded on a regulated U.S. exchange." "These exchanges are Designated Contract Markets (DCMs)."

What does the SEC and CFTC investor alert state regarding unregistered platforms?

The 2013 investor alert warns: "If there is no registration or exemption, then the offer or sale of the binary option to you would be illegal." The CFTC also warns that a binary options platform soliciting money from U.S. residents that is not registered with the CFTC or SEC is likely fraudulent.

Does registration with U.S. regulators guarantee against fraud?

The CFTC cautions: "Registration is not a guarantee against fraud, but it can help you weed out those operating outside of U.S. law." Registration indicates that the exchange meets requirements for liquidity, safety, and customer protection enforced by the CFTC or the SEC.

Does this page address individual liability?

This page summarises what the regulators' published rules say. It does not address whether an individual could face liability. Seek independent legal advice.

Sources and Official References

• CFTC Advisory — Beware of Off-Exchange Binary Options Trades: https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/beware_of_off_exchange_binary_options.htm
• CFTC Advisory — Avoid Unregistered Binary Options Trading Platforms: https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/avoid_unregistered_binary_options_platforms.htm
• SEC and CFTC Investor Alert (6 June 2013): https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/investor-61

This page summarises what the regulators' published rules say. It does not address whether an individual could face liability. Seek independent legal advice.