ASIC Officially Adopts Curbs on Selling CFDs to Retail Investors
- Regulated firms are forced to limit the leverage they offer to a maximum of 30:1, down to as little as 2:1 on cryptocurrencies.
The Australian Securities and Investments Commission (ASIC) has officially announced restrictions on selling contracts for difference (CFDs) to retail clients, saying it was still concerned about investor protection.
The rules also mandate negative account protection, ensuring that customers cannot lose more than their trading stake, avoiding a repeat of the debacle following the 2015 Swiss Franc collapse. Finally, the rules forbid bonuses and other incentives, whether monetary or non-monetary, that may have encouraged overtrading in recent years.
For brokers, the biggest blow has been ASIC’s decision to limit how much leverage they can offer to their clients to juice up bets. Regulated firms have been forced to limit the leverage they offer to a maximum of 30:1.
Specifically, the decision includes the following leverage limits, which vary according to the volatility of each asset class:
Last year, the ASIC released its report regarding the new product intervention measures coming down hard on binary options and CFDs.
The power, which was legislated in April last year, allows ASIC to intervene when it deems that a financial or credit product will cause significant consumer harm.
Specifically, the Australian regulator has proposed to ban binary options completely in the country and to put in place leverage restrictions for CFD products.
Europe Shapes Regulation of Online Trading Worldwide
The new rules effectively harmonize ASIC’s requirements with product approval requirements introduced in Europe by ESMA, which also banned offering binary options and restricted leverage on CFDs.
But, unlike ESMA, ASIC said it will not require issuer-specific risk warnings or other disclosure-based conditions as originally proposed. In Europe, the CFDs restrictions impose a standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.
The Australian financial watchdog has kicked off its largest swipe against the sale of risky investments to retail investors, but industry players are claiming that they already operate in compliance with most of these restrictions.
The corporate regulator has been preparing to flex its new regulatory muscles after a recent review found in 2018 alone, 80 percent of binary traders and 72 percent of clients who traded CFDs, lost money. Retail traders lost nearly $490 million and $1.5 billion a year in trading binary options and CFDs, respectively, according to ASIC data.
Still, the regulatory updates, which includes leverage limits, margin closeout rules, and Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. Read this Term protection, are anticipated to affect fortunes of local brokers from their Australian customers.
The Australian Securities and Investments Commission (ASIC) has officially announced restrictions on selling contracts for difference (CFDs) to retail clients, saying it was still concerned about investor protection.
The rules also mandate negative account protection, ensuring that customers cannot lose more than their trading stake, avoiding a repeat of the debacle following the 2015 Swiss Franc collapse. Finally, the rules forbid bonuses and other incentives, whether monetary or non-monetary, that may have encouraged overtrading in recent years.
For brokers, the biggest blow has been ASIC’s decision to limit how much leverage they can offer to their clients to juice up bets. Regulated firms have been forced to limit the leverage they offer to a maximum of 30:1.
Specifically, the decision includes the following leverage limits, which vary according to the volatility of each asset class:
Last year, the ASIC released its report regarding the new product intervention measures coming down hard on binary options and CFDs.
The power, which was legislated in April last year, allows ASIC to intervene when it deems that a financial or credit product will cause significant consumer harm.
Specifically, the Australian regulator has proposed to ban binary options completely in the country and to put in place leverage restrictions for CFD products.
Europe Shapes Regulation of Online Trading Worldwide
The new rules effectively harmonize ASIC’s requirements with product approval requirements introduced in Europe by ESMA, which also banned offering binary options and restricted leverage on CFDs.
But, unlike ESMA, ASIC said it will not require issuer-specific risk warnings or other disclosure-based conditions as originally proposed. In Europe, the CFDs restrictions impose a standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.
The Australian financial watchdog has kicked off its largest swipe against the sale of risky investments to retail investors, but industry players are claiming that they already operate in compliance with most of these restrictions.
The corporate regulator has been preparing to flex its new regulatory muscles after a recent review found in 2018 alone, 80 percent of binary traders and 72 percent of clients who traded CFDs, lost money. Retail traders lost nearly $490 million and $1.5 billion a year in trading binary options and CFDs, respectively, according to ASIC data.
Still, the regulatory updates, which includes leverage limits, margin closeout rules, and Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. Read this Term protection, are anticipated to affect fortunes of local brokers from their Australian customers.