ASIC is preparing to take charge of market supervision from the ASX within a few months, bolstering the corporate regulator’s power when it comes to scrutinising trading and monitoring stockbrokers. The ASIC deputy chairman, Belinda Gibson, said the regulator was planning to issue a discussion paper within two months warning about the high-risk instruments.

The $350 million CFD market grew by almost 25 per cent last year, but many investors might not understand the risks they are taking, Ms Gibson said, after speaking at a Stockbrokers Association of Australia Conference yesterday. CFDs allow investors to bet on movements in the prices of assets such as shares, currencies or commodities, and require only a small amount of up-front capital.

They were developed for sophisticated players, but have become popular with retail investors. ”We do have a concern whether a lot of people in the CFD market do understand this is a leveraged play into equities and they really understand counterparty risk with CFD providers,” Ms Gibson said.

Separately, ASIC revealed in taking charge of supervision it will be able to contact clients of stockbrokers directly if it believes suspect trading has taken place. Under the present rules, the ASX is limited only to investigating brokers and then refers the matter to the corporate regulator. The new arrangement will allow ASIC to move quicker to question investors if it suspects matters ranging from insider trading to front running of shares have occurred.

ASIC Keeping An Eye On CFD Growth – SMH

ASIC Keeping An Eye On CFD Growth – The Age

ASIC Keeping An Eye On CFD Growth – Australian

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The market for contracts for difference, or CFDs – grew by almost 25 per cent last year, but many investors may not understand the risks they are taking, according to the Australian Securities and Investments Commission. CFDs allow investors to bet on movements in the prices of assets such as shares, currencies or commodities and require only a small amount of up-front capital. An ASIC commissioner, Greg Medcraft, said the unlisted or ”over the counter” market for CFDs was of particular concern because of its low transparency, and this sector was now worth $350 million.

Mr Medcraft said some of the 35,000 investors in the market might falsely believe they own the underlying security, but the products were only a bet on price movements. In some instances, potential losses from CFDs were unlimited, he told a parliamentary committee.
”It’s a market that’s growing rapidly,” he said in Sydney. ”I think it’s very clearly a market to watch. I don’t think we’ve seen any horror stories emanating from that market, but I think we need to be careful.”

Filed under: CFD News by LearnCFDs.com
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