Securities Law In This New Globalization 4.0 : Don’t Be Exploited By Binary Options Trading Platforms Online

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Last updated on July 14th, 2021 at 12:30 pm

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Every time you are online, you have probably seen Ads on YouTube or other websites enticing you to invest in binary options. Don’t be deceived. This is a risky undertaking.

Just last week, I had to advise a few friends that had heavily invested in binary options.


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In the Capital Markets Act, securities are defined as:

(i) debentures, stocks, or bonds issued or proposed to be issued by Government;
(ii) debentures, stocks, shares, bonds or notes issued or proposed to be issued by a body corporate;
(iii) any right, warrant, option, or futures in respect of any debenture, stocks, shares, bonds, notes or in respect of commodities


It is therefore safe to say that binary options are also securities. However, given that a binary options trader domiciled in the United States can issue binary options to markets as far as Uganda on unregulated platforms means this Law is not exhaustive enough.

Properly understood, a binary option is a financial product where the buyer receives a payout or loses their investment based on if the option expires in the money. They largely depend on the outcome of a “yes or no” proposition, that’s where the name “binary” is derived.

Binary options have an expiry date and/or time. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price (based on the trade taken) for the trader to make a profit. A gain or loss on the trade is automatically credited or debited to the trader’s account when the option expires. These binary options largely target those who lack knowledge of how financial markets work. They look deceptively simple but they are not.

A simple example of an online binary option can be as simple as whether the share price of a certain listed company on a regulated exchange like New York securities Exchange will be above $25 on May 22, 2020, at 10:45 a.m. The trader makes a decision, either yes (it will be higher) or no (it will be lower).

Let us say the trader thinks the price will be trading above $25, on that date and time, and is willing to bet $100 on it. If the shares trade above $25 at that date and time, the trader receives a payout per the terms agreed. For example, if the payout was 70%, the binary broker credits the trader’s account with $70. If the price trades below $25 at that date and time, the trader was wrong and loses their $100 investment in the trade.

Much securities Law in certain western counties is catching up with these binary option trades and in Uganda we have weak systems. Even when seven of my friends were exploited by these online binary options traders, I had to weigh my options of whether to get touch with the Capital Markets Authority or Police.

I finally arrived at the conviction to file a complaint with the United States Securities and Exchange Commission (SEC) since they have proven expertise in regulating their own domiciled binary option trades. Capital Markets Authority would not help at all.

For starters, in case of a Binary options Trading scam in Uganda done by a foreign domiciled broker, there are no laws or rules to regulate binary trading. Much as the law still states that no one shall be a broker without a licence from the Capital Markets Authority, it’s hard to see how a U.S domiciled broker could seek a licence from Capital Markets Authority. The only thing that Capital Markets Authority can do is to get in touch with the Uganda Communications Commission to block these binary options trading sites.

Investors who are involved in binary options in Uganda do so at their own risk. There is no legal remedy available to a trader who gets involved in a binary option trading scam. There are many fake websites rampant over the internet that scam people and end up stealing their information and money.

Some commentators may argue that defining what regulation is, is not, as is often believed, a measure of legality or otherwise. So, why bother with it at all? The answer is twofold.

Firstly, markets are better able to function with a clear set of rules and regulations created by experts. These may not be legally binding, but they are essential to ensure physical rights, underpin transactions, and safeguard fair competition. However, presently there are no clear rules on how certain binary options brokers should internally regulate themselves.

Secondly, rules offer protection, for companies and their clients alike. The rules guarantee the safety of those involved, and help mitigate broader market failures in the most competitive of industries.

On the part of the consumer, they shield them from abuse, scams, and fraudulent activity.

Much more generally, in the Capital Markets Authority Act under Section 17 (1), The authority may, where it considers it necessary for the protection of investors, require a broker or dealer or an exempt broker or dealer to disclose to it, in relation of any acquisition or disposal of securities, the name of the person from or through whom or on whose behalf the securities were acquired or disposed of and the nature of the instructions given to the broker or dealer in respect of the acquisition or disposal.

With online binary options brokers, this section might not come to your rescue because most binary options brokers are domiciled outside Uganda.

When traditional securities are listed, or offered to the public, the law requires enormous disclosures to be made in some kind of prospectus. However, many online binary options traders just trade without adequate information on the pricing and the rules of the game. This makes them susceptible to exploitation when they don’t even know it because of information asymmetry.

Many binary option “brokers” have been exposed as fraudulent operations. In those cases, there is no real brokerage; the customer is betting against the broker, who is acting as a bucket shop. Manipulation of price data to cause customers to lose is common. Withdrawals are regularly stalled or refused by such operations; if a client has good reason to expect a payment, the operator will simply stop taking their phone calls.

Though binary options sometimes trade on regulated exchange especially in the U.S, they are generally unregulated, trading on the Internet, and prone to fraud. Just recently, The Commodity Futures Trading Commission, which regulates securities along with the securities and exchange commission, last week announced the filing of a multi-million dollar fraud action in the U.S. District Court for the Southern District of Florida, charging three individuals and three companies with fraudulently soliciting tens of millions of customers and prospective customers to open and fund off-exchange binary options and digital asset trading accounts.

These accounts traded foreign exchange currency pairs, metals, and digital assets through websites operated by unregistered binary options and digital asset brokers.

I have tried to get in touch with Capital Markets Authority to tell them about the impending dangers of binary options trading online in this largely globalized world. But they chose to ignore me.  Personally, I am of the view that Ministry of Finance should help us throw out this largely incompetent Capital markets Authority (CMA) board, and replace it with more motivated people who are alive to the present realities of how securities law has evolved in this globalization 4.0.

It’s not hard for Capital Markets Authority to issue a public statement warning the public or even contacting Uganda Communications Commission to block these websites trading these products.
The Capital Markets Authority Act should also be amended to give powers to the authority to prosecute securities fraud and crimes and not the Director of Public Prosecution.

Securities law crimes are very complicated to prosecute without competent prosecutors. Please Capital Markets Authority, help us put your house in order.


Louis is a lawyer in general Commercial law with expertise in Capital Markets, Securities law, structured financing, Fintech, venture capital and data protection

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