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CFDs are highly-leveraged derivative products that are marketed to, and traded by, retail investors. CFDs 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. The majority of CFDs in Australia are issued and traded as over-the-counter products (OTC).
Consultation Paper 146 Over-the-counter contracts for difference: Improving disclosure for retail investors (CP 146
), which includes a draft regulatory guide (RG), proposes an ASIC benchmark-based disclosure model for OTC CFDs. Product disclosure statements (PDSs) and ongoing disclosures would be required to address the benchmarks on an ‘if not, why not’ basis. Further, ASIC’s proposed guidance provides an indication of the standards ASIC would expect an issuer to meet when advertising OTC CFDs to retail investors.
The benchmarks are aimed at issuers of CFDs and focus on:
- ensuring client suitability
- disclosing counterparty-risk
- stewardship of client monies
- practices where issuers make margin calls on clients.
ASIC Commissioner Greg Medcraft said: ‘Our research shows investors do not necessarily understand the risks of trading CFDs. This is due to the complexity of CFDs as a retail product. However, another factor is the lack of clarity in current disclosure documents, which can be hard to understand and which do not necessarily highlight key information for investors.’
‘Most investors in CFDs do not get independent financial advice; they rely only on information provided by CFD issuers. As such, it is crucial this information has everything retail investors need to make an informed decision, including spelling out the very significant risks of CFD investment.’
CP 146 can be found on the ASIC website at www.asic.gov.au/cp.
Submissions in response to the consultation paper must be provided to ASIC by 21 December 2010. ASIC will consider the final form of its regulatory guidance in light of the response to the consultation.
Earlier this year, ASIC released the results of a health check study into the Australian CFD market. Report 205 Contracts for Difference and Retail Investors (REP 205
) found many retail investors are confused about how CFDs work, and that retail investors do not understand the significant risks in trading CFDs. 
