Foreign vs Domestic CFD brokers square off in Australia – the real story

We wrote back in 2012 how a group calling itself the Australia CFD Forum had formed to “enhance the efficient operation, transparency and overall investor understanding and confidence in CFDs within Australia and in the Australian CFD industry as a whole.”

The Forum back then consisted of six leading CFD brokers serving Australia traders – and we noted how the Forum excluded the major Australia firms, such as AxiTrader and Pepperstone. (The six were London Capital Group, City Index, CMC Markets, IG Group, Saxo Bank and GFT).

Well it seems as if the six has been whittled down to three – CMC, IG, and GFT UK – still all foreign-based firms. And today’s Sydney Morning Herald is reporting that the three have been somewhat successful in their lobbying efforts, backed as well by FXCM, to change the law governing the use of client funds – specifically that client money should be segregated and protected, something not required today in Australia.

While most agree that keeping client money separate from company money is a good thing, some of the other changes proposed are clearly meant to benefit larger, foreign based brokers. AxiTrader was quoted in the article as saying that the new standards proposed by the Australian Competition and Consumer Commission (ACCC) contained “exclusionary and cartel provisions” which are “are anti-competitive and constitute a barrier to entry to the CFD industry by Australian companies. Furthermore, they are tainted by the apparent motives of the applicants of improving their market positions in Australia.”

So what gives? Why no Australian brokers on the Australia CFD Forum? And why the differences in opinion.

The answer, in our view, lies with the bankruptcy of another foreign dealer, MF Global, which at the time of its 2011 failing held 15% of the Australia CFD market, but apparently had moved most of its Australia client money abroad, making it difficult for Australian clients to get their money back.

Following MF Global’s bankruptcy there was a backlash in Australia – a very important and growing CFD market – against CFD dealers generally but against foreign dealers specifically, leading to the growth the past three years of leading Australian FX and CFD brokers such as AxiTrader and Pepperstone to leading positions in their home market.

Pepperstone Director Owen Kerr, while stating that his firm was not opposed to the specific changes proposed, noted:

“It is important to note that not one of the firms in the Australian CFD Forum is Australian-owned or head-quartered yet they purport to represent the Australian CFD Industry. We see this type of anti-competitive Industry lobby power exerted in US Politics and it is not something we should accept in the Australian political system.

We are opposed to foreign firms operating under the guise of the “Australian CFD Forum” trying to lobby for a change in Australian law to protect their market position.”

We expect this power play between foreign and domestic Australia firms to continue to play out in the coming months. While an important market itself, Australia is also a major brokerage point for China-based traders, one of the fastest growing and most sought after markets.

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