ASIC set to ban risky derivatives

They are financial products which lose money for most who trade them. Now ASIC is cracking down on binary options and CFDs.

Trading in some retail derivatives has proved costly for investors. Picture: AFP

Australia’s fast-growing retail derivatives sector faces a crackdown by the Australian Securities and Investments Commission, after the regulator found that most clients who trade so-called binary options and contracts for difference (CFD) lose money.

In what may be the first use of its new product intervention powers, ASIC has proposed a complete ban on the sale of binary options to retail clients and restrictions on the sale of CFDs, pending the outcome of a six-week consultation period with stakeholders.

It comes after ASIC found that “retail investors have suffered, and are likely in future to suffer, significant detriment from binary options and CFDs”.

A 2017 review found that 80 per cent of clients who trade binary options lose money and 72 per cent of clients who trade CFDs lose money.

“For many years ASIC has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us,” said ASIC Commissioner Cathie Armour.

“However, we are concerned that consumers continue to suffer significant harm from trading these products. We believe binary options provide no meaningful investment or economic use, and have product characteristics similar to gambling products.”

The Australian market for binary options and CFDs has more than doubled in the past two years with 65 licensees now servicing one million predominantly retail and offshore-based clients.