A CFD is a leveraged derivative contract that allows a client to speculate in the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or cryptoassets.
The regulator has previously expressed concern with outcomes for retail clients with both OTC (over the counter) binary options and CFDs.
The product intervention order for CFDs, which took effect from Monday, boosts protections for retail clients trading CFDs after ASIC found CFDs have resulted in and are likely to result in, significant detriment to retail clients.
ASIC’s order has reduced CFD leverage available to retail clients and targeted CFD product features and sales practices that amplify retail clients’ CFD losses, such as providing inducements to become a client or to trade.
The maximum CFD leverage available to retail clients will range from 30:1 to 2:1, depending on the underlying asset class. Before now, a retail investor’s CFD exposure could be as much as 500 times their original outlay.
The watchdog reported the change has also brought Australian practice in line with protections in force in other comparable markets.
“We will closely monitor compliance with the product intervention order and won’t hestitate to take appropriate action to enforce the order,” commissioner Cathie Armour said.
“We are also paying careful attention to changes in CFD providers’ reported holdings of retail client money and any mis-classification of retail clients as wholesale clients, which would risk denying them important rights and protections. Protecting retail investors from harm, particularly at a time of heightened vulnerability, is a priority for ASIC.”
The maximum penalty for a contravention of a product intervention order is five years’ imprisonment for individuals and substantial pecuniary penalties of up to $555 million for corporations.
If a court finds that a person has contravened a product intervention order, a retail client may recover the amount of loss or damage suffered because of the contravention.
The product intervention order will remain in force for 18 months, after which it may be extended or made permanent.
The regulator’s previously proposed ban on the issue and distribution of binary options to retail clients is still under consideration and a decision has not been made.
