ASIC’s CFD Product Intervention Order Comes into Effect

As Fazzaco reported this month, the Australian Securities & Investments Commission (ASIC) has issued the Product Intervention Order on 23 October 2020, effective 29 March 2021.

The Australian regulator today published an announcement regarding new rules for CFD trading, imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients.

The order strengthens protections for retail clients trading CFDs after ASIC found that CFDs have resulted in, and are likely to result in, significant detriment to retail clients.

ASIC’s order reduces CFD leverage available to retail clients and targets CFD product features and sales practices that amplify retail clients’ CFD losses, such as providing inducements to become a client or to trade. It also brings Australian practice into line with protections in force in comparable markets elsewhere.

The maximum CFD leverage available to retail clients will range from 30:1 to a 2:1, depending on the underlying asset class. Before now, a retail investor’s CFD exposure could be as much as 500 times their original outlay.

As detailed in the official press release, the maximum penalty for a contravention of a product intervention order is five years’ imprisonment for individuals and substantial pecuniary penalties of up to $555 million for corporations.

If a court finds that a person has contravened a product intervention order, a retail client may recover the amount of loss or damage suffered because of the contravention.

The product intervention order will remain in force for 18 months, after which it may be extended or made permanent.

ASIC Commissioner Cathie Armour said, "We will closely monitor compliance with the product intervention order and won’t hestitate 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."

Before the Product Intervention Order comes into effect, brokers including City Index, IG, Saxo Markets​, OANDA, eToro, Rakuten Securities Australia, FP Markets and CMC Markets sent notice to remind their Australian clients of the new rules.