ASIC update: proposal to extend CFD product intervention order following improvements in retail trading outcomes

Having concluded that the CFD Order has reduced the risk of significant detriment to retail clients in relation to contracts for difference (CFDs), ASIC has now published a consultation paper (CP 348) outlining its proposal to extend the CFD Order from its current expiry date of 23 May 2022 to 1 April 2031.

As previously reported in our paper titled ‘ASIC product intervention orders: ban on binary options for retail clients and restrictions on retail trading of CFDs’, from 29 March 2021 ASIC imposed a number of conditions on CFDs in relation to retail clients (CFD Order).

ASIC’s analysis of the impact of the CFD Order showed that during the first three months after the CFD Order took effect, there were significant improvements in retail client outcomes, including:

1. a reduction in aggregate and average losses, and the number of loss-making retail clients;
2. a more even proportion of profit-making and loss-making retail client accounts;
3. a reduction in active retail client accounts and the size of their CFD exposures;
4. an 85% reduction in margin-close outs;
5. a ten-fold fall in instances of retail client accounts entering negative balances; and
6. a substantial drop in retail client inducements.

ASIC’s statistical analysis concluded that there is a direct correlation between the reduction in retail client detriment and the CFD Order.

ASIC also notes that the results of its analysis are consistent with the effect of similar regulatory measures in other jurisdictions, including the United Kingdom and the European Union, and with academic research assessing the impact of CFD leverage on retail client outcomes.

In light of the above, ASIC considers that the CFD Order has been effective in achieving its intended goal of reducing significant detriment to retail clients and strengthening consumer protections. It therefore proposes that the CFD Order should remain in force. Our previous article ‘ASIC product intervention orders: ban on binary options for retail clients and restrictions on retail trading of CFDs’ details the restrictions on retail trading of CFDs.

The consultation process on CP 348 closes on 29 November 2021 with ASIC expected to make a decision on the extension by May 2022.

We will keep you posted.