Market Integrity Update - Issue 125 - April 2021
- Binary options banned for retail clients
- CFD product intervention order takes effect
- Forex Capital Trading director and former employees banned from providing financial services
- Benjamin Heath Cooper charged with conspiracy to commit market manipulation
- TBG Diagnostics Limited restricted from relying on reduced-disclosure rules
Binary options banned for retail clients
We’ve made a product intervention order banning the issue and distribution of binary options to retail clients from 3 May 2021.
We found that binary options have resulted in, and are likely to result in, significant detriment to retail clients. Our reviews in 2017 and 2019 indicated that approximately 80% of retail clients lost money trading binary options.
We also found that binary options are likely to result in cumulative losses to retail clients over time because of their product characteristics:
- the ‘all or nothing’ payoff structure, where one of the two possible outcomes for a binary option contract is that the retail client will lose their entire investment amount
- short contract duration (the average contract duration of binary options traded with one provider was less than six minutes)
- negative expected returns (that is, the present value of the expected payoff for a binary option contract is lower than the initial investment).
We estimate that retail clients’ net losses from trading binary options were around $490 million in 2018. The size of the market in Australia has since reduced significantly after we issued a warning in April 2019 against providing unlicensed or unauthorised services to clients located in several foreign jurisdictions. Australian retail clients are estimated to have made net losses of more than $6.7 million in 2019.
Our binary options ban brings Australian requirements into line with prohibitions in force in comparable markets and follows the commencement on 29 March 2021 of our product intervention order imposing conditions on contracts for difference offered to retail clients.
The order will remain in force for 18 months, after which it may be extended or made permanent. Civil and criminal penalties apply to contraventions of the product intervention order.
- Read the media release
CFD product intervention order takes effect
Our product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients took effect on 29 March 2021.
The order strengthens protections for retail clients trading CFDs after we found that CFDs have resulted in, and are likely to result in, significant detriment to retail clients.
Our order reduces CFD leverage available to retail clients and targets CFD product features and sales practices that amplify retail clients’ CFD losses, such as providing inducements to become a client or to trade. It also brings Australian practice into line with protections in force in comparable markets elsewhere.
The maximum CFD leverage available to retail clients will range from 30:1 to 2:1, depending on the underlying asset class. Before now, a retail investor’s CFD exposure could be as much as 500 times their original outlay.
The maximum penalty for a contravention of a product intervention order is five years’ imprisonment for individuals and substantial pecuniary penalties of up to $555 million for corporations.
The order will remain in force for 18 months, after which it may be extended or made permanent.
- Read the media release
Forex Capital Trading director and former employees banned from providing financial services
We’ve banned the sole director and four former employees of retail over-the-counter (OTC) derivative issuer, Forex Capital Trading Pty Ltd (Forex CT), from providing financial services for periods ranging from three to 10 years.
Forex CT chief executive officer, responsible manager and sole director, Shlomo Yoshai, has been banned for 10 years. We found Mr Yoshai’s lack of understanding or regard for compliance was so serious it justified our decision to make such a significant banning period.
Mr Yoshai was found to have been involved in Forex CT’s breaches of the Corporations Act 2001, and its trading floor culture, an environment which former account managers likened to The Wolf of Wall Street. Mr Yoshai filed an application for review of our banning decision with the Administrative Appeals Tribunal on 6 April 2021. No hearing date has yet been set.
We also banned former team leaders Jarrod Popuard for six years and Benjamin Esler for four-and-a-half years. We found they contributed to fostering Forex CT’s high-pressure sales culture and did not comply with financial services laws.
In banning former account managers Huy Minh (Andy) Hoang for five years and Andrew Tran for three years, we found both men were involved in unfair practices, and made misleading representations to their clients.
We also found Mr Hoang gave personal advice to clients while not understanding the nature of the financial products about which he gave advice.
In making the banning orders, we found all five men are not fit and proper persons to provide financial services.
- Read the media release
Benjamin Heath Cooper charged with conspiracy to commit market manipulation
Benjamin Heath Cooper appeared in the Perth Magistrates Court charged with conspiracy with others to manipulate the market for the shares of Quantum Resources Limited (Quantum).
We allege that, on 16 November 2015, Mr Cooper conspired with Avrohom Kimelman and Don Evans to manipulate Quantum’s share price, in contravention of sections 1041A and 1311(1) of the Corporations Act 2001 (Cth) and section 11.5(1) of the Criminal Code (Cth).
Quantum is now known as Nova Minerals Limited.
At the time of the alleged offence, market manipulation carried a maximum penalty of 10 years’ imprisonment. In March 2019, the maximum penalty for this offence was increased to 15 years’ imprisonment.
The matter is being prosecuted by the Commonwealth Director of Public Prosecutions and has been adjourned until 5 May 2021 for mention at the Stirling Gardens Magistrates Court.
TBG Diagnostics Limited restricted from relying on reduced-disclosure rules
We’ve restricted TBG Diagnostics Limited (TDL) from eligibility to use transaction-specific disclosure until 11 March 2022.
The decision means TDL will not be able to rely on the reduced-disclosure rules allowing for a reduced-content prospectus and instead must issue a full prospectus if it wishes to raise funds from investors.
Our decision was based on TDL’s failure to lodge a financial report, directors’ report and auditor’s report for the company’s financial year, which ended 31 December 2019, within three months after the end of that financial year, as required by the Corporations Act 2001.
TDL paid the late lodgement fee and lodged the reports on 12 June 2020.
We consider the ability to use transaction-specific disclosure a privilege, one dependent on compliance with other aspects of the law including a company meeting its financial reporting obligations.
TDL has the right to appeal to the Administrative Appeals Tribunal for a review of our decision.
- Read the media release