ASIC to Start Public Consultation on Extension of CFD Product Intervention Order

The Australian Securities & Investments Commission (ASIC) today published Consultation Paper 348 Extension of the CFD Product Intervention Order (CP 348) for public consultation on extending its product intervention order.

According to the official press release, the consultation period will end on 29 November 2021. Let's recall that, ASIC issued the Product Intervention Order on 23 October 2020, effective 29 March 2021​, imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients.

The product intervention order will remain in force until 23 May 2022 unless it is extended with the approval of the Minister. Notably, the order does not apply to CFDs issued to wholesale clients.

ASIC’s product intervention order has strengthened protections for retail clients by reducing CFD leverage, standardising margin close-out arrangements, protecting against negative account balances and prohibiting CFD providers from giving certain inducements to retail clients.

During the product intervention order’s first three months of operation, ASIC observed significant improvements in key metrics and indicators of retail client detriment from CFD trading, including:

• ​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) are closed before all or most of the client’s investment is lost, decreased by 85%.

• Negative balance instances reduced tenfold for retail clients.

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 does not apply to CFDs issued to wholesale clients.

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