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Thursday 26 May 2022

22-118MR ASIC proposes extending its binary options product intervention order

ASIC has today released Consultation Paper 362 Extension of the binary options product intervention order (CP 362), seeking feedback on a proposal to extend its product intervention order banning the issue and distribution of binary options to retail clients, until it is revoked or sunsets on 1 October 2031.

ASIC banned the sale of binary options to retail clients, with effect from 3 May 2021, after finding that binary options had resulted in and were likely to result in significant detriment to retail clients. The product intervention order will expire on 7 October 2022 unless it is extended with the approval of the Minister.

CP 362 highlights ASIC’s analysis of the impact of the product intervention order and its view that the ban has been effective in reducing the risk of significant detriment to retail clients resulting from binary options.

In the 13 months before the ban:

  • between 74% and 77% of active retail clients lost money trading binary options;
  • loss-making retail client accounts made net losses totalling $15.7 million compared with $1.7 million total net profits of profit-making retail client accounts.

As expected, retail clients have not made any losses (or profits) from trading binary options with licensed issuers since the product intervention order took effect. By comparison, 68% of wholesale clients lost money trading binary options in that period as the product intervention order does not apply to them.

ASIC will continue to monitor for scams and prohibited offers of binary options in this jurisdiction and take disruptive action as appropriate.

ASIC welcomes feedback on CP 362 by 20 June 2022.

Background

Binary options are over-the-counter derivatives that allow clients to speculate on the occurrence or non-occurrence of a specified event in a defined timeframe. This can include an event related to movements in the price of a financial product, a market index or an economic event (such as central bank interest rate decisions).

Regulatory Guide 272 Product intervention power provides an overview of ASIC’s product intervention power, when and how ASIC may exercise the power, and how a product intervention order is made.

In addition to the product intervention order, ASIC’s actions to address concerns about binary options have included:

  • enforcement action to address misconduct
  • public warning notices and other statements
  • surveillance projects and thematic reviews
  • stronger regulations
  • extensive retail client education campaigns and guidance for binary option issuers.

More information about ASIC’s supervision and enforcement work is available on our website. ASIC’s Moneysmart website has further information about forex trading and CFDs.

Last updated: 26/05/2022 11:01