ASIC Extends Leverage Restrictions on CFDs for Another Five Years

The Australian Securities and Investments Commission (ASIC) announced on Wednesday that it has extended its product intervention order for retail issuance and distribution of contracts for differences (CFDs) for a further five years, until 23 May 2027.

The Aussie regulator initially brought these restrictive conditions on the CFDs investment instruments on 29 March 2021. But, initially, those rules were only effective for 18 months, which the regulator considered to be a trial period.

The conditions of ASIC include the leverage limitation of up to 30:1, standardization of margin close-out rules, and negative balance protection . The most impactful restriction remained the limitation on leverage, which was also in line with similar restrictions imposed by the European financial market regulator in 2018.

Protecting the Retail Traders

ASIC extended the product intervention order period after imposing them for more than a year. It highlighted that there was a 91 percent reduction in aggregate net losses by retail client accounts. Also, there were 51 percent fewer loss-making retail client accounts per quarter on average.

Its latest decision was influenced by an 87 percent fall in margin close-outs, along with an 87 percent reduction in negative balance occurrence for retail clients.

“We have seen a substantial reduction in harm to retail clients resulting from CFDs as a result of ASIC’s product intervention,” ASIC’s Commissioner, Cathie Armour said in a statement.

“Our extension of the product intervention order for five years will ensure that the leverage ratio limits and other protections can continue to reduce the size and speed of retail clients’ CFD losses. These consumer protections are more important than ever during volatile market conditions.”

Moreover, the Aussie financial market supervisor imposed an 18-month ban on the retail sale and distribution of the controversial binary options. Furthermore, the ban was imposed last year, citing that around 80 percent of the retail traders dealing in binary options will lose money.

Protecting the Retail Traders

Its latest decision was influenced by an 87 percent fall in margin close-outs, along with an 87 percent reduction in negative balance occurrence for retail clients.

“We have seen a substantial reduction in harm to retail clients resulting from CFDs as a result of ASIC’s product intervention,” ASIC’s Commissioner, Cathie Armour said in a statement.