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ASIC pushes for greater CFD disclosure

by Martha.Ware 15. August 2011 09:27

ASIC has released new disclosure benchmarks for contracts for difference (CFDs) that aim to improve disclosure and investor awareness about risks of these products.

The guidance also covers margin foreign exchange contracts.

In Australia, most CFDs are issued as over-the-counter (OTC) products, making them increasingly accessible and popular with retail investors. But CFDs are a high-risk financial product and their complexity means they are unlikely to meet the investment needs of many retail investors.

ASIC Chairman Greg Medcraft said action was needed to ensure people considering CFDs are aware of the downside as well as the upside.

‘CFDs are extremely risky financial products. Most investors don't understand that complexity and they don't get independent financial advice. That means we need CFD issuers to do a much better job of spelling out to investors the risks as well as the rewards of these complex products,’ Mr Medcraft says.

‘ASIC’s number one priority is ensuring investors and financial consumers are confident and informed. We want issuers to work harder to ensure people investing in CFDs better understand what they are getting into – before they start trading.’

Regulatory Guide 227 Over-the-counter contracts for difference: Improving disclosure for retail investors (RG 227) outlines seven benchmarks which aim to help investors understand the risks and benefits of OTC CFDs. Issuers must address these benchmarks in product disclosure statements (PDSs) from 31 March 2012.

The seven benchmarks (see ‘Background’ for further details) mean issuers will need to address each issue in their PDSs on an ‘if not, why not’ basis. The benchmarks are:

·          client qualification

·          opening collateral

·          counterparty risk - hedging

·          counterparty risk - financial resources

·          client money

·          suspended or halted underlying assets

·          margin calls.

RG 227 also outlines the standards ASIC expects issuers to meet when advertising OTC CFDs to retail investors.

ASIC has previously released an investor guide—Thinking of trading contracts for difference (CFDs)? to help investors understand the benchmarking information in disclosure documents. This guide has general information about CFD operation and risks and indicates what investors should look for when reading PDSs. This will be updated to explain the benchmarks when they become effective from 31 March 2012.

Details on ASIC’s consultation and industry responses are summarised in Report 246 Response to submissions on CP 146 OTC CFDs: Improving disclosure for retail investors (REP 246).


CFDs are leveraged derivative products that let investors take a position on the change in the market price of an underlying asset, such as a share or commodity, or the value of an index or a currency exchange rate.

There are currently around 39,000 active CFD investors in Australia. (Investment Trends, 2010 Australia CFD Report, May 2010). The CFD market has seen growth of over 300% in the last five years, and it is reasonable to infer that this growth will continue. (By comparison with the figure of 9000 CFD traders in Australia reported in Investment Trends, 2005 Contracts for Difference Report: Understanding current and next wave CFD traders, September 2005.)

ASIC benchmarks for OTC CFDs issued to retail investors

1 Client qualification

Benchmark 1 addresses the issuer’s policy on investors’ qualification for CFD trading.

2 Opening collateral

Benchmark 2 addresses the issuer’s policy on the types of assets accepted from investors as opening collateral.

3 Counterparty risk—Hedging

Benchmark 3 addresses the issuer’s practices in hedging its risk from client positions and the quality of this hedging.

4 Counterparty risk—Financial resources

Benchmark 4 addresses whether the issuer holds sufficient liquid funds to withstand significant adverse market movements.

5 Client money

Benchmark 5 addresses the issuer’s policy on its use of client money.

6 Suspended or halted underlying assets

Benchmark 6 addresses the issuer’s practices in relation to investor trading when trading in the underlying asset is suspended or halted.

7 Margin calls

Benchmark 7 addresses the issuer’s practices in the event of client accounts entering into margin call.

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ASIC focuses on training for home loan credit assistance

by Martha.Ware 8. August 2011 08:54

ASIC has today released proposals for modifying the training requirements for credit representatives who provide credit assistance to consumers on home loans.

The proposals address some recent industry concern about the training requirements. ASIC believes the proposals strike an appropriate balance between the interests of confident and informed financial consumers and the regulatory obligations of market participants.

‘Home loans are the largest loan most consumers will take on, and poorly informed assistance leading to poor decisions about mortgages could potentially jeopardise ownership of the family home,’ ASIC commissioner, Peter Boxall, said.

‘The proposals aim to reduce licensees’ compliance burden, while still ensuring a high standard of training for those who do play a significant role in such decisions.’

