GUIDELINES FOR OVER-THE-COUNTER BINARYOPTION TRANSACTION WITH INDIVIDUALS
BUSINESS CONDUCT RULES

Adopted July 18, 2013

I. － Purposes
The purposes of these Guidelines shall be to show the purport of the Over-The-Counter
Binary Option Transaction with Individuals Business Conduct Rules (hereinafter referred to as"Rules"), interpretation of each Article of the Rules and operational remarks, etc. on the Rules.
II. － Purport and Background of Implementation of Rules
The number of Members who offer over-the-counter binary option transactions with
underlying assets of currencies (currency indices) tradable continuously and repeatedly toindividuals (hereinafter referred to as "over-the-counter binary option transaction withindividuals") newly has increased simultaneously with the introduction of margining regulations
for foreign exchange margin transactions that has begun in stages since August 2011, and thevolume is set on the increasing trend.
By contrast, over-the-counter binary option transactions with individuals could hardly bedescribed yet as derivatives transactions familiar among individual investors widely, comparedwith foreign exchange margin transactions as of now, and may give wrong firm impression on
their merchantability such as widespread publicity of safe foreign currency investment with,simply, limited loss on the internet despite of their risk-return nature different from foreignexchange margin transactions.
In the first place, options expire at the predetermined due time of exercise, and therefore
are not financial instruments suitable for long term holding by a customer unlike investment inunderlying assets. If, further, options which due within very short period are used for speculativetransactions, the boundary line to divide from so called gambling disappears and opinions that they
may have unwanted influence on the development of the entire financial instruments transactions
are seen. 1 2 3
Binary option transactions may lead investors to even easier investment compared withother type of option transactions because binary option transactions cause a certain fixed amountof investment loss. We established the Binary Option Working Group after obtaining theapproval of the Self-Regulatory Sub-Committee and Operations Sub-Committee on the groundthat necessity to summarize the issues specifically and to study responses as self-regulations has
occurred such as how financial futures transactions should be treated under the fundamental
business policies of the Association's Members that the Members shall endeavor to prevent
customers from excessively speculative transactions and improve circumstances for soundfinancial instruments transactions. 4
12 meetings of the Working Group were held until May 16, 2013, and completed"Regulatory Principles for Binary Option Transactions with Individuals" on December 12, 2012,and subsequently published the Final Report on April 24, 2013, and finished the works as the
Binary Option Working Group by adopting the draft for the rules and guidelines on May 16, 2013,
The draft demanded Members to review the existing specification design and trading
method of each Member's over-the-counter binary option transactions with individuals andcovered overall business including the criteria for the commencement of trading, concrete methodof trade limit control and rules for ensuring appropriate trade prices for the basis of gaining
credibility of customers, disclosure in light of enlightenment of investors and implementation of
the system of advertisement.

*This English version is a translation of the original Japanese text. The original Japanese text will
prevail should there be any difference in meaning between the English and Japanese versions.

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Subsequently, the Rules have been made on July 18, 2013, after various procedures in the
Association such as reporting to FX Sub-Committee Administrative Meeting which is responsible
for reviewing self-regulations, etc. of foreign exchange margin transactions taking lead ofderivatives transactions with individuals as like over-the-counter binary option transactions withindividuals.
1

Foreign exchange margin transactions have the structure of postponing the settlement of spottransactions of currencies indefinitely, which is similar to transactions of underlying assets.
2 With respect to the borderline between derivatives transactions and so called gambling, there are,for example, documents of "Summary of Issues on Financial Derivatives Transactions and Gambling Crime"(November 29, 1999) by Financial Law Board administered by the Bank of Japan.

3

For example, negative opinions appeared that binary options are unhealthy as financial
instruments in line with the expansion of very short term binary option transactions on the blogs
on the Internet.
4 A Member of the Association is required to make an effort to prevent excessively speculativetransactions by a customer for not only binary options but also all types of financial futurestransactions that the Member is engaged pursuant to, among others, Article 19 of the BusinessConduct Rules of the Association.
III.－
1.

Interpretation and Guidelines

Purpose and Scope of Rules (related to Article 1)

The purposes of these Rules shall be to consolidate and provide for requirements to protect
investors and implement the business system of a Member who offers over-the-counter binary
option transactions by preventing excessive speculative transactions by investors and offering
investors transactions suitable for investors regarding over-the-counter binary options, to which
over-the-counter option transactions as defined in (3) and (4) of Article 2.22 of the Financial
Instruments and Exchange Act (hereinafter referred to as "Act") are applicable, with underlying
assets of financial instruments, etc. referred to in Article 2 (2) of the Rules and the structure
tradable continuously and repeatedly offered to individual customers
On-exchange binary option transactions (including overseas on-exchange transactions) arenot subject to these Rules, because there is no record of such transactions by Members of the
Association as of July 18, 2013. A Member who will offer such binary options with the samestructure tradable continuously and repeatedly to individuals in the future should understand the
purport of making these Rules and these Guidelines and the details thereof and be careful for suchoffering.
"Structure tradable continuously and repeatedly" means the structure that the same
customer may trade the same type of financial instruments, etc. repeatedly.
2-1-1.

Certain Conditions (related to Article 2 (1))"Case of meeting certain conditions" means that the relationship between the exercise priceand the judgment price is positioned in predetermined relationship by a contract such as the
judgment price ≧ the exercise price or the judgment price ≦ the exercise price.
Definition of instruments under Article 2.1 (1) does not have particular limitation on thenumber of exercise prices or timing of establishment, and therefore the type of options for which
multiple exercise prices are established such as range binary options and American type of options
such as one-touch options shall be subject to these Rules if a Member offers them with thestructure tradable continuously and repeatedly to individuals. 6 7
While the positional relationship between the judgment price and the exercise price could
be equal to or more than (≧), equal to or less than (≦), more than (＞), less than (＜), equal to(＝), a Member shall endeavor to explain to a customer fully to avoid misunderstanding and obtainthe customer's understanding of the in any case where any relationship is a condition for the
exercise. 8

5

Binary options in which a price zone is created by two exercise prices and payout is determinedby the state that the price of underlying assets is within the zone or not as at the judgment time.
6 Binary options which has an exercisable period and the payout is fixed as at the time that the7-2013II-44-2

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price of underlying assets has reached the exercise price during such period.
7 Generally, options exercisable any time during the exercise period are called American type andoptions exercisable only at the due date (due date of effectiveness of an option contract) is called
European type and options exercisable more than one time during the exercise period is called
Bermuda type.
8 In the case of the judgment price=exercise price, options the payout amount of which differ
from other price relationship and options with more than two exercise price the payout amount of
which differ according to the price zone created by each exercise price shall be subject to theseRules.
9 Original type of options which give the right to acquire the underlying assets at the exercise
price (call option) or the right to assign the underlying assets at the exercise price.
10 For example, the structure to combine a contract, in the case of the exercise at the exercise
price of 100 Yen per USD 1, with a contract buying back the USD at 101 Yen per USD 1
simultaneously and cause the payout of a certain predetermined amount of money (1 Yen).
11 The case where such transaction is not option, the case of a structure other than the structure toenable continuous and repeated transactions and the case where transactions are not conducted withindividual investors are not subject to the Rules.
12 Options having the nature of, in part, plain options.
2-1-2.

