Australia's ASIC proposes extending CFD rules to crypto-settled derivatives
In brief
- ASIC proposed on Oct. 12 extending its CFD rules to qualifying digitally settled derivatives.
- Retail CFD clients lost over A$458 million in 2023–24 across all asset classes, not just crypto.
- Some fixed-expiry crypto futures and options would remain outside the framework.
- ASIC wants the protections extended to 2037, subject to government approval.
What the proposal changes
Under ASIC's existing framework, CFDs are generally covered when they settle in cash or through offsetting obligations between counterparties. That's the gap. Some derivatives with similar characteristics settle through transfers of digital assets, which could place them outside the current product intervention order.
ASIC proposed extending the definition to qualifying digitally settled contracts, whether the underlying exposure is linked to cryptocurrencies, traditional assets, interest rates or market indices. Affected brokers and platforms could then face leverage restrictions, standardized margin close-outs, negative balance protections and limits on promotional incentives.
Retail leverage on CFDs referencing crypto is capped at 2:1 (investors put up at least half a position's value as initial margin), while other limits run from 5:1 for shares to 30:1 for major currency pairs. The crypto cap wouldn't apply automatically to every digitally settled product, though. Limits would depend on each derivative's underlying exposure and contractual structure.
Some fixed-expiry crypto futures and options would stay outside the framework.
The loss numbers
ASIC found that 68% of retail CFD clients lost money in 2023–24, with combined losses above A$458 million ($325 million), including A$73 million in fees. It isn't a crypto-only number.
ASIC Commissioner Alan Kirkland said existing restrictions had materially reduced investor harm, particularly by limiting excessive leverage. According to ASIC, aggregate quarterly retail losses fell 91% (from A$372 million to A$33 million) in the first six months after the protections took effect in March 2021, and quarterly margin close-outs dropped 87%. Later reviews showed most retail CFD investors kept losing money anyway.
Margin netting and options CFDs
The proposal would also tighten how brokers calculate initial margin. A sector-wide investigation found firms offsetting customers' opposing positions to reduce collateral requirements, so brokers would have to calculate minimum margin separately for each CFD. ASIC said its intervention led 28 issuers to refund more than A$36 million to retail customers.
Options CFDs are next. ASIC found 85% of retail clients trading CFDs over options lost money in 2023–24, and it's seeking evidence on contracts that could expose traders to losses beyond the options premium (including structures with potentially unlimited downside).
ASIC also wants to extend its existing protections for another decade, until 2037. That extension still needs government approval.
Frequently asked questions
What loophole is ASIC trying to close?
ASIC's CFD rules generally cover contracts settled in cash or through offsetting obligations. Similar derivatives that settle through transfers of digital assets could fall outside the current product intervention order, so ASIC proposed extending the definition to qualifying digitally settled contracts.
Were the A$458 million in losses from crypto derivatives?
No. ASIC's figure covers retail CFD trading across all asset classes in the 2023–24 financial year. That year 68% of retail CFD clients lost money, and losses included A$73 million in fees.
Would all crypto derivatives fall under the new rules?
No. Under the proposal, limits would depend on a derivative's underlying exposure and contractual structure, and the 2:1 crypto leverage cap wouldn't apply automatically to every digitally settled product. Some fixed-expiry crypto futures and options would remain outside the framework.
