The Australian financial market regulator has issued an interim stop order against the operator of contracts for difference (CFD) broker FXCM for offering the risky instruments to “investors with a medium risk appetite.” The lapse has been seen as a breach of the target market determination under the design and distribution obligations (DDO) of the broker.
A Pause of the Business
FXCM can now neither issue CFDs to retail clients nor open trading accounts for new retail clients to trade in those CFDs, which cover currency pairs and forex baskets, treasuries and commodities, stock indices, stocks and stock baskets, and cryptocurrencies.
However, the existing clients of the broker can close their open positions.
Announced today (Friday), the Aussie regulator said that “the risks associated with trading FXCM’s CFDs, including leverage, volatility, liquidity and pricing risk, make them unlikely to be suitable for investors who have a ‘medium risk appetite’, regardless of any other investment criteria noted in the TMD.”
Meanwhile, the latest action is another by the Australian Securities & Investments Commission (ASIC) against CFD brokers for lapses around target market determination.
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ASIC Hitting Brokers for DDO Violations
Earlier, the regulator issued similar orders against several brokers, including Saxo and Mitrade, but those companies fixed their lapses and continued offering their services.
ASIC implemented the DDO rules in October 2021 and has strictly enforced these obligations for financial services companies. It requires financial services providers to ensure products are designed with consumer needs in mind and distributed in a targeted way. They must also monitor outcomes and reassess their product governance arrangements over time.
Interestingly, the Aussie agency later found “significant room for improvement” in its DDO rules for over-the-counter (OTC) derivatives and other high-risk retail products, which include CFDs.
The regulator even heavily restricted the leverage brokers offer to retail traders until May 2027. It even banned binary options, which will be in effect until October 2031.
The interim stop order against FXCM will be valid for 21 days unless revoked earlier, which depends on the broker’s steps to fix the lapses.
“ASIC made the interim order to prevent FXCM from issuing CFDs to retail clients, where distribution of the products is unlikely to be consistent with the financial objectives, situation or needs of consumers in its target market,” the regulator added.