Certain Amount of Money (related to Article 2 (1))
A certain amount money means money payable by payout in binary option transactions
and, in the case where binary options caused payout as a result of exercise and the predetermined
fixed amount is paid, such fixed amount.
For example, a derivatives transactions contract combining plain options exercisable when
the price of underlying assets has reached the exercise price with forward transactions ofunderlying assets which, as a result, becomes a transaction with the structure that a customer
receives the fixed amount of payout as a result of exercise shall be subject to these Rules, if suchtransaction is offered to individuals, because such transaction is in effect binary options. 9 10 11
The structure that three or more exercise prices are established and different amounts of
payout are paid according to the price ranges created by each exercise price shall also be subject tothese Rules.
However, the structure that, if exercise conditions have been met by any of exercise prices,
the acquirer of the options can receive underlying assets if the acquirer of the options pay a certain
amount to the grantor of the options or the structure that the upper limit is not established for the
payout amount receivable by an acquirer of options shall not be subject to these Rules. 12

2-2．Underlying Assets (related to Article 2 (2))
Over-the-counter binary options traded with individuals are one form of option
transactions provided in (3) or (4) of Article 2.22 of the Act.
With respect to options to which Article 2.22 (3) (a) of the Act are applicable, underlying
assets mean financial instruments which are objects of purchase and sale by a grantor and an
acquirer of options as a result of exercise.
Because, among options to which (3) (b) of Article 2.22 of the Act are applicable, rights(options) to conclude transactions to which Article 2.22 (1) is applicable (forward transaction) ortransactions to which Article 2.22 (2) is applicable (index forward transaction) fall within thescope of the jurisdiction of the Association, underlying assets mean financial instruments which
are objects of forward transactions or financial indices to compute the amount of money to be paid
and received in index forward transactions.
An option to which Article 2.22 (4) is applicable means a right to conclude transactions to
pay or receive the amount of money computed by the difference between the predetermined valueof a financial index and the value of a financial index at the time of exercise, "underlying assets"means the financial index to compute the amount of money. 13
The same applies to underlying assets of binary options.
Underlying assets which are objects of option transactions under the jurisdiction of the
Association shall be claims, etc. based on a contract of deposit which are objects of interest rate
futures transactions (limited to those provided in Article 2.24 (2) of the Act; hereinafter referred toas "money deposit, etc.."), currency (Article 2.24 (3) of the Act) and financial indices which relate tointerest rate of money deposit, etc.. or currency. 14
Financial indices include an index of the price of each currency or interest rate, etc. of
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money deposit, etc.. (Article 2.25 (1)) and so-called indices putting together multiple prices ofcurrencies and interest rates of money deposit, etc.
13 Refer to Article 2.22 of the Financial Instruments and Exchange Act.
14 Financial instruments such as foreign exchange forward transaction (Forward Exchange
Agreement /FXA, cash settled Non-Deliverable Forward/ NDF) are included in transactions
provided in Article 2.22 (3) (b) of the Act.
15 Exercise price of a plain option (Call) means the acquisition price of the underlying assets
payable by the acquirer of the option to the grantor of the option at the time of exercise by theacquirer of the option to acquire the underlying assets from the grantor of the option.
2-3.

Exercise Price (related to Article 2 (4))
Exercise price in the case of binary options means the predetermined base price (or value)of underlying assets in order to check against the judgment price for the judgment of payout. 15

2-4.

Judgment Price (related to Article 2 (5))"Judgment price" means the price of underlying assets as at the exercise by an acquirer of abinary option. Judgment price also means the price of underlying assets at the time of thejudgment in respect of a contract which is exercised automatically only at the predeterminedjudgment time or a contract which is exercised automatically when the price of the underlying
assets has reached a certain price.

2-5.

Relationship of Period, Time Point (Article 2 (8))
The following is the relationship of trading period, judgment time, tradable period, etc. in
the case of the judgment as of the end of a trading period.

Note: End time of trading must be close to the judgment time as much as possible.
[Reference] "instrument", "issue name", "serial number"In these Guidelines, "instrument", "issue name", "serial number" are clarified as follows:(i) instrument: one instrument is defined by the combination of one chosen from theclassifications by conditions of exercise such as "binary option," "range binary option,""one-touch option", one chosen from the classifications of exercisable period such as European
type or American type and one chosen from the classifications of call or put if there is suchclassification. 16(ii) issue name: one issue name is defined by the underlying assets (in the case of a currency, acurrency pair (currency index)) regardless of a currency used for the exercise price or payout.
(iii) serial number: regardless of instruments or issue names, one serial number is a pair of thetime of the commencement and the time of end of a trading period.

2-6.

In the case of offering multiple instruments, issue names and serial numbers, as follows;
Instrument
Binary call
Binary put
Range binary

Issue name Serial number
USD/JPY
1
GBP/JPY
3
EUR/USD3

Trading hours
9:00a.m. - 11:00 a.m.
3:00p.m. - 5:00 p.m.
3:00p.m. - 5:00 p.m.

In the case of offering simultaneous transactions with different trading period such as 2 hour
trading and 12 hour trading, it is necessary to represent the transactions by distinguishing suchtransactions with different trading period such as "binary option (2 hours)", "binary option (12hours)" in order to ensure that customers understand correctly.
16

Referring only options in which judgment is made only at the closing time of the trading

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period for payout in this session (original type of binary options).
3.

