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The Australian Securities and Investments Commission (ASIC) has proposed a ban on the sale of binary options to retail clients and to restrict the sale of contracts for difference (CFDs).

In a consultation paper issued today, the regulator said it was concerned that retail investors had suffered, and were likely in the future to suffer, significant detriment from binary options and CFDs.

ASIC said it has issued a consultation paper in which it is proposing to:

ban the issue and distribution of OTC binary options to retail clients; and

impose conditions on the issue and distribution of OTC CFDs to retail clients.

Commenting on the move, ASIC commissioner, Cathie Armour said, “For many years ASIC has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us. However, we are concerned that consumers continue to suffer significant harm from trading these products".

“A complete ban would prevent retail clients from losing money trading binary options,” she said. “We believe binary options provide no meaningful investment or economic use, and have product characteristics similar to gambling products.”

ASIC's proposed restrictions on the offer of CFDs to retail clients include:

imposing leverage limits, which are set out in Section F of CP 322;

implementing a standardised approach to automatic close-outs of client’s CFD positions in margin call;

protecting retail clients against the risk of negative CFD trading account balances;

prohibiting certain trading inducements; and

enhancing transparency of CFD pricing, execution, costs and risks.

The regulator said its proposals are broadly consistent with measures implemented in many overseas markets.