A year ago, the ASIC, also known as the Australian Securities and Investments Commission distributed its discussion papers with respect to product regulation measures for CFDs, known as contract differences and binary options. The regulator recently published a portion of the criticism it received from industry members, as well as significant financiers in the nation. According to sources, ASIC distributed CP 322 Product mediation: OTC paired alternatives and CFDs in August of a year ago. This happened in 2018 when the Australian parliament allowed ASIC product regulation powers, like those practised by the European Securities and Markets Authority (ESMA).
FMLS Finance Meets Innovation
Precisely, the Australian controller proposed to boycott paired alternatives (binary options) inside the nation totally and carry out leverage limitations for CFD products. Contrary to ESMA, ASIC said at the time that major and minor currency pairs will not be recognized. Rather, the regulator proposed a one leverage proportion limit for all pairs 20:1. For value records, ASIC proposed a proportion of 15:1, items barring Gold 10:1, Gold 20:1, crypto-resources 2:1, and values 5:1.
Leverage Restrictions Raise Concern Among Brokers
Following the distribution of its discussion paper, ASIC got 410 entries. From these, 41 were from companies and the rest were from people. Analyzing the non-classified entries from companies, it turns out that brokers were not impressed by the regulator making an attempt to restrict leverage.
An Australian forex broker who has been very vocal about ASIC’s proposed product intervention measure said that it was in favour of improving principles over the business, however, it has its worries.
Australian companies really need to have some kind of authority over CFD products and here’s why. A few years ago ESMA, which is the financial regulator of the European Union placed really harsh restrictions on CFD products. Like no more than 1:30 leverage on FX, 1:5 on stock CFDs, etc. Thankfully Australia didn’t have to deal with these restrictions and could safely offer higher leverages. The only real option Europeans had was to go with CySEC-regulated (Cyprus) brokers if they wanted more leverage. As illustrated in several T1Markets reviews the max leverage for CFDs there was 1:50. Still low but relatively higher than the rest of Europe. Because of this many EU, CFD traders migrated over to Australian companies in hopes of finding better CFD options, but now with these new restrictions that may be impossible.
ASIC Regulation Opens the Window for Regulatory Arbitrage
Various traders were worried about the way that ASIC is proposing to have a more severe influence on CFD trading than other key locales, for example, Europe which is managed by ESMA. Anthony Griffin, Managing Director of Oanda Australia Pty Ltd, said on behalf of the organization, that they trust ASIC has to consider expanding the proposed leverage proportion of 20:1 for CFDs over cash pairs given that key locales in the CFD market presently deliver increased levels of influence. Failing to line up with different jurisdictions will permit an administrative arbitrage.
ASIC Will Drive Traders Outside of Australia, And into Unregulated Firms
FXCM Australia Pty. Ltd. said that ASIC’s proposition will probably drive Australian retail financial specialists abroad into unregulated trading organizations, which would then be outside of its jurisdiction and cause a bigger issue for the regulator.
The broker emphasized the consequences of ASIC’s actions, specifically the leverage limitations, at the present proposed levels, would be that clients might be subject to negligent marketing, execution, and sales practices of firms based past the scope of ASIC.
Moreover, driving an important ratio of ASIC’s consumers towards unregulated non-AU firms would sabotage the scope and adequacy of the administrative measure that the ASIC advocates, that the FXCM approves.
The Banning of Binary Options was Welcomed
Notwithstanding various traders criticizing the leverage limitations proposed by the Australian regulator, numerous businesses approved the prohibition of binary options inside the nation.