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Improving disclosure for retail investors in contracts for difference

by Hilary Kincaid 18. November 2010 11:57

Yesterday, ASIC released a new consultation paper.

CP 146 Over-the-counter contracts for difference: Improving disclosure for retail investors proposes an ASIC-benchmark-based disclosure model for OTC CFDs.  

Contracts for difference are highly-leveraged derivative products marketed to, and traded by, retail investors. They offer investors a leveraged position on future changes in the market price of a share or a commodity, or on the value of an index, or a currency exchange rate. In Australia, the majority of CFDs are issued and traded as over-the-counter products (OTC).

The new system would require product disclosure statements and ongoing disclosure to address the benchmarks on an ‘if not, why not’ basis. The draft regulatory guide provided with the consultation paper provides some of these benchmarks. They are aimed at issuers of CFDs and relate to:

  • Ensuring client suitability;
  • Disclosing counterparty risk;
  • Stewardship of client monies;  and
  • Practices where issuers make margin calls on clients.

ASIC has issued the proposed guidance following a 'health check' survey conducted earlier in the year: see Report 205 Contracts for Difference and Retail Investors. The report illustrated that many retail investors do not understand the significant risks involvecd in trading CFDs.

Submissions on the consultation paper are open until 21 December 2010. More information is available on the official ASIC site.

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