ASIC to completely ban binary options and restrict CFDs sale

Australia cfh office

Australian regulator ASIC have once again expressed their concern regarding consumers who trade binary options. According to the regulator, consumers continue to suffer significant harm from trading these products, despite the regulatory measures taken so far.

The main notable points in ASIC’s latest consultation paper are:

  • Leverage restrictions of maximum 1:20
  • Imposed margin closeout level of 50%
  • Negative balance protection

The regulator claims that a complete ban would prevent retail clients from losing money trading binary options.

The number of clients trading binary and CFDs has doubled for the Australian market in the past 2 years to one million clients (99% are retail clients and the majority are based offshore). Licensed issuers of these products conducted 675 million trades with clients last year and earlier this year held $2.9 billion of client money for trading.

ASIC’s review from 2017 found that:

  • 80% of clients who trade binary options lose money
  • 72% of clients who trade CFDs lose money, and
  • 63% of clients who trade CFD over currency pairs lose money.

Complex product features, such as the high leverage offered in CFDs—as high as 500-to-1 for foreign exchange CFDs—or the high likelihood of cumulative losses inherent in binary options, have contributed to retail clients’ financial losses and can often be misaligned with their needs, expectations and understanding.

Cathie Armour

Cathie Armour, ASIC

ASIC Commissioner Cathie Armour commented:

For many years ASIC has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us. However, we are concerned that consumers continue to suffer significant harm from trading these products.

A complete ban would prevent retail clients from losing money trading binary options. We believe binary options provide no meaningful investment or economic use, and have product characteristics similar to gambling products.

The regulator proposes to ban the issue and distribution of OTC binary options to retail clients, and to impose conditions on the issue and distribution of OTC CFDs to retail clients.

Part of the proposed restrictions on the offer of CFDs to retail clients include:

  • imposing leverage limits,
  • implementing a standardised approach to automatic close-outs of client’s CFD positions in margin call
  • protecting retail clients against the risk of negative CFD trading account balances
  • prohibiting certain trading inducements, and
  • enhancing transparency of CFD pricing, execution, costs and risks.

ASIC seeks the feedback on its proposed product intervention orders by 1 October 2019. The official consultation paper Product intervention: OTC binary options and CFDs can be seen here.

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