Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Australia to crack down on high-stakes derivatives trading

Published 08/21/2019, 09:45 PM
Updated 08/21/2019, 09:45 PM
© Reuters. A businessman takes a cellphone picture of Australia's stock exchange index on an electronic board in Sydney

© Reuters. A businessman takes a cellphone picture of Australia's stock exchange index on an electronic board in Sydney

SYDNEY (Reuters) - Australia's market watchdog on Wednesday said it plans to ban the sale of "binary" options to retail customers and introduce restrictions on sales of other derivative instruments seen as high-risk transactions.

The proposed curbs on the A$2 billion ($1.36 billion) a-year industry follows other regulatory bans in Europe and North America and follows new intervention powers granted to the Australian Securities and Investments Commission (ASIC) in April.

The global crackdown on high-stakes financial betting by amateur traders has already hurt earnings of trading platforms IG Group (L:IGG) Plus500 (L:PLUSP), CMC Markets (L:CMCX), and Interactive Brokers Group Inc (EI:IBKR), all of which have a big presence in Australia.

"ASIC is concerned that retail investors have suffered, and are likely in future to suffer, significant detriment from binary options and contracts for difference (CFDs)," it said in a statement. CFDs allow traders to bet on financial asset prices without holding the asset.

The regulator issued a consultation paper outlining plans to ban all sales of binary options to retail customers, which it likened to gambling products.

Binary options are over the counter (OTC) derivatives that allow clients to make "all-or-nothing" bets on specific events in a specific timeframe, such as a rise in the gold price within a 30 second window.

According to ASIC, issuers of such products generated gross trading revenue of A$2 billion in 2018, of which 25% were from binary options and the balance from CFDs.

"We estimate that retail client losses from trading binary options were at least $490 million in 2018," the paper said.

The proposal is open to submissions from market participants until Oct. 1 and ASIC expects to reach a final decision shortly after the consultation period ends, a spokesman said.

"A complete ban would prevent retail clients from losing money trading binary options," ASIC Commissioner Cathie Armour said in a statement.

Under its proposal, retail sales of CFDs would have leverage limits and rules to improve pricing transparency.

In recent years, regulators in Europe and North America have moved to ban or limit the issue and distribution of binary options to retail clients, and some have introduced leverage limits on CFDs.

According to ASIC's review, Australian issuers of binary options and CFDs have about one million clients. Of these, 17% were domestic, a fifth were in China, where such trades are prohibited, and about 41% were in the rest of Asia.

© Reuters. A businessman takes a cellphone picture of Australia's stock exchange index on an electronic board in Sydney

Latest comments

This isnt a ban on vanilla options. This is a ban on some fraudulent $cammers.
stay out of our markets you nanny state fascist bastards!
Conservative drone!
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.