ASIC’s CFD Product Intervention is Here – What You Should Know

Disclaimer: The following article is authored by Paul Derham, Partner at Australia commercial and financial services lawyers firm Holley Nethercote.
After years of speculation (see our earlier articles  and ), product intervention in the CFDs sector has come to Australia. This article sets out the 8 conditions proposed by ASIC and some of our commentary. As Australian lawyers acting for a large portion of the industry, product intervention has been a key topic of interest in Australia since 6 December 2016 when the FCA made its announcement to impose the restrictions on the sector. This was followed by an IOSCO paper that same month, along with the Australian government’s proposal to introduce design, distribution and product intervention laws. See  for our commentary.

Earlier this year, the design, distribution and product intervention laws came into effect. ASIC was given the legislative power to issue a product intervention order for individual businesses, or broader, market-wide sectors.  ASIC  on 26 June 2019, concluding on 7 August 2019. That first consultation asked for feedback on how it should use its powers. Without publicly commenting on the feedback or publishing its final guidance, ASIC then issued, days later on 22 August 2019, consultation about using its new powers to impose ESMA-style restrictions on the Australian CFDs and Binary Options Sector.
So, are you affected? The following commentary applies to Australian Financial Services Licence holders who issue CFDs to retail clients. We haven’t included commentary on the Binary Options Sector here.

  • Can you make a submission to ASIC? Yes.  We’ve already been instructed by clients to help with submissions. Consultation closes on 1 October 2019.
  • When will it take effect? The product intervention order takes effect in the form of a legislative instrument. The instrument commences on the day after it’s registered on the Federal Register of Legislation, which could occur any time after consultation closes on 1 October 2019.  In its current form, the order will remain in force for 18 months.
  • Will we have to tell our retail clients about it? Once the order takes effect, you’ll have to tell your retail clients within 5 business days about the details. We expect this will be a standard form, once-off disclosure.
  • Does it apply to other OTC derivative instruments? The order doesn’t appear to apply to options, futures, swaps and forward rate agreements.
  • What are the conditions? There are 8 conditions proposed by ASIC. 6 of them align with global trends, and 2 of them are novel.
  • Conditions Explanation How long from when the instrument is registered? Our commentary
    1. Leverage ratio limits
    ASIC proposes the following ratios


    20:1 (FX, Gold)

    15:1 (Stock Indices))

    10:1(Commodities (ex Gold)

    2:1 (Cryptos)

    5:1(shares or other instruments)


    20 business days This mirrors some Asian jurisdictions but goes further than ESMA, FCA, and Japan, which allows 30:1 or 25:1 for some underlying instruments.

    ASIC has chosen not to distinguish between major and minor currency pairs (even though ESMA and the UK allow 30:1 leverage for majors) because it’s “simpler to implement and supervise” and is closer aligned with Japan (25:1), Hong Kong and Singapore (20:1) and South Korea (10:1).  Regional alignment, according to ASIC, limits regulatory arbitrage.

    1. Margin close-out protection
    Your client agreement must specify that you will close out one or more of the client’s open positions if the client’s net equity falls to less than 50% of the total initial margin required for all open positions on that account. 3 months Client agreements will need to be carefully drafted for this requirement to apply to positions opened at least 3 months after the commencement of the instrument. Also, we expect that some clients will only want the protections to apply only to their retail clients.
    1. Negative balance protection
    Your client agreement must limit a retail client’s loss to the funds in their trading account. 20 business days This no-negative-equity promise comes as no surprise to the industry.
    1. Prohibition on inducements
    Trading inducements to open or fund a CFD account, or to trade CFDs, are out.  Inducements include gift, rebates, trading credits, or rewards.


    20 business days iPhone, tablet and other types of promotion are out.  Brokers will need to update their promotional material policies and the monitoring and supervision of distribution networks.
    1. Risk warnings
    Client facing documents, platforms, and websites need to disclose various risks and the percentage of your retail client trading losses over a 12-month period. 20 business days Beefing up risk warnings is in line with many overseas jurisdictions, including ESMA, FCA, and others. Template risk warnings are included on p15 in the schedule to the draft instrument .
    1. Real-time disclosure of total position size
    Your trading platform must provide real-time disclosure to a retail client of their total position size in monetary terms for all open positions on their account. 3 months This feature is not a common requirement from other jurisdictions, to our knowledge. ASIC refers to itself as the first regulator to introduce this product intervention measure.
    1. Real-time disclosure of overnight funding costs
    Your trading platform must provide real-time disclosure of overnight funding costs as an annualized rate of interest and as an estimated cost in the CFD’s currency. 3 months This might be difficult. We’re not aware of MT5 supporting this feature.  Brokers will need to talk to their technology providers about this obligation. This feature is not a common requirement from other jurisdictions, to our knowledge. Again, it’s a “first” for ASIC.
    1. Transparent pricing and execution
    You must publish your pricing methods and execution policy.  Policies need to cover: how you determine your price, use of independent and externally verifiable price sources,  application of spreads and mark-ups,   situations where prices vary from this methodology, how you deal with client offers to trade CFDs and how you affect trades. 3 months More traditionally referred to as Best Execution, this is not an uncommon requirement internationally. (If you have questions about best execution technologies available in Australia, please talk to us.)


  • What do you need to do now?
  • If you’d like to make a submission to the consultation, we need to know as soon as possible. You should expect the bulk of these proposals to be found in the final version of ASIC’s legislative instrument. This will require you to:

    1. notify retail clients
    2. update your promotional procedures
    3. update trading and pricing policies
    4. update monitoring & supervision procedures
    5. update disclosure documents, websites, and platforms
    6. work with technology providers to adopt the proposed requirements within the short timeframe.
  • If you are a CFDs broker, feel free to attend our free industry forum in person or via webinar, on 5 September. Details to attend are .
    Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.

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