Are ASIC CFD Product Interventions justified?


Are ASIC CFD Product Interventions justified? According to ASIC, the CFD interventions are all justified, even if they took place before the Australian Parliament granted the regulator its product intervention powers.    

30 October, 2019, | AtoZ MarketsASIC ( Australian Securities and Investments Commission) has not yet made its decision on the fate of the retail derivatives industry. The Australian regulator has sought to justify the use of its product intervention powers before the Australian Parliament granted them the powers.

In April of this year, the Australian Parliament granted the country’s parliament powers to intervene on products. With these measures, the regulator plans to reduce leverage for contracts for differences (CFDs) and outright prohibit binary options for retail investors.

After months of deliberation in the Australian Parliament. A new bill that will significantly change the local regulatory environment for retail brokers is only awaiting formal approval before becoming law. The Treasury Act Amendment, also known as the Design and Distribution Obligations and Product Intervention Powers Bill. Those allow the ASIC to change the face of the local retail market.

The intervention powers of the products will link to the financial products offered to retail customers. It should be implemented from the beginning of 2021. The ASIC is now free to deliberate on the type of limitations it will introduce on the market.

Preparations for a Consultation on ASIC CFD Product Interventions

Before a meeting of the Regulatory Policy Committee on December 5, 2018, the new ASIC powers were granted. The regulator submitted a document regarding Preparations for intervention power in production consultation on CFDs and binary options.

In an email, which was part of an access to information request at the press briefing. The regulator concluded that it should implement product intervention measures in the retail derivatives industry. In support of its conclusion, the ASIC then sought to find evidence. However, according to the email, the authority review did not give the Aussie watchdog the support it was looking for.

In an email to its colleagues wrote that they are currently expanding the ESMA Leverage cap Analysis on Australian equities. Separately, their preliminary analysis of measurement-level provider data revealed a loose positive correlation between leverage and the percentage of clients who lose money.

Read More: ASIC annual report shows high incidence of brokers misconduct

ASIC Consultation Paper was published in September

In September, ASIC published its consultation paper on its proposed intervention measures for products. Unlike ESMA, the ASIC stated that it would not distinguish between major and minor currency pairs. Instead, the watchdog proposes a single limit of leverage for all 20: 1 currency pairs. For equity indices, the ASIC offers a ratio of 15: 1, commodities excluding gold 10: 1, Gold 20: 1, crypto-assets 2: 1, and stocks 5: 1. However, ASIC has delayed the the introduction of the measures until November. That is because the watchdog has received a large number of briefs to its consultation document.

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