"Trading Period" (related to Article 3)
Based on the last report by the Association's Binary Option Working Group published on
April 24, 2013, 2 hours should be appropriate for a trading period of an over-the-counter binary
option transaction with individuals for the time being.
Therefore, a Member who offers over-the-counter binary option transactions withindividuals must determine the minimum base value for a trading period which must be at least 2
hours, and control the business operation.
In the case of establishing exercise prices by a certain computation method, the base value
shall be the period from the time of conducting transactions with customers until the judgment timeafter the establishment of specific exercise prices.
It is possible to establish duplicated trading periods for consecutive serial numbers. In thecase of duplicating trading periods, however, a Member must widen the time span between the
judgment time of the foregoing serial number and the judgment time of the following serial number
by at least the minimum base value determined by the Member.
It is inappropriate, regardless whether they have the same length of trading periods or
different length of trading periods, to establish less than 2 hour time span of the judgment times fora trading of different issue names unless there is a reasonable ground, because it may leadcustomers to conduct excessively speculative transactions.
In the case of determining exercise prices by a certain computation method anddetermining specific exercise prices after the commencement of transactions with a customer, it isinappropriate to determine exercise prices at different and more than one time for one serial number
unless there is a reasonable ground, because it may lead customers to conduct excessively
speculative transactions. 17
A Member must, in the case of different instruments, be careful to establish serial numbers
for different instruments in respect of the time span of the judgment times in order to avoid leadinga customer to conduct excessively speculative transactions. 18

It is possible to establish duplicated serial numbers of different trading periods. A Member
should, however, also be careful to avoid leading customers to conduct excessively speculativetransaction by such duplication of serial numbers. 18

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4. Trading Term (related Article 4)
A Member must increase transparency of over-the-counter binary option transactions withindividuals and provide customers with circumstances that customers can trade freely until justbefore the judgment time similarly to exchange listed options in order to prevent the investors'
unanticipated occurrence of loss as much as possible.
Currency binary contracts listed on NADEX U.S. are traded by investors until
approximately 2 minutes before a judgment time, which was checked by the Administration of the
Association. A Member shall endeavor to implement the system to trade just before the judgment
time, after taking into consideration of such foregoing example.
Meanwhile, the spread of trade prices increases substantially if it is shortly before thejudgment time in actual trading, and it could be assumed that smooth trading becomes impossible.
If such state will likely continue, it might be an effective measure to take the idea of the duplicationof trading period, and provide a customer with circumstances to move smoothly to the next serial
number as shown in "3. Trading Period".
Even if a Member duplicates trading hours, the Member must response to transactions toclose customers' positions until just before the judgment time in respect of the foregoing serial
number. 19
17 Reasonable ground includes establishing serial numbers corresponding to each trading hours
for each of such markets after classifying currency pairs traded most actively on major markets
such as Tokyo, London and New York, and establishing separately a serial number corresponding
to a time zone where liquidity can be ensured for a specific currency with limited liquidity.
Adjustment of serial numbers for a specific business day after considering the publication time of
economic indicator, etc. which influence on price movement of currencies could be a reasonableground for establishing serial numbers on such business day.
18 In the case, for example, where an exercise price is added in the middle of the trading period
for a serial number the trading period of which is 24 hours, establishment of a serial number with
duplicated trading period with other serial number at or before the time limit when addition of an
exercise price is possible lacks reasonable ground and is not desirable.
19 In the case of duplicating trading periods, quoting of prices which facilitate smoothtransactions with customers becomes more difficult for foregoing serial numbers. It could bepossible, therefore, the following serial number responds to transactions to establish new positions,and transactions to establish new positions for the foregoing serial number terminates whensmooth transactions with customers has become impossible, after the commencement of thefollowing serial number.
5.

Trading Method (related to Article 5)

It is important to establish the structure to win customers' trust that trade prices and othertrading conditions are fair in order to ensure the development of financial futures transactions
offered widely to individual customers. Conflicts of interest exist apparently between a customer
and a Member in respect of over-the-counter transactions, further effort to establish the structure to
be trusted is required.
With respect to over-the-counter binary option transactions with individual investors, acustomer cannot judge easily whether exercise prices established or trade prices quoted by theMember are in favor of the Member unilaterally.
Assuming that a customer may become an acquirer or a granter of an option and, for
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example, a firm quotes overvalued trade prices relative to the exercise price, the customer becomesa grantor and can receive the overvalued trade prices (premium). In such a case, the firm who has
become an acquirer of the options becomes disadvantageous. If, therefore, a customer can conduct
purchase transaction and sale transaction anytime, the best choice for the firm shall be to quoteappropriate trade prices and expand transactions.
If a firm acts in accordance with the best choice and a customer understands such attitude of
the firm, the customer would increase the sense of trust on trade prices. ((1))
Even by the method other than the method that a customer can become an acquirer andgrantor, similar effect could be expected by eliminating trading conditions to result in advantages of
only the firm (so called "take all").
For example, the relationship that the payout amount and loss amount from binary option
transactions are fixed amounts causes theoretically the following relationship:
Call option price ＝ payout amount － put option priceUsing the above relationship, it could be thought that the method of conducting purchasetransactions of binary call options and binary put options with the same currency, exercise prices,trading period simultaneously. 20 21
Actual trade prices generated based on theoretical values which are backed by the above
relationship may not come to the same result as the above however, and in such a case, it isnecessary to explain fully in advance about the reason why such situation arises. 22 23
Even if, on the other hand, a firm has explained to customer fully, the firm must recognize
prices significantly different from call and put prices obtained from the above formula as
inappropriate and effect the firm's price control. ((2))
20 Limited to the case where payout in the case of the judgment price = the exercise price belongs
to a holder of either call or put such as the judgment price ≧ the exercise price in the case of call,the judgment price ＜ the exercise price in the case of put.
21 Binary options from which payout arises when the judgment price is equal to or higher than (orhigher than) the exercise price is called binary call options and binary options from which payout
arises when the judgment price is equal to or lower than (or lower than) the exercise price is calledbinary put options.
22 If, for example, a Member offers only purchase transaction for both put and call and quotes
prices after adding margins for the Member, the formula in the main text may not come into effectbecause of the margins for the Member. In this case, the comparable margins for the Member
are charged to put and call, and the offsetting price is the price after the deduction of such margins
for the Member, and further the relationship that the total of offsetting price of call and offsetting
price of put equals to payout amount is true, such case has a reasonable ground.
23 In order to make the formula effective, payout amount in the case of the judgment price =exercise price is added to either of put or call, the Member must explain fully to obtainunderstanding from a customer that the payout is treated differently between call and put in thecase of the judgment price = the exercise price.
24 For example, prices in the case of odds used for gambling could not be prices based on areasonable ground for individual financial instruments.

6-1

Reasonable Ground (related to Article 6.1)

"Price based on a reasonable ground" means the price formed based on the result of value
computation using predefined formula such as Black=Sholes Method for each serial number. 24
6-2.

