Australian Brokers Respond to ASIC’s CFD Product Intervention Measures

Many brokers have criticised the proposed leverage limits from the Australian regulator.

Last year, the Australian Securities and Investments Commission (ASIC) published its consultation papers regarding product intervention measures for binary options and contracts for differences (CFDs). Recently, the regulator has published some of the feedback it has received from industry participants, including major brokerages in the country.

As Finance Magnates reported, ASIC published CP 322 Product intervention: OTC binary options and CFDs in August of last year. This came after the Australian parliament granted ASIC product intervention powers, similar to those exercised by the European Securities and Markets Authority (ESMA) in 2018.

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Specifically, the Australian regulator proposed to ban binary options within the country completely and implement leverage restrictions for CFD products. Unlike ESMA, ASIC said at the time that it would not distinguish between major and minor currency pairs. 

Instead, the watchdog proposed a single leverage ratio limit for all currency pairs 20:1. For equity indices, ASIC suggested a ratio of 15:1, commodities excluding Gold 10:1, Gold 20:1, crypto-assets 2:1, and equities 5:1.

Brokers Are Concerned about Leverage Restrictions

Since publishing its consultation paper, ASIC received 410 submissions. From these, 41 were from entities and the rest were from individuals. Taking a look at the non-confidential submissions from entities, it appears that brokers based in the land down under were not too happy with the authority trying to implement such restrictive leverage.

Pepperstone, an Australian-headquartered foreign exchange broker, which has been vocal about ASIC’s intended use of its product intervention powers, said that it was supportive of improving standards across the industry, but it has its concerns.

“…we are concerned that some of the requirements in CP 322 are overly stringent, and do not allow for investors who understand and accept the risks associated with trading our products to trade the way they require,” Tamas Szabo, Group CEO of Pepperstone said in the company’s submission.

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“We are concerned that this restriction on investors’ freedom of choice will result in them seeking alternatives outside of Australia, even if it means trading outside of a regulated jurisdiction.”

ASIC Regulation Opens the Window for Regulatory Arbitrage

Multiple brokers were concerned with the fact that ASIC is proposing to have more strict leverage for CFD trading than other key jurisdictions, such as Europe which is regulated by ESMA.

Anthony Griffin, Managing Director of Oanda Australia Pty Ltd, said on the company’s behalf in its submission: “We believe ASIC should consider increasing the proposed leverage ratio of 20:1 for CFDs over currency pairs given key jurisdictions in the CFD market currently provide higher levels of leverage. Failing to align with other jurisdictions (as further articulated below) will allow for regulatory arbitrage.”

ASIC Will Drive Traders outside of Australia, and into Unregulated Firms

FXCM Australia Pty. Limited said that ASIC’s proposals will likely drive Australian retail investors overseas into the hands of unregulated trading companies, which would then be outside of its jurisdiction and cause a larger problem for the authority.

“The net result of ASIC’s contemplated action, in particular the introduction of leverage restrictions, at the current proposed levels would be that customers would be exposed to the irresponsible marketing, sales and execution practices of firms based beyond the reach of ASIC,” the broker highlighted.

“Furthermore, driving a significant proportion of ASIC’s consumers towards unregulated non AU firms would undermine the reach and effectiveness of the regulatory measures that ASIC advocates and with which FXCM agree, namely standardised risk warnings, a ban on financial incentives, leverage limits that are proportional and evidenced based measures to place an absolute limit on client losses that are consistent with existing industry and regulatory practices.”

The Banning of Binary Options Was Welcomed

Despite numerous trading providers criticising the leverage restrictions proposed by the Australian watchdog, many brokerages agreed with the banning of binary options within the country.

You can find all of the submissions published by ASIC here.

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