ASIC is thought to be working to close a loophole in CFD trading in which some CFD issuers keep trading even when the underlying security has stopped trading.
At a Sydney seminar on disclosure practices organised by ASIC recently, enforcement commissioner Belinda Gibson noted that CFD brokers were not obliged to stop trading even after ASX trading in the security had been halted, normally because of some important news.
‘ASX automatically stops CFD trading on its exchange when the main stock goes into a trading halt,’ she said, but there was doubt as to whether other CFD providers always did that.
It is estimated that around 90% of CFD trading in Australia is off-market. Ms Gibson pointed out that currently CFD providers are not required to cease trading during these times.
‘We have had some discussions over time with some of the larger CFD providers and there is some expectation that they would also halt trading but again no binding obligation’.
Ms Gibson noted that it would not amount to insider trading from a CFD provider for it to keep trading even when trading on an underlying instrument has stopped. ‘The fact of a trading halt would be generally available, but whether a CFD client looks and knows that is another thing entirely.’
ASX spokesman Matthew Gibbs said the Australian Securities Exchange would automatically stops its CFDs exchange service when trading in an underlying security is stopped but ASX has no say over CFDs which are mainly traded over-the-counter.
ASIC also set a new rule on Friday which is designed to penalise brokers but not their clients – who trade in CFDs. The new rules stated that ‘market participant may not trade on or off market during a market integrity-related trading halt or suspension’. Meanwhile, a ban on television advertising has also been brought into effect to prevent the products from being marketed to unskilled retail investors.