Ethics & Governance
Product intervention orders
BY ,  |  

The Australian Securities and Investments Commission (ASIC) made a product intervention order on 22 October 2020 that imposes conditions on the issue and distribution of contracts for difference (CFDs) to retail clients. This paper summarises the key aspects of the order and provide our take on the implications.

A contract for difference (CFD) is a contract on the difference between the opening and closing price of an asset. It is typically a leveraged derivative contract that allows a client to speculate in the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or cryptoassets.

The order comes after the regulator indicated that CFDs have resulted in significant financial losses to retail clients, demonstrated by the proportion of retail clients' trading accounts that lost money trading CFDs and the quantum of financial losses to retail clients.

This represents the second product intervention order made by ASIC, but there remains numerous proposals to make orders in respect of other products that ASIC consider cause significant consumer detriment—and that catalogue of orders may further expand, with ASIC keeping a close eye on the financial behaviour and impacts on retail clients during the COVID-19 pandemic, and that of financial services institutions.

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