ASIC Regulation & The History of CFD’s In Australia

 

CFD’s have been available to retail customers in the UK since the early 90’s, however it took much longer for CFD’s to be introduced in Australia. Early on CFD’s were favored as a way for hedge funds and investors to hedge their trades cheaply and efficiently. However as the 90’s progressed it became clear that Contracts for Difference had huge potential as an over-the-counter instrument. However it wasn’t until 2002 that Aussies could trade contracts for difference, since their introduction Contracts for difference have become increasingly popular. With the Australian Stock Exchange offering 50 exchange traded Contract for differences on the 50 biggest Aussie Stocks. These Exchange traded CFD’s haven’t stopped the big CFD providers from thriving in the Australian market with many of the big names being British based companies.

Recently, a number of providers have acquired ASIC (including FSA regulated Plus500) licences to both take advantage of the growing Australian market and as a way to gain a presence in the Oceania/Pacific area. All of this has been occurring against the backdrop of increased regulation. In order to legally accept Australian clients a Contract for difference provider must be regulated by ASIC. ASIC is short for the Australian Securities and Investment Commission who are responsible for regulating securities and investment in Australia. In mid 2012 ASIC announced new tougher regulation for those providing over the counter instruments to put ASIC regulation on par with British and Singaporean financial regulation. These changes have to be implemented by the 31st of January 2013. 

ASIC is also the regulator for other financial services, not necessarily binary options or CFD brokers. For instance, ASIC regulate commercial foreign exchange firms that provide FX hedging options (these firms don’t allow speculative trading for the purpose of profit, but rather focus on international payments). You can read about payment providers in Australia here.

The main changes to the regulation include increased capital requirements and greater liquidity requirements. The idea is to protect Australian citizens from being victims of another MF Global etc. This has be to a step in the right direction and will certainly reassure those who have already deposited money with an ASIC regulated broker or those who are planning to do so. It appears that ASIC may have found the right mix between being tough and avoiding driving away business.

The Australian CFD market is likely to continue to grow for several years and these new regulatory guidelines bring Australia closer into line with general international over the counter financial regulation.

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