|1. Leverage ratio limits
||ASIC proposes the following ratios
20:1 (FX, Gold)
15:1 (Stock Indices))
10:1(Commodities (ex Gold)
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 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.
|2. 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.
||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.
|3. 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.
|4. 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.
|5. 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 here.
|6. 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.
||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.
|7. Real-time disclosure of overnight funding costs
||Your trading platform must provide real time disclosure of overnight funding costs as an annualised rate of interest and as an estimated cost in the CFD’s currency.
||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.
|8. 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 effect trades.
||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.)