2 WAY Method (related to Article 6.2)

A structure to facilitate that a customer can confirm purchase price and sale pricesimultaneously means, so called 2 WAY method, the method to quote sale price and purchase pricesimultaneously to customers.
In the case of always quoting the same price of sale and purchase, the number of prices
quoted is one. Such structure would be no problem.
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In the case of conducting only purchase transaction using binary call option and binary put
option simultaneously, the firm must also respond to transactions to close a customer's position andquote prices to close a customer's position together with purchase prices to customers.
If a firm duplicates a part of trading period and a customer has acquired new position of
foregoing serial number, quoting only trade prices for closing the customer's position thenafter until
just before the judgment time would be no problem.
6-3.

Determination of Payout Amount (related to Article 6.3)

Changes in option values during a trading period must be shown by changes in option
premium (changes in trade prices). Therefore, the method to fix trade prices and show changes invalue only by payout amount should not be allowed.
It is possible to establish multiple payout amounts using positional relationship between theexercise price and the judgment price. Payout amount must have been determined as of thecommencement of trading of serial numbers. 25 26
A Member must implement the system disallowing to show values in a manner to lead acustomer to conduct excessively speculative transactions without good reason such as showing apayout multiplying ratio to trade price or conducting multiple transactions in a lump. 27
25 There could, for example, be a structure of different payout amount in the case of the judgment
price = the exercise price or a structure of using more than one exercise price to fix payout
separately for each price zone created by each exercise price. Using such structure for the
purpose of heightening a payout multiplying ratio is inconsistent with the purpose of the Rules of
the Association.
26 The payout amount must be determined as at the commencement of a serial number in order tocompare and consider prices of firms and understand the reasonableness. The structure that thepayout amount is equivalent to trading values different among customers who paid the trading
values during the trading period causes conducting transactions of different binary options foreach customer, and such comparison and consideration becomes impossible, and therefore such
structure shall not be permitted. Assuming, however, that trade prices are reasonable, forexample, it could be possible to use the structure that trading value is returned to a customer bymeans different from the payout method by using a contract that a transaction is not concluded if
the judgment price = the exercise price has been realized.
27 It is necessary to commonalize, among others, the unit of prices in order to enable comparisonor consideration of prices of firms. For example, in the case of USDJPY plain option, quoting
trade prices per USD 1 to customers could be the principle. Based on the structure of pricecomputation of binary options, on the other hand, a firm is required to quote trade prices based on
the payout amount, and in order to maintain comparability of trade prices for customer under suchconditions, in respect to payout amount, the units from which a customer can easily compare such
as 1,000 Yen or 10,000 Yen is desirable. The structure of fixing the investment amount of acustomer such as 1,000 Yen or 5,000 Yen of trade price of options and adjusting the volume ofoptions granted may harm the price comparability for a customer and could lead a customer to
conduct excessively speculative transactions, and therefore inappropriate.
7-1.

Determination time of Exercise Price (related to Article 7.1)

Exercise Prices should be determined as at the commencement of trading of each serial
number, except for the case where exercise prices are determined by a certain computation method
and exercise prices are determined specifically after the commencement of transactions with acustomer. If, for example, the commencement time of trading is 00 hour 00 minute: 00 second, an
exercise price could be the first price shown by the underlying assets (tick) as of 00 second.
However, any change in once determined exercise price is not allowed during the trading hour.
7-2.

Addition of Exercise Prices (related to Article 7.2)

Addition of exercise prices during a trading period may be made only if all conditions
referred to in the items of Article 7.2.
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Among these, (1) indicates that, if transactions with customers for at least one among
exercise prices established for each serial number are conducted smoothly (even if such prices are
not at-the-money), addition is not allowed.
The state that smooth transactions are not conducted could mean that, for example,
transactions with customers are not conducted before the time when addition is made and theforeign exchange market after the addition will unlikely move to the direction of the existing
exercise prices.
Even if an exercise price is added, a Member must continue quoting trade prices based on
exercise prices established before the addition and respond to transactions to close positions ofcustomers who have held such positions..
(2) provides for the time limit to add an exercise price, as shown below.

(3) indicates prerequisites in the case where an exercise price may be added. In order toensure customers' full understanding of the effect that an exercise price will be added and themethod of addition, containing in a trading guide and the summary of specifications to be publishedis provided.
8.

Method to Determine Exercise Price (related to Article 8)With respect to over-the-counter binary option transactions with individuals, a Member must
determine an exercise price appropriately in a manner to avoid high payout multiplying ratio as at
the commencement of trading. 28
Lower trade price causes higher payout multiplying ratio because an over-the-counter binary
option traded with individuals in accordance with these Rules has a fixed payout amount.
A trade price goes lower as the exercise price differs more from the price of underlying
assets in the case of out-of-the-money, and goes higher as the exercise price differ more from theprice of underlying assets in the case of in-the-money.
A trade price goes higher as the trading period is longer in the case where the exercise priceis determined on the side of out-of-the-money where exercise prices are, and goes higher the trading
period is shorter in the case where the exercise price is determined on the side of in-the-money.
In establishing exercise prices, therefore, the Member must balance the width of exercise
prices between the prices of underlying assets as at the commencement of trading and the length of
the trading period in order to avoid high payout multiplying ratio.
The width of exercise prices could, for example, be, as an idea, implied volatility or
historical volatility of object currencies for the same length as trading period.
Even if, however, volatility is used as the base to determine exercise prices, it could bedesirable for each Member to establish exercise prices carefully with multiple bases such as limiting
the width of the price of underlying assets and the exercise price as at the commencement of tradingin addition to the base of volatility to avoid significantly high payout multiplying ratio at the stageof the commencement of trading.
28

Payout multiplying ratio = Payout amount ÷ option price9.

Summary of Specifications (related to Article 9)
A Member makes the summary of specifications on the Member's Website always available

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to the public. With respect to matters which are subject to the summary of specifications, pleaserefer to Schedule "Necessary Matters of Summary of Specifications Contained inOver-The-Counter Binary Option Transactions Trading Guide" provided by the Administration of
the Association.
Nowadays, various information is provided through the Internet or other means including
those which may be untrue, and individual customers could have false preconceptions concerning
over-the-counter financial futures transactions.
If, therefore, a Member offers financial futures transactions to individuals widely, theMember must endeavor to implement the circumstances to enable a customer to confirm accurate
information in respect of specification or trading method of financial futures transactions that thecustomer wishes to conduct and understand the information fully before an individual who is acustomer carries forward the concrete procedures to commence transactions.
In accordance with these Rules, the summary of specifications to be published will bematters contained in a trading guide. A Member should endeavor to publish such matters
positively, and offer investors who consider making investment opportunities to increaseknowledge before such investment.
10.1

Examination of Advertisement (related to Article 10.1)

It is inappropriate to give false understanding on specifications of, or risks associated with,over-the-counter binary option transactions with individuals or use impressions or explanations tolead customers to easy investment, as equivalent to advertisement approach on other financial
instruments. A Member must implement the business system to ensure that such advertisements
are not used through examination of advertisement. With respect to concrete impression or
explanation which could be inappropriate, please refer to "Q&A regarding Advertisement" preparedby the Administration of the Association.
10-2.

