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Australia to crack down on high-stakes derivatives trading


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 (S$1.9 billion) a year industry follow other regulatory bans in Europe and North America and come after new intervention powers were 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 Plus500, CMC Markets, and Interactive Brokers Group Inc, all of which have a big presence in Australia.

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"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 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 per cent were from binary options and the balance from CFDs. "We estimate that retail client losses from trading binary options were at least A$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. REUTERS