ASIC Corporations (Product Intervention Order—Contracts for Difference) Instrument 2020/986

This instrument is a product intervention order made by the Australian Securities and Investments Commission (ASIC) under subsection 1023D(3) of the Corporations Act 2001. ASIC states the factual predicate for making the order is that contracts for difference, as defined in the instrument, are available to retail clients and have resulted in and are likely to result in significant detriment to retail clients. The instrument takes effect on the later of 23 November 2020 and the day after registration, and most operative prohibitions and conditions apply from 29 March 2021 (ss 2, 5(5), 6(4)).

Mechanically, the instrument does three things.

1. It imposes a conditional prohibition on issuing or arranging the issue of CFDs to retail clients unless specified conditions are met. The prohibition applies to CFD issuers, persons arranging issuance, agents acquiring CFDs on behalf of retail clients, and persons arranging retail clients to apply for CFDs (s 5(1)-(4)). The condition is compliance with the detailed terms set out in s 7(2)-(5).

2. It prohibits offering or giving certain inducements to retail clients or prospective retail clients of CFD issuers in the course of business, subject to limited exceptions (s 6(1)-(3)). The prohibited benefits include gifts, discounts, rebates, trading credits or rewards offered as inducements to open a CFD trading account, pay derivative retail client money, transfer derivative retail client property, or acquire a CFD (s 6(2)). Express exceptions are: provision of information, educational or research tools; discounts in costs or fees offered to all retail clients; and benefits given in relation to retail-client actions done before 29 March 2021 (s 6(3)).

3. It specifies the conditions that must govern any CFD issued to a retail client. They include minimum initial margin requirements by asset class (leverage limits), a margin close‑out protection mechanism triggered by net equity falling below a specified aggregate close out protection amount, and negative balance protection limiting the issuer’s recourse to client money and client property associated with the CFD trading account (s 7(2)-(5)). The instrument also requires CFD issuers to notify retail clients who were issued CFDs in the prior 12 months of the terms of the instrument within 10 business days of commencement (s 8).

The instrument is expressly time limited in operation by reference to subsection 1023G(2) of the Corporations Act, namely the order will remain in force for 18 months from commencement unless a court makes an order staying or otherwise affecting its operation (notes after ss 5 and 6). The instrument’s definitional provisions also exclude certain derivatives from the CFD definition, by reference to whether a derivative is able to be traded on a licensed market and whether it is of types that typically terminate on a fixed date (s 4, definition of contract for difference).

All operative obligations take the form of prohibitions unless conditions are complied with. The instrument does not itself set out civil or criminal penalties; rather it imposes obligations and states its authority under the Corporations Act (s 3) and cross‑references other Act provisions such as client money requirements (s 4, s 8 referencing s 981B) and the general conduct obligation (note to s 7(3) citing s 912A(1)(a)).

The instrument defines a CFD as a derivative provided by a person who carries on a business of issuing contracts for difference to others, where the derivative’s value is linked to the change in an underlying between acquisition and termination, the derivative is not able to be traded on a licensed market, the derivative does not typically terminate on a fixed date, the holder has a right to terminate, and settlement on termination is by cash or set‑off (s 4, definition of contract for difference). The definition therefore focuses on over‑the‑counter, cash‑settled, continuous‑term instruments commonly marketed as CFDs.

Key technical concepts introduced or used in obligations are these.

• Initial margin. The amount required to be provided at or before issue. The instrument prescribes minimum initial margins expressed as percentages of the notional value of the CFD, varying by underlying asset class (s 7(2)). These percentages are: 3.33% for major currency pairs; 5% for major stock market indices, minor currency pairs, or gold; 10% for minor stock market indices or commodities other than gold; 50% for cryptoassets; and 20% for other underlyings.

• Net equity. A defined computation for a retail client’s CFD trading account. Net equity includes derivative retail client money held in a client money account for the benefit of the client and in relation to the trading account, other money meeting similar conditions, derivative retail client property, and unrealised profits less unrealised losses for open CFDs connected to the account (s 4, definition of net equity). The definition can produce negative values.

• Aggregate close out protection amount. For open CFDs connected to an account, this is at least 50% of aggregate initial margin required under the initial margin table, or where current margin requirements equal or exceed those initial margins, at least 50% of the aggregate current margin (s 7(4)). This feeds the margin close‑out trigger.

• Margin close out protection. If the net equity falls below the aggregate close out protection amount, the CFD issuer must, as soon as market conditions allow, terminate (close out) one or more specified open CFDs connected to that CFD trading account until net equity is restored to at least the required aggregate close out protection amount, or until specified CFDs are terminated (s 7(3)). The issuer must act efficiently, honestly and fairly (note citing s 912A(1)(a)). The instrument permits issuers to specify CFDs issued before 29 March 2021 as subject to termination under the rule, but only if doing so is consistent with the terms of those older CFDs (s 7(3), note 2).