Affiliate Advertisement (related to Article 10.2)

In using an affiliate advertisement for over-the-counter binary option transactions withindividuals, the Member must use existing Guidelines for FX transactions and endeavor to control
appropriately.
Considering the specifications of binary option transactions however, there are concerns thatan affiliate advertisement under indirect contract may not be controlled fully. A member must
confirm the contents to be used more carefully such as knowing the details in advance.
10-3.

Cash Back (related to Article 10.3)

There are concerns that providing gifts such as cash back for over-the-counter binary option
transactions with individuals could prevent calm judgment of investors, which is worse than the useof an affiliate advertisement.
If cash back campaign is advertized using an affiliate advertisement, such concerns increase,and therefore, a Member must take a careful attitude for such as holding back of giving gifts.
11.

Criteria for Commencement of Trading (related to Article 11)

A Member must, in principle, classify the attributes of customers, establish criteria for thecommencement of trading and trading limit for each type of financial instruments that the Member
offers, judge whether trading with the customer is right or wrong and control trading conditions.
29
A Member may treat financial instruments in the same category with the same criteria or
control a type of financial instruments with low risk and a type of financial instruments with highrisk together and apply high risk type to them.
There would be no problem for using criteria for the lowest of customer attributes to control
other customer attributes with the same criteria.
(1) Transactions used to count years of investment experience would include overall financial
futures transactions, financial derivatives transactions other than financial futures transactions,commodity derivatives transactions such as commodity futures transactions , margin transactions(shares of stock).
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With respect to years of experience, about one year experience of such transactions,although it depends on actual trading volume and frequency of trading, could be appropriate
generally.
(2) The result of confirmation in Article 12 should be used.
(3) With respect to the revenue of a customer, for example, II-4-2 Suitability principle of"Commodity Futures Broker Supervisory Guidelines" in the commodity futures industry withsimilar risk illustrates the example of, as those which require careful handling, a certain revenue(5 million Yen or less). This example should be referred and establishment of effective criteria
according to customer attributes is required.
(4) Inclusion of "hedging transactions" which are basic needs for option transactions into the
choices to confirm investment purposes could be necessary. In the case where the purpose ishedging transactions, the type of assets requiring hedging and the amount of such assets should
be confirmed. 30(5) In the case where the limit of trade and the limit of loss determined by a customer iscontrolled by margin deposit by the customer, the declaration of an amount deposited by thecustomer could be acceptable in lieu of accepting individual declaration by the customer such as
trading limit.
(6) Other matters required to be confirmed include matters generally required to confirm at thetime of account opening such as the age and job.
With respect to criteria items to judge the suitability of a customer for investment in binary
options, etc. among confirmation factors determined by the Member, the Member should not tradewith such customer in principle in the case where the customer fails to meet criteria for any of suchitems.
In the case of a person who has knowledge significantly higher than criteria and sufficientfinancial assets but whose experience of derivatives transactions only fails to meet the criteria,
however, it is reasonable to establish, for a certain period, a trading limit lower than an ordinary
trading limit to allow the commencement of trading after full confirmation that the customer makes
investment based on his or her self responsibility through the method such as an internal controller'svisiting the investor depending on the intent of the investor in accordance with internal procedures
established in advance.
In the case of a customer who has the purpose of hedging transaction but has not declared theinvestment amount necessary for hedging, paying consideration such as encouraging the customer
to declare is desired.
A Member must contain customer information under Article 11.1 in the customer card,arrange circumstances to facilitate a customer to update when needed, and encourage the customer
to confirm and review registered information periodically at least about annually. 31 32
29 A customer who trades before the enforcement of the Rules may continue to trade. After theenforcement of the Rules, however, if a Member confirms customer information with suchcustomer, the Member should add the matters from (3) to (6) and encourage registration ofcustomer information and treat carefully a customer who has been found to fail to meet criteria asa result of the renewal of information, including the suspension of transactions.
30 If hedging is included in choices and has been selected, it could be the method to request thecustomer to declare the types and value of object assets.
31 With respect to a customer who has been conducting before the enforcement of the Rules, aMember should control customer information through renewal opportunity of customer
information within one year and to ensure entry in a customer card.
32 There is no problem to use a customer card for other financial instruments too.
12.

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A Member must check whether a customer has necessary knowledge or not by concretemeans such as examination. Examinations can be conducted by means of choice between the twosuch as true or false method. A Member must avoid easy questions that easily show the answers
and conduct an examination with quality and number of questions (the scope of the examination)
sufficient to measure the degree of understanding about necessary knowledge of each customer.
A Member must determine, in advance, the percentage of questions correctly answered whichshall be a standard and implement the system such as arranging business flow not to trade with acustomer who fails to reach the level. A Member is required to have thorough system not to tradewith a customer lacking knowledge regardless of financial resources of such customer or otherjudgment factors.
It is desired to provide a customer with learning opportunities fully by means of posting on
the Website information necessary to gain knowledge. It is important, however, that a Member
should avoid posting examination questions themselves and use the method to take questions
randomly chosen from many questions for an actual examination in order to prevent the leakage of
examination questions.
A Member must take efficient system such as the method that the Member will not respond toan application by a customer for an examination at least until the business day immediately
following the examination in which the customer has failed to meet the criteria as a result of theexamination.
33 The date of conducting confirmation examination, score, and judgment result as matters could
be stated in a customer card.
34 Regardless whether a customer becomes an acquirer or grantor of binary options or whether
there is a loss cut regulation or leverage regulation, a Member must collect an acknowledgment atleast once a year from all customers (including a customer with the nominee of a juridical person).
35 Payout amount from binary options traded with a customer is recognized as trading amountwith such customer similarly to a quarterly report to the Association,
13.

Trading Guide (related to Article 13)

Interpretation regarding the summary of specifications published must be contained in a
trading guide or schedules integrated with a trading guide to ensure customers' further
understanding.
Matters stated in an acknowledgment which were collected from a customer pursuant to
Article 14 and must be explained in detail must be explained fully using concrete information andtherefore explanation regarding matters stated in an acknowledgment must be attached to the
trading guide.
14-1.

