The Time Has Come: ASIC Proposes Binary Ban & CFD Restrictions

This Thursday the Australian Securities and Investments Commission (ASIC) has published a consultation paper which proposes to place restrictions on over-the-counter (OTC) binary options and contracts-for-differences (CFDs).

The Australian regulator has proposed to outright ban the issue and distribution of OTC binary options. This is because the watchdog is concerned about the detriment that Australian retail investors have suffered and will continue to suffer at the hands of binary options.

In terms of CFDs, similar to the European Securities and Markets Authority (ESMA), ASIC has 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 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 standardised approach to automatic close-outs of client’s CFD positions in margin call.

ASIC proposes 20:1 leverage for all FX pairs

However, the Australian regulator has taken a different approach to the exact leverage limits it will apply. Unlike ESMA, ASIC will not distinguish between major and minor currency pairs. Instead, the watchdog proposes a single leverage ratio limit for all currency pairs 20:1.

For equity indices, ASIC suggests a ratio of 15:1, commodities excluding gold 10:1, Gold 20:1, crypto-assets 2:1, and equities 5:1.

Commenting on the proposed restrictions, ASIC Commissioner Cathie Armour said: “For many years ASIC has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us. However, we are concerned that consumers continue to suffer significant harm from trading these products."

“A complete ban would prevent retail clients from losing money trading binary options. We believe binary options provide no meaningful investment or economic use, and have product characteristics similar to gambling products.”

The Aussie regulator is currently seeking feedback on its proposed product intervention measures until the 1st of October 2019.

Today’s announcement is not a complete shock to the markets, as Finance Magnates reported, since the beginning of the year, rumors have been swirling that ASIC will take a similar approach to that of ESMA and implement its own product intervention measures.

Furthermore, the regulator announced in June of this year that it was formally preparing to deploy its product intervention powers shortly.