The ASIC (Australian Securities and Investments Commission), has implemented a policy that restricts retail CFD trading. Those who violate the restriction risk a jail time of up to 5 years or a fine of up to 55 million AUD.
The ASIC has notified traders and brokers of the new restrictions on retail CFD trading. These restrictions came into effect on Monday, 29 March. Under the new policy, brokers will be restricted from offering high leverage levels and will now only offer a maximum leverage of 30:1 compared to the previous leverage levels of 400:1 The regulator further added new restrictions that will shield traders from massive losses. As such, traders will be protected against negative account balances while new clients will enjoy gifts and trading rebates from brokers.
While these restrictions will impact trading movements in the market, the regulator insists that they are necessary. They are also similar to what the European regulator introduced back in 2018 about trade leverages and marketing.
How are brokers adapting to the restriction?
Majority of brokers are supporting the new restrictions but they also state that it will cause a pullback in trading volumes. After the European market imposed a similar restriction in 2018, it caused a reduction in trade volumes and this trend is expected to be witnessed in the Australian market. However, the new leverage limit of 30:1 is a global standard and hence Australian brokers are supporting the move. Some have even updated their offerings to abide by the new rules.
The ASIC has built a reputation for itself in financial market regulations. They are always vigilant to make sure that financial participants are abiding by the rules put across. Brokers are therefore being urged to be timely in shifting their services to meet the new restrictions. Failure to abide by the new rules will lead to a jail term of up to five years or penalties and fines of up to 55 Million AUD. In addition, brokers who violate the rules might receive a permanent ban of their services.
Cathie Armour, who is the ASIC commissioner, stated that they would be very vigilant in enforcing the new rules. Their officers would not hesitate to reprimand those violating the rules. Besides, the ASIC gave a stern warning to brokers who are taking advantage of their clients. The commissioner added that those caught in violation of client rights and protections would be reprimanded.
The leverage restrictions are a positive factor to the financial market in Australia because they will not only heighten the level of protection to traders but also strengthen the credibility of retail trading in the country.