Collection of Acknowledgment (related to Article 14.1, 14.2)

A Member must collect an acknowledgment provided in Article 8-2 of the Business Conduct
Rules for over-the-counter binary option transactions with individuals from a customer each time of
conducting trading with the customer similarly to currency related over-the-counter option
transactions.
Over-the-counter binary option transactions with individuals conducted in accordance with
the Rules and these Guidelines are transactions with the structure to enable continuous and repeatedtransactions and therefore could be deemed to be "uniformed transactions" defined in Article 8-2.2of the Business Conduct Rules. A Member may collect an acknowledgment once a year from acustomer in respect of over-the-counter binary option transactions with individuals to which theseRules are applicable.
14-2.

Remarks Stated in Acknowledgment (related to Article 14.3, 14.4)

The items of Article 14.3 show remarks specific on binary options. These matters must be
explained specifically to ensure a customer's full understanding by means of showing the customer
information of such matters.
A Member must, in the case of, for example, using an electronic file, establish a link between
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the portion in an acknowledgment and the portion of explanation in a trading guide to facilitate thata customer can confirm the details easily and print them and check having confirmed and a Member
confirms the understanding of the customer through the acknowledgment. In the case of using anelectronic file, a record should be kept in a manner to clarify that a customer has checked for having
confirmed.
15-1. Establishment of Trading Criteria Classified by Attributes
15.2)(related to Article 15.1,

In conducting transactions with a customer who meets the criteria for the commencement oftrading, the Member determines criteria items and applicable values to control transactions withsuch customer according to the classification of the customer's attributes as equivalent to the criteria
for the commencement of trading. In establishing such criteria and values, the Member must
consider the durability of financial resources against losses as well as observing point as a bona-fide
financial instruments firm who looks after the customer not to go into excessively speculativetransactions.
A Member may control by classifying attributes as stated in 11., by using the same criteria forfinancial instruments in the same risk category or by the criteria for higher risk combining types
with lower risk and types with higher risk.
Similarly, a Member may control using criteria for the lowest attribute for other higher
attribute uniformly.
15-2.

Concrete Criteria, etc. (related to Article 15.3)
Items of trading criteria could be:② the total trading amount for a certain period;② the total loss amount for a certain period; and③ the largest position.

The combination of "one business day" and a certain length such as half year could be acertain period in the above.
Considering the controlling burden in the case of establishing multiple types of items,
consolidation, unification and substitution of criteria could be possible with the following ideas;(a) in the case of computing the trading amount as payout amount, the base value for the total
trading amount can be used concurrently with the base for loss amount because accumulated
loss amount will not exceed the total trading amount in the case of binary option transactions.
35(b) an over-the-counter binary option transaction contract prepared by a Member provides for
margining system and require the deposit of margins equivalent to the maximum loss amountas at the conclusion of transactions, and is structured not to occur the amount of losses
equivalent to or more than the amount of margins. Criteria are set as the limit amount ofmargin deposit, and substitute the total trading amount and the amount of loss.
(c) in the case where a transaction to establish new position per one serial number is one time,
assuming the base amount for the total trading amount for a certain period (such as half year)
per the lowest attribute criteria, the limit of trade and the limit of loss are substituted with thevalue of the assumed amount divided by the number of business days during the period, thenumber of judgments established within one business day, and establish the upper limit on the
trading amount per once uniformly to all customers.
A Member may control the limit of trade and the limit of loss of a customer effectively byappropriate means established by the Member. In any of the methods, the Member must control tokeep such limits from the amount declared by a customer pursuant to Article 11.
A Member who establishes trading criteria together with other financial instruments
transactions regarding over-the-counter binary option transactions with individuals must consider
the nature of such financial instruments and the customer's investment purpose on such financial
instruments fully. 36
The method of comparing the result of transactions with a customer with the base value after
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periodical aggregation later as a concrete control, which is called after-the-fact monitoring, could be
a concrete control. In the case where aggregation cycle is more than one week, a Member must
implement the system together with the structure not to cause unanticipated loss with a customer
such as establishing restrictions on the maximum amount of positions per one serial number or thenumber of transactions.
36 It could be inappropriate to control financial instruments the nature of risks or way oftreatment of investment amount of which differs (for example, the difference of risks associatedwith cash national government bond and debt certificate futures transactions, trading amount iscomputed by the notional principal amount in the case of FX and plain options but payout amountin the case of binary options) by means of accumulating trading amounts simply.
37 A Member may require a customer who has the purpose of hedging to declare the limit of
trading definitely.
15.3.

Amount Declared by Customer (related to Article 15.4)

These Rules require the declaration of the limit of trade or the limit of loss determined by acustomer as customer information required to obtain as one of procedures for the commencement oftrading under Article 11.1 (5).
A Member must endeavor to control transactions with a customer with respect for thedeclaration by the customer. If the amount declared by a customer is loose than trading criteria
determined by the Member, the Member must control using the criteria of the Member and if theamount declared by a customer is stricter, the Member must control using the amount declared by
the customer.
If a customer does not declare the trading limit, etc., the Member should control using thecriteria established by the Member. 37
15.4.

Announcement, etc. to Customers (related to Article 15.5)

When a Member has detected a customer who fails to meet trading criteria, the Member could
respond in a manner, for example, to cease transactions to establish new positions with the customer
immediately, but at least, the Member should take first motion quickly based on the actual
relationship with the customer such as advising the customer of the fact of such meeting trading
criteria and reasons therefor by the day immediately preceding the day of such meeting and take a
responding step of ceasing transactions after confirming the intent of the customer.
In the case where such response is taken however, if the customer's intent cannot be
confirmed within a certain period or the customer does not follow procedures necessary to continuetransactions, the Member must take measures to cease transactions with such customer and control
the operations not to lose the protection of investors.
In any case, it is wise, in order to avoid having troubles with a customer caused by cessationof transactions, to clarify in the trading contract that transactions will be ceased when trading
criteria have been met and confirm the customer's understanding through the occasions ofconfirmation of acknowledgment before the commencement of trading.
16-1.

Discontinuation of Transactions (related to Article 16.1)

Special reasons for cessation or discontinuation of transactions with customers could include
sudden big move of the foreign exchange market to disable smooth trades, occurrence of large-scaledisaster or terrorism, occurrence of the failure of the system and occurrence of the irregularity ofprice information in a price information delivery servicer.
Although biased order inflow from customers influencing gravely on financial conditions of a
Member and causing disability to respond to all order placements could be one of special reasons,easy cessation of transactions with customers for the reasons of biased orders could be inappropriate
operational system as a Member.
16-2. Disclosure of Discontinuation of Transactions, etc. (related to Article 16.3)
Information of cessation, etc. of transactions must be informed to not only each customer who
is already trading but also all customers through the Member's Website. If a Member cannot
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clarify the reason for such cessation, etc. in a timely manner, the Member must take a quick andflexible response such as informing all customers about the cessation first of all and informing
further at the time when the reason for the occurrence has been clarified.
16-3.