Consultation Paper 165 Credit assistance for home loans: Competence and training requirements outlines proposed modifications of the training requirements for credit representatives who provide mortgage broking services, as currently set out in Regulatory Guide 206 Credit licensing: Competence and training.

As the definition of ‘mortgage broking services’ used in RG 206 is broad, in practice it may capture a wide range of representatives, some of whom may have no involvement in or influence over consumers’ decision making on the amount, type or source of a loan. There is concern that training a significant number of such representatives to the Certificate IV level might represent a compliance burden for some parts of industry, which could outweigh the regulatory benefit of this requirement.

CP 165 proposes two possible modifications to RG 206:

  • refining the definition of ‘mortgage broking’ in RG 206, so that it is limited to providing credit assistance in the form of ‘suggesting’, where credit is secured by real property; and/or
  • allowing those falling within the definition of mortgage broking who provide services on behalf of a particular credit provider to undertake a proportion of the Certificate IV in Finance and Mortgage Broking.

Depending on the feedback received, ASIC proposes to implement one or both of these approaches.

‘Our proposed changes to the training requirements should enable representatives of credit providers who are providing mortgage broking services to focus on units of training most relevant to their roles,’ Dr Boxall said.

While ASIC understands that credit licensees would like certainty on this issue as soon as possible, ASIC reminds industry that it has provided a transition period for representatives who provide mortgage broking services, giving them until 30 June 2014 to obtain a Certificate IV in Finance and Mortgage Broking. ASIC is confident that this will provide an adequate period of time for all affected credit licensees to ensure that their representatives meet the requirements of RG 206.

Submissions to CP 165 close on Friday, 16 September 2011.


RG 206 sets out ASIC’s minimum expectations on how credit licensees must maintain organisational competence and ensure that their representatives are adequately trained.

Generally, ASIC has provided licensees with discretion to determine the appropriate level of training for their representatives. However, ASIC has set a minimum standard for representatives who provide ‘mortgage broking services’. RG 206 defines ‘mortgage broking services’ as ‘credit assistance in relation to a credit product where the credit is secured by real property’. This captures both those working in intermediary firms (often referred to as mortgage brokers), as well as those who work within or for credit providers. All those who provide such mortgage broking services need to have at least a Certificate IV in Finance and Mortgage Broking.

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ASIC consults on how to scale advice

by Martha.Ware 1. August 2011 08:42

ASIC has released a consultation paper proposing new guidance for people who give advice to retail clients.

This builds on ASIC Regulatory Guide 200 Access to advice for super fund members (RG 200) and ASIC’s Report 224 Access to Financial Advice in Australia (REP 224) in December 2010. This report found that one third of Australians now prefer piece-by-piece advice rather than holistic or comprehensive advice.

It also follows the update announcement by the Assistant Treasurer and Minister for Financial Services and Superannuation, Minister Bill Shorten, in April 2011 on the Future of Financial Advice reforms.

ASIC Chairman Greg Medcraft said: ‘Many Australians would like more information and advice before making a decision in relation to a financial product. This will help them to be confident and informed investors. The proposals outlined in ASIC’s consultation paper aim to improve access to advice and give guidance about how simple, piece-by-piece advice can be provided by anybody in the advice industry.’

ASIC’s Consultation Paper 164 Additional guidance on how to scale advice gives guidance about how to scale financial product advice to retail clients, and includes eight examples of giving information and advice to clients about:

  • car insurance
  • purchasing shares
  • investing an inheritance
  • adopting a transition to retirement strategy
  • superannuation pension products
  • nominating a beneficiary for superannuation savings
  • superannuation and Centrelink; and
  • retirement planning issues.

CP 164 also describes the differences between factual information, general advice and personal advice.

This is the first phase of consultation on how to scale advice. Based on feedback to this consultation paper, ASIC will produce further examples of factual information, general advice and scaled personal advice on other topics in phase two.

Submissions to CP 164 close on Thursday, 8 September 2011.

Click here to view the consultation paper.


Section 945A of the Corporations Act 2001 contains a ‘suitability rule’. To give suitable advice, as an AFS licensee or an authorised representative you must:

  • know your client - determine the relevant personal circumstances in relation to giving the advice and make reasonable inquiries about those personal circumstances
  • know your product - having regard to information you obtain from the client about their personal circumstances, consider and conduct investigation of the subject matter of the advice as is reasonable in all of the circumstances; and
  • ensure your advice is appropriate to the client, having regard to your consideration and investigation of the subject matter of the advice (s 945A(1)).

