Leverage Ratio Breaches by CFD Providers – ASIC Oversees Compensations to Retail Clients in the Derivatives Market

ASIC has overseen more than $17.4 million in combined compensation payments made to over 1,500 retail clients

Seven issuers of contracts for difference (“CFDs“) were found to be issuing CFDs with leverage ratios to retail clients that violated the Product Intervention Order (“PIO“). The affected clients incurred losses on over 150,000 CFD trades involving 100 different CFD instruments where the maximum leverage exceeded the leverage permitted under the PIO.

All seven CFD issuer self-reported the breaches of the leverage limits in the PIO and proposed remediation programs to ASIC. A total of $4.3 million has been paid or agreed to be paid to over 1,500 retail clients of seven (7) different CFD issuers since March 2021.

All CFD issuers should review the leverage limits and ensure they are correctly applied to the various CFD instruments offered on their platform. These remediation programs show that breaches of the PIO in relation to leverage are serious and are a good example of ASIC’s focus on reducing (and in these cases remediating) consumer harm.

Background

CFDs are leveraged derivative contracts that allow clients to speculate on the change in the value of underlying assets, such as foreign exchange rates, stock market indices, equities, commodities, or crypto-assets.

In response, ASIC introduced the CFD PIO in October 2020 (which took effect from March 2021), placing restrictions on CFDs issued to retail clients, including leverage ratio limits ranging from 30:1 to 2:1, depending on the underlying asset. The PIO aimed to enhance protections for retail clients in CFD trading. In April 2022, ASIC extended the PIO until 23 May 2027.

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