Reviewing System (related to Article 16.5, 16.6)

An officer, etc. in charge of internal control must direct and control prompt publication of thefact, investigation of influence on customers, verification of reasons, etc. for occurrence andpreparation and enforcement of measures to prevent reoccurrence, etc. In clarifying and reviewingof reasons for occurrence particularly, the officer, etc. in charge of internal control must design anorganization and operations and allocate staff in order to ensure appropriate reviewing, etc. without
relying on the division in charge of the occurrence.
A Member must further endeavor to promote appropriate operation by the mechanism that theinternal audit division confirms after-the-fact properness of the judgment in the result of
verification.
17-1.

Reviewing Trade Prices (related to Article 17.1)

Unlike FX transactions, there is no information vendor for binary options who provides
individual investors with market prices, and therefore, appropriateness of prices cannot be reviewed
by using external information. In order to review appropriately, a Member must keep parameters
for computation of trade prices, duplicate the prices by using the computation formula and checkprices quoted actually and prices traded and judge the appropriateness and properness oftransactions. If the Member commissions the price formation itself externally, the person so
commissioned keeps the data related to parameters as confidential or the types and volume of thedata related to the parameters are too huge to keep, the Member must, regardless of a person
commissioned, establish the computation formula for trade prices used as standards, prepare
parameters necessary for computation by such formula, fix the standard value for reviewing by thecomputation formula and parameters at the time of reviewing, and, if values for reviewing and theactual trade prices, etc. differ irregularly, the Member must analyze the reason and confirm theappropriateness.
These data required for reviewing must be kept for three years in accordance with distribution
data rules and data keeping rules applicable to over-the-counter FX transactions which are appliedmutatis mutandis under Article 19. 38
If a Member is engaged in FX transactions and uses its own FX rates for the computation of
trade prices of over-the-counter option transactions with individuals and inconvenience has
occurred such as distributing bad tick has been distributed for FX transactions during trading periodof over-the-counter binary options traded with individuals, the Member must verify the influence on
prices of over-the-counter binary option, and, if disadvantages have occurred with customers, theMember must handle properly in respect of such customers.
It is desirable to review ideally always. As it is difficult effectively however, a Member isrequested to perform it as frequently as possible based on the size of business of each Member, atleast once a day by means of sampling.
17-2.

Reviewing of Judgment Prices(related to Article 17.2)

Judgment prices must, in a similar manner, be kept for three years as data used for the purposeof reviewing appropriateness of transactions. In the case where a Member who is also engaged in
FX transactions uses data of an external information vendor for judgment prices of binary option
transactions, the Member must check the Member's FX data and confirm whether there was bad tick
distribution from the external information vendor. If the Member uses prices of FX transactions
for judgment prices, the Member must review whether there is manipulation of prices by using
distribution information of the external information vendor. 39
It is desirable, in respect of the frequency of reviewing, to review always ideally in a similarmanner as trade prices. As it is difficult effectively however, a Member is requested to perform it
as frequently as possible based on the size of business of each Member, at least once a day bymeans of sampling. 40
In the case of determining exercise prices by a certain computation method, such determined
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exercise prices are subject to data keeping or reviewing in a similar manner as trade prices andjudgment prices.
17-3.

Reviewing System (related to Articles 17.4, 17.5)

An officer, etc. in charge of internal control must endeavor to implement the system to enabledirection and controlling on reviewing of trade prices and judgment prices similarly as 16-3.
A Member is required to make thorough after-the-fact confirmation by the internal audit
division in respect of reviewing result, etc. and concentrate on establishing the structure to trade atappropriate prices.
38 The period to keep data is three years according to Articles 25-2 and 25-4 of the BusinessConduct Rules which is applied mutatis mutandis under Article 19 of the Rules and its Detailed
Rules (related to Data Keeping for Over-The-Counter Foreign Exchange Transactions).
39 Same as 38.
40 If reviewing is made single-handed, fully automatically by a system or program and, separately,
the structure to confirm always that system, etc. is operated in a normal way, a Member may notnecessarily conduct daily reviewing in respect of prices, etc. (It is necessary to review
periodically by means of sampling of actual data such as reviewing weekly in lieu of daily).
18.

Publication of Trade Result (related to Article 18)

The total payment amount by a customer includes payment amount in the case where thecustomer who held short positions pays the payout amount as a result of judgment. In this case,
the Member must account for the total amount without deducting premium that the customer
receives.
In the case of offsetting long positions in mid-course, the amount of sale (cancellation) is
accounted as the amount received.
It is desirable for all Members who are engaged in over-the-counter binary option transactions
with individuals to sum up at least once a month, and publish once a month through their Websites
by the seventh business day of the month for the result of the immediately preceding month. It
would not be problem to publish the real value instead of ratio or publish the performance record
for a period other than one month unit.
19.

Mutatis Mutandis Application(related to Article 19)

The provisions of Articles 25-2-2 and 25-2-3 of the Business Conduct Rules apply mutatis
mutandis under Article 19. Such provisions provide for obligations for explanation to customers
about an order execution system and trading rules. Over-the-counter binary option transactions
with individual investors to which these Rules are applicable are also involved in quoting tocustomers trade prices which always move and make transactions, and therefore have highprobability of causing slippage and mutatis mutandis application of such Rules would beappropriate.

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SCHEDULE
July 18 2013
Summary of Specifications Required to be Contained in Over-The-Counter Binary Option
Transactions with Individual Investors Guide(1) Name of transaction
The name of such transactions called by the Member shall be stated.
(2) Classification of Instruments
The name generally used as binary options such as binary options and range binary options
shall be stated. In the case of adding the name representing the exercise timing such as
American type or in the case of offering call options and put options simultaneously, call or put
can be added to each name. 41
41

Such as binary call options and range binary put options.

