Australia moves to close crypto derivatives loophole after retail traders lose A$458 million

Australia's markets regulator proposed extending retail leverage restrictions to crypto-settled derivatives amid mounting losses among investors trading risky financial products.

On Oct. 12, the Australian Securities and Investments Commission (ASIC) announced it wants to expand its existing contracts-for-difference (CFD) rules to cover qualifying derivatives settled through digital assets, closing a regulatory gap that lets economically similar products face different restrictions.

The proposal follows ASIC's finding that 68% of retail CFD clients lost money during the 2023--24 financial year, with combined losses exceeding A$458 million ($325 million), including A$73 million in fees. The figures cover CFD trading across asset classes, rather than cryptocurrency derivatives alone.

The Australian regulator is also seeking to extend its existing investor protections for another decade, keeping them in force until 2037, subject to government approval.

Australia targets leveraged crypto products and margin practices

Under ASIC's existing framework, CFDs are generally covered when transactions are settled in cash or through offsetting obligations between counterparties.

However, some derivatives with similar characteristics can settle through transfers of digital assets, potentially placing them outside the current product intervention order.

ASIC wants to eliminate that distinction by extending the definition to qualifying digitally settled contracts, regardless of whether their underlying exposure is linked to cryptocurrencies, traditional assets, interest rates or market indices.

The change could force affected brokers and derivatives platforms to comply with existing leverage restrictions, standardized margin close-out arrangements, negative balance protections and limits on promotional incentives.

For CFDs referencing cryptocurrencies, the current maximum retail leverage is 2:1, meaning investors must provide at least half the value of their positions as initial margin.

Other contracts face different limits depending on the underlying asset, ranging from 5:1 for shares to 30:1 for major currency pairs.

The proposed expansion would therefore depend on a derivative's underlying exposure and contractual structure, rather than automatically imposing the cryptocurrency leverage cap on every product settled using digital assets.

Some fixed-expiry crypto futures and options would remain outside the framework.

ASIC Commissioner Alan Kirkland said existing restrictions had materially reduced investor harm, particularly by limiting excessive leverage.

During the first six months after the protections took effect in March 2021, aggregate quarterly retail losses declined 91%, from A$372 million to A$33 million.

The regulator also recorded an 87% reduction in quarterly margin close-outs, although subsequent reviews showed that most retail CFD investors continued losing money.

ASIC's latest proposal would tighten how brokers calculate initial margin, following a sector-wide investigation that identified firms offsetting customers' opposing trading positions to reduce collateral requirements.

Under the proposed clarification, brokers must calculate the minimum margin separately for each CFD, preventing them from using one position to reduce the initial collateral required for another.

The regulator said its intervention over margin-netting practices led 28 issuers to refund more than A$36 million to affected retail customers.

Additional changes target CFDs linked to options, where investor losses have been particularly severe.

ASIC found that 85% of retail clients trading CFDs over options lost money during 2023--24, prompting proposals to clarify margin requirements and examine whether some products should remain available to ordinary investors.

The regulator is specifically seeking evidence on contracts that could expose traders to losses exceeding the options premium, including structures with potentially unlimited downside exposure.

It has yet to decide whether those products should face further restrictions or an outright prohibition.

Australia's ASIC also wants tighter conditions for promotional discounts, requiring permitted offers to be available on substantially equal terms to retail customers and prominently displayed on brokers' websites and trading platforms.

The proposals would require firms to retain records of qualifying discounts for seven years after the offers end, while ensuring educational and research tools are not used to encourage prohibited trading activity.

The existing CFD intervention order expires on May 23, 2027. ASIC argues that a further 10-year extension would give firms greater regulatory certainty while preserving the regulator's ability to revoke the restrictions earlier.

However, the amendments remain under consultation, and industry feedback could change their final scope.

ASIC is seeking submissions from brokers, trading platforms and consumer groups by Nov. 9, including information about which digitally settled products would be affected, expected compliance costs and whether firms would need a transition period.

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