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#1 10-11-2020 08:26:55

johnedward
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From: Paris - France
Registered: 21-12-2009
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Australia unleashes a blow to CFDs, limits their sale and execution

Australia unleashes a massive blow to CFDs, limiting their sale and execution


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Several years of regulatory wrangling has culminated in yet another blow to the CFD market, this time at the hands of the Australian regulator ASIC, which has very recently passed new regulations severely limiting how CFDs are sold, executed. and marketed, and considerably restricting leverage.

The new ASIC ordinance strengthens consumer protection by reducing the leverage of CFDs available to retail clients, targeting CFD product characteristics and sales practices that amplify losses for retail clients. It also aligns Australian practice with protections in effect in comparable markets elsewhere.

As of 28 March 2021, the order of intervention on ASIC products will be to limit the leverage of CFDs offered to retail clients to a maximum ratio of:

Arrow 30:1 for major currency pairs
Arrow 20:1 for minor currency pairs, gold or major stock indices
Arrow 10:1 for commodity CFDs (other than gold) or minor stock indices
Arrow 2:1 for cryptocurrency CFDs
Arrow 5:1 for CFDs on stocks or other assets

In addition to the restrictions on leverage, ASIC has decided to:

Arrow standardise the margin close agreements of CFD issuers that act as a kill switch to liquidate one or more CFD positions of a particular client before all or most of the client's investment is lost
Arrow protect negative account balances by limiting a particular client's losses on CFDs to funds in his trading account
Arrow prohibit giving or offering certain incentives to retail traders (for example, offering deposit bonuses or gifts)

ASIC has also confirmed that it will not require broker-specific risk warnings or other conditions based on information disclosure, as originally proposed in consultation paper 322 "Intervention on products": OTC binary options and CFDs (CP 322).

ASIC reviews in 2017, 2019 and 2020 showed that most retail traders lose money when trading CFDs.

During a volatile four-week period in March and April 2020, clients of a sample of 13 forex / CFD brokers suffered a net loss of over $773 million. During this period:

Arrow more than 1 million CFD positions were deleted under margin closing agreements (compared to 9.2 million for the whole of 2018)
Arrow more than 15,000 CFD trading accounts went negative, for a total of $11 million (compared to 40,000 accounts for a total of $33 million for the whole of 2018). Some debts have been canceled.

Cathy Amor, ASIC Commissioner, said: "The heavy losses suffered by retail clients who trade highly leveraged CFDs and the continued volatility of the market during the virus situation underscore the need to strengthen the protection of CFD in Product Intervention Order".

"Leverage ratio limits in order are aimed at reducing the magnitude and speed of client losses by reducing CFD exposure and sensitivity to market volatility. This follows similar measures introduced in major foreign markets, notably the UK and the European Union, Cathy Amor adds.

The ordinance will remain in effect for 19 months, after which it can be extended or made permanent.

ASIC is currently considering reactions to its proposal in PC 322 to ban the issuance and distribution of binary options to individuals.

For nearly 20 years, Australia has steadily and pragmatically built its reputation and global position as a benchmark for forex and CFD trading.

A world-class corporate culture, a thriving national economy, increasingly prudent and well-structured regulations for electronic trading companies and, perhaps most importantly, a strong commercial link with the "golden egg" of the foreign exchange industry: China and the Asia-Pacific region.

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