The Australian Securities and Investments Commission (ASIC) laid out new rules on Thursday to limit the extent to which brokers can pump up their retail clients’ bets on financial markets using CFDs products.
Today, the Aussie regulator is receiving a flood of responses to its latest swipe against the sale of risky investments to retail investors, with Plus500 showing a similar reaction to its industry peers by claiming that it already operates in compliance with most of these restrictions.
“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.
The Israeli-based but London-stock market listed CFD provider noted that ASIC’s proposed rules are similar “in spirit and effect” to the regulatory changes implemented by the European Securities and Markets Authority (ESMA) last year.
Still, the regulatory updates, which will include leverage limits, margin closeout rules, and negative balance protection, is anticipated to affect Plus500’s profit from its Australian customers, which accounted for 15 percent of the broker’s revenues in 2019. The board will assess the potential impact on future years, but believes that such impact is already incorporated in the analysts’ forecasts for Plus500 in FY 2021, it said.
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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.
In FY20, Australian stockbroking net trading revenue, which CMC said will be unaffected by the current changes, constituted 13% of its total net operating income, with Australian CFD net trading revenue being 23% of the group’s profit.
CMC Markets further tempered fears, saying that the overall impact on profitability would be mitigated by its focus on ‘high quality, experienced clients’. It added that it was targeting more sophisticated traders, some of whom would fall out of the scope of the rules as they can be eligible to qualify as wholesale clients, meaning those clients will not be impacted by recent ASIC restrictions.
For its part, IG group said these measures do not change the financial targets of revenue growth in core markets, estimated at 3-5% over the medium term, and an incremental £100 million of revenue by the end of FY22.
“The measures, which will take effect from 29 March 2021 and apply to retail clients only, are broadly consistent with those proposed by ASIC in its initial consultation. The leverage restrictions are now in line with those already implemented by the European Securities and Markets Authority in August 2018,” the listed brokerage firm said.