MIU - Issue 131 - October 2021

Consulting on renewal of product intervention orders for retail OTC derivatives

We’ve released Consultation Paper 348 Extension of the CFD product intervention order (CP 348), seeking feedback on a proposal to extend our product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients until it is revoked or sunsets on 1 April 2031.

The product intervention order will expire on 23 May 2022 unless it is extended with the approval of the Minister.

Since 29 March 2021, our product intervention order has strengthened protections for retail clients by reducing CFD leverage, standardising margin close-out arrangements, protecting against negative account balances and prohibiting CFD providers from giving certain inducements to retail clients.

During the product intervention order’s first three months of operation, we observed significant improvements in key metrics and indicators of retail client detriment from CFD trading, including:

  • Reduced retail client losses:
    • retail clients made net losses of $22 million from CFD trading – a reduction to 94% of the quarterly average of $372 million in the year before the product intervention order
    • there were 45% fewer loss-making retail client accounts compared with the quarterly average in the previous year, whereas the number of profit-making retail client accounts reduced by only 4% across the same period
    • aggregate and average losses made by loss-making retail client accounts also decreased.
  • The proportion of profit-making and loss-making retail client accounts was evenly split at 50%, compared with a quarterly average of 36% profit making accounts and 64% loss-making accounts in the previous year.
  • Margin close-outs – where a retail client’s CFD position(s) are closed before all or most of the client’s investment is lost – decreased by 85%.
  • Negative balance instances reduced tenfold for retail clients.

By contrast, the proportion of profit-making and loss-making wholesale client accounts in the period remained relatively stable at 37% and 63% respectively. The product intervention order does not apply to CFDs issued to wholesale clients.

We’ll continue to monitor and assess the performance of the CFD product intervention order during the consultation period.

We welcome your feedback on CP 348 by 29 November 2021.

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Former dealer and portfolio manager banned for market manipulation

We’ve banned Dylan Christopher Rands from providing financial services for five years after finding he engaged in market manipulation.

Mr Rands was a former dealer and portfolio manager at Regal Funds Management Pty Ltd (Regal). Regal operates managed investment schemes, known as funds. As part of his portfolio-manager role, Mr Rands managed trading in Clearview Wealth Limited (Clearview Wealth) shares, which were held in several Regal funds.

We found Mr Rands engaged in manipulative trading of Clearview Wealth shares and breached the Corporations Act 2001 when:

  • between December 2018 and June 2019, he entered into 112 uncommercial transactions which created, or were likely to create, an artificial price for the shares of Clearview Wealth
  • on 27 March 2018 and 31 May 2019, he created a false or misleading appearance of active trading in Clearview Wealth.

Mr Rands’ pattern of trading involved purchasing Clearview Wealth shares with the effect of increasing or restoring the Clearview Wealth share price shortly following a price fall. Such trading displayed an absence of commerciality, in circumstances where Mr Rands’ objective was to exit the Clearview Wealth position he managed at Regal, which he ultimately sold in June 2019.

We also found Mr Rands:

  • is not adequately trained, or competent, to provide financial services and perform functions as an officer of an entity that carries on a financial services business, and
  • is likely to contravene an Australian financial services law.

Mr Rands has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

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Melbourne man charged with insider trading

Vaughan Garfield Bowen has been charged with two counts of insider trading, relating to his disposal of 5,617,554 shares in Vocus Group Limited (Vocus) on 4 June 2019.

We allege that, at that time, Mr Bowen was in possession of inside information concerning the likely withdrawal of a proposal by EQT Infrastructure IV Fund to acquire all shares in Vocus, prior to this information being announced to the market.

Each charge of insider trading carries a maximum penalty of 15 years’ imprisonment.

The matter has been listed for a committal mention hearing in the Magistrates’ Court of Victoria at Melbourne on 7 December 2021.

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‘Sunsetting’ securities lending and substantial holding disclosure class order remade

We’ve remade ASIC Class Order [CO 11/272] ([CO 11/272]), relating to substantial holding disclosure by persons involved in securities lending, which was due to end on 1 October 2021, and extended the relief to agent lenders.

ASIC Corporations (Securities Lending Arrangements) Instrument 2021/821 (the new instrument), continues to provide relief for lenders and prime brokers involved in securities lending, which was previously provided in [CO 11/272]. The new instrument now extends the relief to agent lenders, consistent with our proposal in Consultation Paper 319 Securities lending by agents and substantial holding disclosure (CP 319).

The purpose of the new instrument is to make substantial holding disclosure by persons involved in securities lending more practical and meaningful to the market. We expect all persons involved in securities lending to comply with the substantial holding disclosure requirements. 

We’ll soon publish a feedback report on submissions received from our recent soft consultation on whether to remake [CO 11/272] and the earlier submissions received in response to CP 319.

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Last updated: 25/01/2023 10:30