Australia targets crypto derivatives after A$458 million losses

Australia’s Securities and Investments Commission proposed extending retail leverage restrictions to qualifying derivatives settled through digital assets on Oct. 12. The proposal follows ASIC’s finding that 68% of retail CFD clients lost more than A$458 million in the 2023–24 financial year, including A$73 million in fees.

The losses covered CFDs across asset classes, rather than cryptocurrency derivatives alone. ASIC said similar derivatives can face different rules depending on how they are settled. Its proposal would cover qualifying contracts settled through digital-asset transfers, whether they track cryptocurrencies, shares, interest rates, currencies or market indexes.

Affected brokers and trading platforms could have to follow limits on leverage, standard margin close-out procedures, protection against losses exceeding a customer’s account balance and restrictions on promotional incentives. Some fixed-expiry crypto futures and options would remain outside the proposed framework.

Current rules limit retail leverage for cryptocurrency CFDs to 2:1. This requires traders to provide at least half of a position’s value as initial margin. Limits for other CFDs range from 5:1 for shares to 30:1 for major currency pairs. The proposed rules would set restrictions according to a contract’s underlying exposure and structure, rather than applying the 2:1 crypto limit to every digitally settled derivative.

ASIC Commissioner Alan Kirkland described the existing restrictions as effective in reducing harm from excessive leverage. During the first six months after the protections began in March 2021, quarterly retail CFD losses fell 91%, from A$372 million to A$33 million. Quarterly margin close-outs fell 87% over the same period, although later reviews found that most retail CFD investors continued to lose money.

ASIC also proposed clarifying how brokers calculate initial margin. An investigation found that some firms offset customers’ opposing positions when calculating collateral requirements. Under the proposed rule, firms would calculate the minimum margin for each CFD separately. ASIC said its intervention on margin-netting practices led 28 issuers to refund more than A$36 million to retail customers.

The regulator found that 85% of retail clients trading CFDs linked to options lost money in 2023–24. It is seeking information about contracts that can expose traders to losses exceeding the option premium, including products with potentially unlimited downside. ASIC has not decided whether those contracts should face additional restrictions or be banned for retail investors.

The proposals would impose tighter conditions on promotional discounts. Permitted offers would have to be available on substantially equal terms to retail customers and displayed prominently on brokers’ websites and trading platforms. Firms would need to keep records of qualifying discounts for seven years after the offers ended. Educational and research tools could not be used to encourage prohibited trading activity.

ASIC is seeking to extend its CFD protections until 2037, subject to government approval. The current intervention order expires on May 23, 2027. ASIC said a 10-year extension would provide regulatory certainty while allowing it to revoke the rules earlier.

The proposals remain under consultation. ASIC is accepting submissions from brokers, trading platforms and consumer groups until Nov. 9. It is seeking information about covered products, compliance costs and possible transition periods.