ASIC Finally Intervenes on Retail CFDs Paving Way For EU Style Restrictions

The Australian Securities and Investments Commission (ASIC) has finally made up its mind regarding restrictions for retail selling of contracts for difference (CFDs) and will now require firms to adopt European like restrictions on such financial products. Furthermore, online brokerages offering CFDs will no longer be able to use bonuses and other non-monetary incentives to try and attract new traders.

Starting 29 March 2021, ASIC’s product intervention order will:

  • restrict CFD leverage offered to retail clients to a maximum ratio of:
    • 30:1 for CFDs referencing an exchange rate for a major currency pair
    • 20:1 for CFDs referencing an exchange rate for a minor currency pair, gold or a major stock market index
    • 10:1  for CFDs referencing a commodity (other than gold) or a minor stock market index
    • 2:1 for CFDs referencing crypto-assets
    • 5:1 for CFDs referencing shares or other assets
  • standardise CFD issuers’ margin close-out arrangements that act as a circuit breaker to close-out one or more a retail client’s CFD positions before all or most of the client’s investment is lost
  • protect against negative account balances by limiting a retail client’s CFD losses to the funds in their CFD trading account, and
  • prohibit giving or offering certain inducements to retail clients (for example, offering trading credits and rebates or ‘free’ gifts like iPads).

The significant drop in available leverage being offered to clients following the implementation of the restrictions once again brings up the topic of “going offshore”. Indeed quite a few AU registered online brokerages have already made the decision to onboard non-AU customers to island jurisdictions in order to maintain the same trading parameters for customers who want leveraged trading products.

As we move closer to the implementation date of the new restrictions it won’t be surprising if more AU firms decide to migrate their clients or operations to countries where such CFD intervention measures are not in place.

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