ASIC has proposed an extension to its product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs).
“Since 29 March 2021, ASIC’s product intervention order has strengthened protections for retail clients by reducing CFD leverage, standardising margin close-out arrangements, protecting against negative account balances and prohibiting CFD providers from giving certain inducements to retail clients,” ASIC said on Monday.
During the order’s first three months of operation, ASIC claims retail clients made net losses of $22 million from CFD trading and 45 per cent less loss-making retail client accounts compared with the quarterly average the prior year.
It reported that profit-making and loss-making retail client accounts were split at 50 per cent (up from 36 per cent), margin close-outs decreased by 85 per cent and negative balance instances reduced “tenfold” for retail clients.
Meanwhile, the proportion of profit-making and loss-making wholesale client accounts during that period remained “relatively stable” at 37 per cent and 63 per cent, respectively.
“On the basis of our analysis to date, we consider that the CFD order has reduced the risk of significant detriment to retail clients,” ASIC said.
“Our proposed extension of the CFD order is consistent with measures in force in many other jurisdictions.”
ASIC first announced the CFD product intervention order in October last year, saying the changes would strengthen protections for retail clients after ASIC investigations found they were likely to lose money from investing in CFDs.
Feedback on the proposed extension can be submitted to ASIC by 29 November 2021.
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