The new guidance in CP 164 explains how you can scale advice in a way that complies with s 945A.

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ASIC proposals to improve unlisted property schemes disclosure

by Martha.Ware 12. July 2011 11:26

ASIC today released a consultation paper outlining proposals to improve disclosure for retail investors considering investing in unlisted property schemes.

The proposals follow an ASIC review of disclosure documents issued by responsible entities in the $28 billion unlisted retail property sector.

ASIC found a number of key disclosures were not adequately addressed, including:

  • the risks associated with the borrowing maturity profile and the extent of hedging;
  • details about property development activities (primarily timetables and funding);
  • the basis of valuations and the risks associated with ‘as if complete’ valuations;
  • reasons for distributions being made from sources other than income and the sustainability of these distributions over the next 12 months; and
  • withdrawal rights and the risks associated with withdrawal arrangements promoted to investors.

ASIC Chairman Greg Medcraft said: ‘One of our business priorities focuses on promoting confident and informed investors and financial consumers.

‘These proposals are aimed at improving the level, comparability and consistency of disclosure provided to retail investors by extending our ‘if not, why not’ benchmark disclosure model to unlisted property schemes.’

The six benchmarks address key issues including:

  • gearing policy
  • interest cover policy
  • interest capitalisation
  • valuation policy
  • related party transactions
  • distribution practices

The proposals also clarify the eight disclosure principles in Section C of RG 46 and provide further guidance on how responsible entities should apply the principles.

‘Our experience indicates that investors need better quality and relevant disclosure, presented in a way best suited to investor understanding,’ Mr Medcraft said.

‘PDSs must be worded and presented in a clear, concise and effective manner to help retail investors assess an offer and make informed investment decisions.’

1 July 2012 is proposed as the start date for responsible entities to disclose against the benchmarks and amended disclosure principles.

Comments on Consultation Paper 163 Unlisted property schemes: Update to RG 46 (CP 163) are due by 6 September 2011. To view the paper, please
click here.

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ASIC seeks comment on case-specific variations to proposed relief from indirect self-acquisition provisions

by Martha.Ware 22. June 2011 09:17

ASIC has issued a consultation paper, CP 162 Indirect self-acquisition by investment funds: Further consultation—Employee share schemes (CP 162) seeking additional public comment on a proposal to vary relief that permits certain indirect self-acquisitions. The variation is aimed at facilitating the operation of specific types of employee share schemes.

Under s 259C of the Corporations Act 2001, the issue or transfer of shares or units of shares of a company to an entity it controls (indirect self-acquisition) is void unless certain exceptions apply.

ASIC’s Consultation Paper 1 Indirect self acquisition by investment funds (CP 1) and Consultation Paper 137 Indirect self-acquisition by investment funds: Further consultation (CP 137) sought feedback on the circumstances in which relief from s 259C should be given. Based on the policy proposed in CP 1, ASIC has provided case-by-case relief.

Employee shares schemes and s 259C relief

Since the release of CP 137, ASIC has become aware that some entities operating employee share schemes are having difficulty complying with one of the standard conditions of s 259C relief.

This condition says that the company and its controlled entities must not acquire the power to control voting or disposal in more than five per cent of the company’s voting shares in aggregate (the 5% limit).

ASIC understands that some institutions may not be able to comply with the 5% limit because of interests acquired by the company or its controlled entities for the purpose of employee share schemes. As a result, we are consulting on whether it is appropriate to increase the 5% limit in the case of employee share schemes, and if so, the conditions that should be imposed.

ASIC is also seeking feedback on whether there is any need to impose a condition that limits the amount of the company’s shares held by a controlled trustee or responsible entity to a certain percentage of the trust or scheme’s assets.

Other issues concerning s 259C relief

ASIC is also consulting on two other conditions we have imposed in standard s 259C relief:

  • whether the parent company’s interests or just the controlled entities’ interests should be included in the calculation of the 5% limit; and
  • how companies should report economic interests acquired through derivatives.

Feedback sought

The consultation paper seeks the views of companies, investment banks, investment funds, insurance companies and their representative organisations.

Submissions on the issues in the consultation paper close 14 July 2011.

