The corporate regulator’s order to reduce contracts for difference (CFDs) leverage available to retail clients took effect from Monday.
The Australian Securities and Investments Commission (ASIC) said its CFD product intervention order strengthened protections for retail clients trading CFDs after it found CFDs were likely to result in significant detriment to retail clients.
The intervention order also targeted CFD product features and sales practices that amplified retail clients’ CFD losses, such as providing inducements to become a client or to trade.
The maximum CFD leverage available to retail clients would range from 30:1 to a 2:1 depending on the underlying asset class. Previously, CFD exposure could be 500 times the original outlay.
ASIC said contravention of the order was five years imprisonment for individuals and penalties of up to $555 million for corporations. The order would remain for 18 months, and could be extended or made permanent after that.
ASIC commissioner, Cathie Armour, said: “We will closely monitor compliance with the product intervention order and won’t hesitate to take appropriate action to enforce the order.
“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.”