Exclusive: Opinions from 14 Brokers on ASIC's New Regulation

As is known to all, years of regulatory changes around the world have repeatedly hit the CFDs market. Main regulators have cut their leverage and brokers changed their licence or operating ranges following the change of regulator policies.

In April last year, Australian Securities and Investments Commission (ASIC) proposed to reduce leverage limit to 20:1, which once again triggered the discussion about "powerful regulation and low leverage" in the industry.

On October 23 this year, ASIC officially confirmed its leverage cap to 30:1.

With the new ASIC regulations released, the business development of most Australian brokers is bound to be affected.

IC Markets, FXTRADING.com, AUGS Markets, MEX Group, MBG, Novox, BCR, FXMarket, IFS, Prospero, IG Group, Plus500, CMC Markets and ACY Security revealed their take on ASIC’s proposals.

Influences of ASIC’s new regulations on brokers

Most brokers say the new regulations exert little impact on them, but will have a big impact on the industry.

“We welcome these new regulations being introduced by ASIC, which are broadly as expected following the announcement of its consultation in August 2019. The regulations will be rapidly and seamlessly adopted by Plus500. The Company is already compliant in most of the areas covered by the proposed regulation, and we will further adapt our business model where additional changes are required,” said Plus500 CEO, David Zruia.

CMC Markets and IG Group, the UK’s largest spread-betting company, additionally revealed their take on ASIC’s proposals, saying they are well prepared and expect the review to have limited financial implications for their business.

“We welcome ASIC’s long-awaited announcement ensuring greater client protection, and we support ASIC’s efforts in implementing robust and proportional regulation in the margin and CFD sector,” Mr Pooni, Head of Branding & Communications at ACY Securities, said in a statement.

Novox comments on the restrictions, saying that “the new rules effectively limit the irrational use of leverage by some investors resulting in excessive risk investment model”.

FXTRADING.com says：“The new rules will provide some protection for many inexperienced investors.” FXMarket expresses that these measures and improvements will also raise barriers to entry in Australia's financial sector.

BCR expressed their concern that leverage restriction undoubtedly makes it harder for investors to choose a proper platform...and for platforms, there is a risk losing market that new regulations exert on.

Adjustment measures during buffer period

There is a buffer period of about a year between the proposed leverage restriction and the formal confirmation of restriction, and brokers have not been sitting on their hands, but have made adjustments in all respects.

For example, BCR conducts a detailed KYC survey to distinguish between retail and institutional clients.

Novox launches brand-new MT5 trading software and introduces stock trading sector to avoid the inconvenience to currency pairs and precious metals market caused by leverage restrictions and other reasons.

IFS expands the range of products, covering stock and stock CFDs

FXMarket prepares for “decentralized exchange” to authorize trading through Smart Contract unable to be tampered.

It is worth noting that brokers put much attention on trading education for investors. IFS, MEX and MBG all set up trading academy to teach investors the knowledge of derivative financial transactions, so that investors have a deeper understanding of leverage.

Brokers’ responses to ASIC’s restrictions on overseas market

Australian brokers have been heavily reliant on overseas markets, so they take their measures to response to ASIC leverage restriction.

IFS speaks bluntly: “Most of the Australian brokers have entered a difficult period of business decline and shrink since the announcement of ASIC in April last year. So they decide to apply for more licenses issued by financial regulators of other countries."

Spokesman of the MEX and the MBG say that most of their customers are from Asia with mainland China taking the largest proportion, so they will recommend other regulators to their clients to minimize customer churn.

That’s what most brokers do. IC Markets issued a notice at the end of August to transfer its client's Australian account to IC Markets Seychelles account. Brokers start move their clients to non-ASIC licence (offshore licence included).

Opinions on overall picture of brokers

As the representative of IC Markets says, every shuffle is an opportunity, and brokers focusing on business compliance, reputation and brand will become new leaders after the “shuffle”.

Each regulatory policy change has the potential to affect the overall picture of brokers. IFS considers that the overall picture is partially changed. Novox believes, some brokers may be involved in enterprise transformation, and more enterprises may develop towards a comprehensive financial service platform of multiple financial industry chains. "Platforms with smaller scale and less compliance will die out after the tightening of regulation," says Prospero.

IC Markets, MEX, MBG, and FXTRADING.com take a different view. MEX and MBG spokesmen said the overall picture may not change again in the future. IC Markets also holds the opinion that it is dependant on the leader and management team of the company. FXTRADING.com believes the major factors that actually change the picture are upgrading of trading product, technology and competitive mode.

Opinions on advantages of major brokers under offshore regulation

FXMarket says: “After platforms move their clients offshore, major companies and emerging brokers are now at the same starting point at the regulatory level (safety of funds), which must undermine advantages of major companies. MEX, MBG, FXTRADING.com and Prospero hold the opposite opinion. FXTRADING.com thinks that more opportunities and market shares may be gained for brokers under both main regulator and offshore regulator at the same time after the ASIC leverage restriction.

Conclusion

In the past two years, trading markets around the world experience ups and downs, but a new overall picture will be reconstructed after a great change.