ASIC tightens CFD rules
The Australian Securities and Investments Commission (ASIC) has used its product intervention power to tighten the rules around retail contracts for difference (CFDs).
The regulator said its product intervention order strengthened consumer protections by reducing CFD leverage available to retail clients and by targeting CFD product features and sales practices that amplify retail clients’ CFD losses.
ASIC said the move also served to bring Australian practice into line with protections in force in comparable markets elsewhere.
From 29 March 2021, ASIC’s product intervention order would:
- 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).
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