(3) Underlying Assets
Type of underlying assets shall be stated such as money deposit, etc., currency, currency
index or interest rate index.
(4) Trading Method
Whether purchase transactions to establish new positions or sale transactions to establish new
positions are offered or not. If the delivery or payment of trading value is not made until thesettlement date as margin transactions, the fact of margins transactions shall be stated.
In the case of engaging in only purchase transactions, the explanation that offsetting
transactions of options can be made shall be added.
(5) Method of Exercise
Timing of exercise such as the distinction of American type or European type (whether
exercisable) and whether an acquirer is required to show the intent in the case of exercising (inthe case of automatic exercise, such fact) shall be stated. If it is unknown to which the binary
options belong among American type, European type or Bermuda type, matters related to thetiming of exercise shall be stated,(6) Trading Period (Hours)
The time to commence transactions and the time to close transactions shall be stated.
If the closing time of transactions is different from the judgment time, the time to commence
trading and the time to close shall be stated separately. If transactions to offset positions
continuously after the closing of purchase transaction, the closing time of position offsetting
transactions shall be stated separately. If a Member establishes a reservation period prior to thecommencement of a trading period, the Member must state the commencement time and closing
time of the reservation and state whether cancellation of the reservation is possible during thereservation period or, in the case of cancellation, the cost liable by a customer separately for easy
understanding.
(7) Judgment
Remarks on judgment shall be stated. The following matters particularly must be stated in aeasy-to-understand manner.
・ The method of handling of payout in the case where the judgment price and the exercise
price is the same. (If payout does not occur when both prices have become same,
explanation in a easy-to-understanding manner is necessary.)
・ Which price information, among Bid, Offer and Mean, will be used for judgment price (inthe case of using other price, concrete explanation shall be stated.)・ Measures to be taken in the case where price information cannot be obtained at the
judgment time (concrete explanation is required such as substituting with the value obtained
immediately after the judgment time or cancellation of trades).
(8) Provider of Judgment Price to be Used
For example, in the case of using foreign exchange rates used for FX transactions of theMember as the judgment price, such fact, and in the case of using foreign exchange rate provided
by an external information vendor, the name of such information vendor shall be stated. If rates
always used for judgment cause some trouble and other information is used, the Member isrequired to state such fact and the provider of such other information.
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(9) Method to Establish Exercise Prices
Matters provided in Article 7 (timing of determination of exercise prices) and Article 8(establishment of exercise prices) shall be stated. In the case of binary options having multiple
exercise prices such as double one-touch, the price difference shall be explained separately.
(10) Addition of Exercise Prices
In the case of adding an exercise price during the trading period, such fact and conditions, etc.
for the addition such as the time of addition shall be stated.
(11) Trading Unit
The payout amount and volume (amount of money) for one transaction of a binary option, etc.
offered by a Member shall be stated.
(12) Minimum Price Change
Minimum unit of an order price according to the intervals of order amounts. If there is anupper limit on order price, such upper limit shall be stated. If quotes are changed or restricted
depending on trading conditions, such fact and principles for the treatment shall be stated.
(13) Method to Determine Trade Prices
In the case of auction method, such fact, in the case of other method, the summary of thetheory used for determination of prices, the relationship between the theoretical price and trade
price, in the case of STP method or White Labeler, the name of the contracted firm shall be
stated. 41 42 43
42 The method to conclude transactions by means of individual competition which matches theconditions of a sale order and the conditions of a purchase order under the rules of the price priority
principle or the time priority principle.
43 Straight Through Processing. The mechanics of transmitting prices to a covering party, etc.
without intermediation of a dealer to conclude transactions.
44 The method to provide a trading system with the name of the counterparty. The party who
uses the trading system provided by the provider with the name of the firm itself is called a whitelabeler.
The name of the covering party (in the case of an overseas firm, together with the name of thesupervisory authority) shall be stated.
A Member shall keep the following matters in mind, and ensure the response such as making
detailed explanation.
・ illustration by examples of major parameters (volatility of underlying assets, interest rate,etc.), or for example, how the option price moves responding to the movement of eachparameters (explanation should be made in a manner of easy-to-understanding using chartsor tables)
・ with respect to the difference between the theoretical price and the actual trade price, thereason for such difference, in the case where the difference ratio moves, the summary
thereof shall be explained in a manner of easy-to-understanding such as using charts ortables.
・ if there is a spread between purchase price and sale price, the reason for the existence ofsuch spread, and if such spread moves, the summary thereof shall be explained.
・ If call options and put options with the same conditions (underlying assets, etc., exercise
prices, judgment time) are used and the amount of the trade price of call option is not equal
to the payout amount of put options less the trade price of put options, the reason thereforshall be explained.
(14) Payment and Receipt of Trade AmountTreatment of trading value at the time of conclusion of a trade (distinction of immediate
settlement, offsetting transaction or settlement at the time of settlement by judgment) shall be
stated. Explanation shall be made for the timing of reflection of the settlement amount tocustomer deposit data.
(15) Settlement as a result of Exercise
The timing and method of payment or receipt of the settlement amount as a result of judgment
shall be stated. In the case of one-touch options, a Member must clarify as of when thesettlement is made such as whether the settlement amount is paid or received as at the time of thejudgment or as at the time of expiration determined at the beginning.
(16) Trading Suspension Reason
Reasons for suspension or refusal of transactions with customers prescribed in trading
agreements and reasons which force suspension or delay transactions prescribed in Article 16.2
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of the Over-The-Counter Binary Option Transaction with Individuals Business Conduct Rules
shall be stated.
(17) Whether Margin Deposit is Required
In the case of conducting binary option transactions using margin deposit, such fact andmethod to deposit margin requirement, computation method, and the amount (ratio), etc. shall be
stated.
(18) Additional Margin
In the case of adopting margining system, whether additional margin is required subsequent toposition valuation shall be stated. When needed, the deadline of payment and how failure of
the payment is treated shall be stated together.
(19) Loss Cut Transactions
Treatment of loss cut shall be stated such as, if loss cut does not occur effectively because ofusing the structure of position valuation alone for binary option transactions, such fact, and if
valuation is made together with other currency related derivatives transaction, etc. and binary
options become subject to loss cut when loss cut is needed, such fact, and the order of multiple
positions held by a customer which become subject to loss cut.
(20) Separate Control
The method to keep money deposited by a customer for binary option transactions shall be
stated.
(21) Limit (including controlling method (such as checking at the time of order placement,
checking after conclusion))
Criteria established for the protection of customers such as the limit of trade or the limit ofloss for a customer determined by the Member in accordance with Article 15 and the method ofcontrolling the criteria shall be stated specifically.
With respect to controlling method of trading conditions, the distinction of the monitoring
method (method to know when needed the conditions of order placement and conclusion,
method to monitor trading result), and in the case of monitoring trading result, the frequency ofmonitoring, and if monitoring is conducted together with other financial instruments transactions,such fact and concrete method must be explained.
If there are cases such as dissolving transactions in the event of exceeding criteria for limit,
etc., such fact must be stated clearly.
(22) Others
For example, explanation must be made for reasons (conditions) and method of compulsory
settlement, treatment in the case of mal-distribution of rates of the Member, so called bad tick by
an information vendor.
In the case of determining exercise prices by a certain computation method, the concrete
determination method, determination time, the difference of trading method before thedetermination and after the determination, tradable period, and further remarks on transactions
with customers before and after the determination of exercise prices.
[The next page is II-45-1.]

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