ASIC Consultation Paper – Industry Changes

Potential Regulatory Changes affecting you, the trader

In August 2019, the Australian Securities Commission (ASIC) has released a consultation paper, which will significantly affect the way you trade. 

The key changes which may have most significantly impact on your trading are as follows:

1. Leverage will be restricted from 2:1 to 20:1 depending on the instrument that you are trading. Please see a full breakdown below.
2. Proposed regulations will make it mandatory for clients to be liquidated if a client’s margin falls to 50% or less of the initial required margin.

This consultation period invites brokers and other relevant stakeholders (including clients) to provide feedback on proposed changes.

As such, if you have a view on this, we urge you to provide your feedback to the following email address: [email protected] and please copy in FP Markets at [email protected]

ASIC will close the consultation on the 1st October 2019 so if you would like to provide feedback, please do so before this date. 

FP Markets will continue to engage with ASIC over the coming months as it believes in a consistent approach to regulation and raising standards in the industry. The full consultation is available here but please find below a brief summary of the proposed changes which ASIC are proposing will be introduced for retail clients: 

1. Maximum leverage rates

The following leverage restrictions (i.e. increased margin requirements) have been proposed for retail traders: 

– 20:1 leverage on currency pairs and  gold = 5% margin (currently 1:500)

– 15:1 leverage on major indices = 6.67% margin (currently 1:100)

– 10:1 leverage on commodities (excluding gold) = 10% margin  (currently 1:100)

– 2:1 leverage on cryptocurrency-assets = 50% margin  (currently 1:2)

– 5:1 leverage on shares or other underlying assets = 20% margin (currently available from 5%)

Set out below are illustrative examples of changes to the capital outlay required to open position under the various asset classes based on our current maximum leverage allowance.

*Approximate figure based on prices at 13/09/2019

2. Margin close-out 

ASIC has proposed a margin close-out rule at 50% of the initial required margin. This means that if the funds held in a retail client’s CFD trading account fall to less than 50% of the total initial margin required for all their open CFD positions on that account, CFD positions must be closed. 

3. Negative balance protection

ASIC has proposed “negative balance protection” to ensure that retail traders are unable to lose more than the money available on their account. If a retail client’s balance does go negative, the broker  will be obliged to bring the balance back up to zero at its own cost.

4. Real-time disclosure of overnight funding costs 

Overnight funding costs will need to be disclosed in the trading platform rather than simply on the client statement as applies currently. 

5. Prohibition on inducements 

Incentives will not be permitted to be used to attract retail clients or prospective retail clients to open or fund a CFD trading account or to trade CFDs, by offering a gift, rebate, trading credit or reward.

For the avoidance of doubt, ASIC does not consider informational services, educational tools or research tools as incentives.

6. Risk warnings 

Risk warnings will feature more prominently to all retail clients and prospective retail clients on any form of documentation, PDSs, trading platforms advertising and websites. 

These risk warnings will include:

– The complexity of the Products and likelihood of losses

– The Percentage of clients that have lost money in a 12-month period 

7. Transparent pricing and execution

Brokers will be required to maintain and make available on their website, a CFD pricing methodology and a CFD execution policy.

The CFD pricing methodology must explain how we determine our prices, including:

The CFD execution policy must explain how we address our clients’ intention to trade and the effects thereof.

How to Respond to ASIC

ASIC is seeking feedback from all stakeholders who are impacted by these proposals, including traders like you.

We strongly urge you to provide ASIC with any feedback you may have regarding ASIC’s proposals to shape the future of the industry.