ASIC Seriously Considers Scrapping Leverage Restrictions for CFDs

The Australian Securities and Investments Commission (ASIC), in an April update, appears to have foolishly bowed to industry pressure and has done a complete 180, by announcing this Wednesday that it will seriously consider to no longer be implementing product intervention measures against contracts for difference (CFDs).

The announcement comes months after the Aussie regulator first launched its consultation on the measures last year. As Finance Magnates reported at the time, the authority had decided to take its measures one step further than its European counterparts.

Specifically, ASIC had proposed a number of restrictions, such as imposing Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term limits, enhancing the transparency of CFD pricing, execution, costs, and risks, implementing 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 place 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 place Read this Term protection and a standardized approach to automatic close-outs of client’s CFD positions in a margin call.

However, the Australian regulator had taken a different approach to the exact leverage limits it would apply. Unlike ESMA, ASIC said last year 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.

Speaking to Finance Magnates, the Chief Compliance Officer of a major brokerage in Australia said this was a massive relief to the retail trading sector, and couldn’t have come at a better time with pressures surrounding coronavirus weighing on brokers.

“We didn’t think ASIC would step away from the product intervention measures. We had spoken to the regulator extensively, warning them on the negative side effects these measures could have, such as stifling innovation, and it sounds like they listened. We expect this to be a boost to Australia’s markets.”

Why did ASIC change its mind?

So what has caused today’s backtrack? Well, it might have something to do with the fact that its April Fools, and this article, has, in fact, been a joke. Happy Wednesday, folks!