ASIC proposes CFD product intervention order extension

The Australian Securities and Investment Commission (ASIC) has recommended extending its contracts for difference (CFDs) product intervention order, which is due to expire on 23 May, 2022.

ASIC released Consultation Paper 348 Extension of the CFD Product Intervention Order (CP 348), which sought feedback on a proposal to extend its product intervention order imposing conditions on the issue and distribution of CFDs to retail clients until it was revoked or sunsets on 1 April, 2031.

ASIC’s product intervention reduced CFD leverage, standardising margin close-out arrangements, protected against negative account balances and prohibited CFD providers from giving certain inducements to retail clients.

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The order came into place in March, after the corporate regulator found the products were likely to result in significant detriment to retail clients.

The intervention order also changed the maximum leverage available to range from 30:1 to 2:1 depending on the underlying asset class. Previously, CFD exposure could be 500 times the original outlay.

During the first three months of the product intervention order, ASIC said:

  • It reduced retail client losses:
    • Retail clients made net losses of $22 million from CFD trading – a reduction to 94% of the quarterly average of $372 million in the year prior to the product intervention order;
    • There were 45% fewer loss-making retail client accounts compared with the quarterly average in the prior year, whereas the number of profit-making retail client accounts reduced by only 4% across the same period; and
    • Aggregate and average losses made by loss-making retail client accounts also decreased.
  • The proportion of profit-making and loss-making retail client accounts was evenly split at 50%, compared with a quarterly average of 36% profit making accounts and 64% loss-making accounts in the prior year;
  • Margin close-outs, where a retail client’s CFD position(s) were closed before all or most of the client’s investment was lost, decreased by 85%;
  • Negative balance instances reduced tenfold for retail clients; and
  • By contrast, the proportion of profit-making and loss-making wholesale client accounts in the period remained relatively stable at 37% and 63% respectively (the product intervention order did not apply to CFDs issued to wholesale clients).

ASIC said it would continue to monitor and assess the performance of the CFD product intervention order during the consultation period.

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