The instrument’s obligations and prohibitions target a set of market participants and retail customers. The primary affected parties are:

• CFD issuers. Defined as persons who carry on a business of issuing contracts for difference to holders (s 4). CFD issuers who are bodies corporate incorporated or carrying on business in Australia, or Australian citizens, or ordinarily resident in Australia, are directly captured by the conditional prohibition in s 5(6)(a). The prohibition also applies to issuers regardless of those tests if the issue of the CFD occurs in Australia or an offer to issue or to apply for issue is received in Australia (s 5(6)(b)). In practice, Australia‑based issuers and any issuer offering CFDs into Australia are targeted.

• Persons arranging issuance. A person who carries on a business of arranging for the issue of CFDs must not arrange issuance to retail clients except in accordance with the s 7 conditions (s 5(2)). That includes introducers, brokers and other intermediaries arranging issuance.

• Agents acquiring CFDs on behalf of retail clients. Agents acting to apply for or acquire CFDs on behalf of retail clients are similarly bound to comply with s 7 conditions when acting (s 5(3)).

• Persons arranging retail clients to apply for or acquire CFDs. Service providers who arrange retail clients to apply for or acquire CFDs are bound by s 5(4) and the same geographic/residence application tests in s 5(9).

• Retail clients and prospective retail clients. The instrument focuses on retail clients as understood in the Corporations Act regime. It prohibits issuing to retail clients except where the CFD meets the s 7 conditions, prohibits providing prohibited benefits to retail or prospective retail clients (s 6(1)), and imposes a notification obligation to retail clients who were issued CFDs in the prior 12 months (s 8). The instrument does not define retail client within itself but relies on the Act’s definitions (s 4 note).

• Existing clients. CFD issuers who issued CFDs to retail clients in the 12 months prior to commencement, in circumstances that would have been covered by the conditional prohibition, must take reasonable steps to notify those retail clients of the instrument’s terms within 10 business days after commencement (s 8). That creates an administrative compliance burden affecting existing account holders and issuers.

• Providers of inducements. Entities offering promotions, gifts, rebates, trading credits or rewards as inducements to open accounts or acquire CFDs in relation to covered issuance are constrained by s 6. Marketing agents and affiliates will therefore be affected in their incentives and compensation arrangements.

The instrument imposes specified duties on CFD issuers, arrangers, agents and those who in the course of business give inducements. It also creates rights for retail clients, specifically protections that limit issuer recourse and require certain operational behaviours. Below are the principal duties and the rights they produce.

Duties of CFD issuers and market participants

• Conditional prohibition to issue unless conditions met. A CFD issuer must not issue a CFD to a retail client except in accordance with the conditions in s 7(2) to (5) (s 5(1)). Arrangers, agents, and those who arrange retail clients likewise must not arrange or apply for CFDs for retail clients unless the conditions are satisfied (s 5(2)-(4)). These are negative duties that require compliance with the substantive conditions in s 7.

• Adhere to minimum initial margin requirements. The terms of any CFD issued to a retail client must require the retail client to provide an initial margin at or above the specified percentage of notional, varying by underlying (s 7(2)). This is a term‑level duty: the contractual terms must include these minima.

• Implement margin close out protection. If net equity falls below the aggregate close out protection amount, the CFD issuer must, as soon as market conditions allow, terminate one or more specified open CFDs connected to the account until net equity is restored or listed CFDs are all terminated (s 7(3)). The issuer must operate this mechanism efficiently, honestly and fairly consistent with s 912A(1)(a) of the Act (note to s 7(3)).

• Provide negative balance protection. The terms must limit the CFD issuer’s recourse for a retail client liability to derivative retail client money and derivative retail client property held for the benefit of the client and in relation to the CFD trading account, and to certain other monies held that were paid into the client money account by the CFD issuer in relation to a dealing by the client (s 7(5)). This is a contractual limitation of remedies in favour of the retail client.

• Disclose and notify. A CFD issuer who issued a CFD to a retail client in the 12 months before commencement in circumstances that would be covered by s 5(1) must take reasonable steps to notify each such retail client of the instrument’s terms as soon as practicable and within 10 business days after commencement (s 8). This is a compliance duty to existing clients.

The instrument does not itself set out specific civil or criminal penalties within its text. It imposes prohibitions and conditions under the Corporations Act authority, and enforcement will occur within the Act’s statutory enforcement framework.

Statutory authority and time limits

• The instrument is made under subsection 1023D(3) of the Corporations Act 2001 (s 3). The instrument’s notes refer to subsection 1023G(2) indicating that, subject to a court order staying it, the orders in sections 5 and 6 will remain in force for 18 months from commencement (notes after ss 5 and 6). The instrument also notes that its application is subject to the limits in section 1023C of the Act (notes after ss 5 and 6). These cross‑references indicate the instrument operates under the Act’s product intervention regime.

