Australian Securities and Investments Commission (ASIC) releases product intervention order
Following the recent Federal Court orders and ASIC’s increased concerns on consumer protection, ASIC is finally releasing the product intervention order – Instrument 2020/986, imposing conditions on the issue and distribution of CFDs to retail clients. The Instrument introduces new provisions on leverage limitation, close-out protection, negative balance protection and prohibition on inducements. This brings ASIC in line with ESMA protections currently in force.
As of 29 March 2021, ASIC’s product intervention order will:
- Restrict leverage offered to retail clients to a maximum ratio of:
- 30:1 for CFDs referencing an exchange rate for a major currency pair
- 20:1 for CFDs referencing an exchange rate for a minor currency pair, gold or a major stock market index
- 10:1 for CFDs referencing a commodity (other than gold) or a minor stock market index
- 2:1 for CFDs referencing crypto-assets
- 5:1 for CFDs referencing shares or other assets
- Standardise CFD issuers’ margin close-out arrangements that act as a circuit breaker to close-out one or more a retail client’s CFD positions before all or most of the client’s investment is lost
- Protect against negative account balances by limiting a retail client’s CFD losses to the funds in their CFD trading account, and
- Prohibit giving or offering certain inducements to retail clients (for example, offering trading credits and rebates or ‘free’ gifts like iPads).
The order will remain in force for 18 months, after which it may be extended or made permanent.
CFD providers will therefore need to review their existing arrangements with retail clients, amend client disclosures and ensure they have appropriate IT systems and platforms which enable them to comply with the new orders.
