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Australian securities and investments commission proposes CFD restrictions and binary options ban

Aug 27, 2019

The aforesaid regulator has recently issued a consultation paper which sets out planned measures with regards to restrictions on over-the-counter (OTC) binary options and contracts-for-differences (CFDs).

The Binary options enable traders to bet on the price of an asset or a particular currency or commodity over a short time-frame. This option allows traders to actually buy or sell the underlying asset, currency or commodity, which will not be possible after the ban.

A CFD is a contract for difference between the opening and closing price of an asset, for example, the movement in a share price of a listed company or currency fluctuations.

The imposed restrictions are a result of the regulator's concerns about the loses that Australian retail investors have received and will continue to receive from binary options and CFDs.

In the sense of CFDs, much like the European Securities and Markets Authority (ESMA), Australian Securities and Investments Commission (ASIC) has suggested several restrictions, in particular enforcing leverage limits, improving transparency of CFD pricing, execution, costs and risks, applying negative balance protection and a standardized approach to automatic close-outs of client’s CFD positions in margin call.

Expressing its view 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.”

ASIC expected significant pushback from the industry, particularly issuers of CFDs who probably would argue that they are good providers and there already is an industry code in place. The regulator is waiting for opinions on proposed product intervention measures until the 1st of October 2019.

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