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New guidance proposed for takeover acquisitions approved by members

by Martha.Ware 30. May 2011 08:24

ASIC is inviting industry feedback on proposed updates to its guidance relating to a key aspect of Australia’s takeover regulation.

Consultation Paper 159 Acquisitions approved by members: update to RG 74 details ASIC’s plans to update guidance on the takeovers exception for acquisitions approved by members set out in item 7 of s 611 of the Corporations Act 2001. This exception allows a person to acquire more than 20 per cent of an entity on the condition members are provided with sufficient disclosure and approve the acquisition.

ASIC’s policy on ‘member approved acquisitions’ is currently set out in Regulatory Guide 74 Acquisitions agreed to by shareholders.
The proposed update of this guide emphasises that members need to be fully informed when deciding whether to give approval to acquisitions.

ASIC is also proposing to update RG 74 to take into account the significant developments to the law since the guide’s initial publication in 1994. These developments include more specific disclosure requirements and an extension of the regime to listed managed investment schemes. Importantly, there is significant new guidance about the circumstances in which ASIC will provide relief for ‘trust schemes’- complex transactions used to acquire control of a managed investment scheme.

ASIC’s updated guide will provide entities and their advisers with our current views on how the exception in item 7 applies, how we monitor compliance with item 7’s requirements and our policy on granting relief in relation to those requirements.

ASIC is seeking comments on the proposed update to RG 74 by 1 August 2011 and plans to publish a final guide by the end of the year.

The consultation paper is available on ASIC's website.

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ASIC | Takeovers and Reconstructions

ASIC consults on market integrity rules for the FEX market

by Martha.Ware 16. May 2011 08:11
ASIC has released a consultation paper proposing new market integrity rules which will apply should Financial and Energy Exchange Limited (FEX) be granted an Australian market licence.

This follows the release of Consultation Paper 149 Application for an Australian market licence: Financial and Energy Exchange Limited in March 2011. This paper outlined the nature of the proposed FEX market and sought feedback on FEX’s application for a licence to operate an exchange market for energy, commodity and environmental derivatives.

The proposed market integrity rules for FEX, contained in Consultation Paper 157 Proposed ASIC market integrity rules: FEX market (CP 157), are substantially similar to the current ASIC Market Integrity Rules (ASX 24 Market) 2010, adopted from the long standing Australian Securities Exchange operating rules.

Consultation on these rules will help ASIC to advise Minister for Financial Services and Superannuation on the final market integrity rules for the FEX market, should it be determined that a licence be granted.

ASIC is seeking feedback on the market integrity rules proposals in CP 157 by 9 June 2011.

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ASIC opens consultation on minor modifications to ASX guidance

by Hilary Kincaid 30. March 2011 14:16

CP 152 ASIC’s conversion of ASX and SFE guidance: General operational obligations seeks feedback on proposed modification to five ASX guidance notes and one SFE guidance note.


It is the next step in the review identified in Table 1 of RG 214 Guidance on ASIC market integrity rules for ASX and ASX 24 markets.


Comment is open until 13 May 2011. More information is available on the ASIC site.

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New consultation paper on debt securities

by Hilary Kincaid 30. March 2011 14:16

CP 151 Debt securities: modifying the naming provisions and advertising requirements sets out proposals to:

  • introduce class order relief to provide for a new class of debt security (in addition to the current classes of ‘debenture’, ‘mortgage debenture’ and ‘unsecured note’) called a ‘note’, providing certain conditions (including sufficiency of security) are met; and
  • revise ASIC’s advertising standards for offers of debt securities and interests in mortgage schemes, in particular the standards relating to risk of loss and comparing these types of securities with bank deposits.


Comment is open until 6 May 2011. More information is available on the ASIC site.

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ASIC | Disclosure

New consultation paper on disclosure for hedge fund investors

by Hilary Kincaid 24. February 2011 15:17

ASIC released CP 147 Hedge funds: Improving disclosure for retail investors today. As ASIC points out, the complexity of hedge funds means that investors need a better understanding of how things work than with other retail funds; before they can make an informed decision regarding investment, asset valuation and leveraging (see the FIDO site for more detail). In particular, ASIC is seeking feedback on the interaction of proposed disclosure guidance with tailored PDS requirements for simple managed investment schemes.


More information is available on the ASIC site.


Comments on the paper are due by 21 April 2011.

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