Enforcement mechanisms implicit in the statutory context

• The instrument itself is a legislative instrument imposing obligations that, if breached, would be actionable under the Corporations Act enforcement powers. The Act contains civil and criminal penalty regimes, infringement notices, and civil remedies for contraventions of its provisions; the instrument sits inside that legal framework by setting prohibitions and conditions. The instrument’s text does not restate these enforcement tools, but it explicitly relies on the Act as its authority (s 3) and warns that the orders remain in force for a fixed period unless stayed by a court (notes after ss 5 and 6).

• The instrument also invokes existing conduct obligations by reference. For example, the margin close‑out provision includes a note that the CFD issuer must act efficiently, honestly and fairly when terminating CFDs, citing paragraph 912A(1)(a) of the Act (note to s 7(3)). That cross‑reference aligns the close‑out duty with a general obligation that is enforceable under the Act.

Court intervention

• The instrument’s notes expressly allow for court orders staying or otherwise affecting operation of the orders. The instrument will remain in force for 18 months from commencement subject to such court orders (notes after ss 5 and 6 referencing subsection 1023G(2) of the Act). This language contemplates judicial review or interlocutory relief challenging the instrument’s operation, but the instrument contains no litigation record itself.

Practical enforcement implications for firms

• A person or entity that continues to issue CFDs to retail clients without incorporating the s 7 conditions, or that gives prohibited benefits in contravention of s 6, will be acting contrary to obligations imposed by a legislative instrument made under the Act. ASIC may use its regulatory powers under the Act to pursue remedies. The instrument does not list specific fines, administrative penalties or criminal sanctions; parties should consult the Corporations Act for the enforcement measures that attach to contraventions of statutory prohibitions made under the Act.

The instrument is tightly integrated with definitions and obligations in the Corporations Act. It cross‑references multiple Act provisions and relies on the Act’s regulatory architecture. Key interactions recorded in the instrument include the following.

Authority and product intervention regime

• Authority to make the order is exercised under subsection 1023D(3) of the Corporations Act 2001 (s 3). The instrument’s notes refer to section 1023C, which contains limits on the scope of product intervention orders, and to subsection 1023G(2), which specifies that such orders last for 18 months unless stayed. Those cross‑references position the instrument within the Act’s product intervention power and its statutory safeguards.

Definitions and general terms from the Act

• The instrument imports Act definitions. It states that unless a contrary intention appears, a term defined in section 761A of the Act has the same meaning in this instrument (s 4, note). The instrument also uses the definition of derivative from s 761D of the Act (s 4, note under contract for difference). Accordingly, the instrument’s technical terms interlock with the Act’s definitions, so terms such as retail client, derivative, and derivative retail client property are to be read in light of the Act.

Client money and client property regimes

• The definition of client money account in the instrument points to section 981B of the Act (s 4). The negative balance protection provision references derivative retail client money and derivative retail client property, linking the instrument’s recourse limitation to the Act’s client money and client property regimes and their rules for segregation, handling and use. This interaction means that compliance with the instrument may require issuers to align their client money arrangements with the Act’s s 981B requirements.

General conduct obligations

• The instrument’s close‑out mechanism includes a note that the CFD issuer must act efficiently, honestly and fairly, referencing paragraph 912A(1)(a) of the Act (note to s 7(3)). That cross‑reference ties the exercise of close‑out rights to the Act’s licencee conduct obligations and associated enforcement regime.

Procedural limits and judicial oversight

• The instrument’s notes reference statutory limitations in s 1023C and provide that the orders will remain in force for 18 months as per s 1023G(2), subject to court orders staying or otherwise affecting operation (notes after ss 5 and 6). This shows the instrument is subject to statutory constraints and judicial review pathways in the Act.

The instrument itself sets out its commencement date and limited duration, but it contains no internal amendments or version history within the text provided. The relevant provisions about timing, authority and duration that constitute its amendment history and status are these.

• Commencement. The instrument commences on the later of 23 November 2020 and the day after registration on the Federal Register of Legislation (s 2). This creates a firm date for operation tied to registration.

• Operative start date for prohibitions and conditions. The conditional prohibitions in s 5 and the prohibition on inducements in s 6 apply from 29 March 2021 (s 5(5), s 6(4)). That gives firms roughly four months between commencement and the date most conditions begin to bite, depending on the registration date.

• Time limitation. The instrument is subject to subsection 1023G(2) of the Corporations Act, which the instrument cites in its notes after ss 5 and 6, by stating that, subject to the Court making an order staying or otherwise affecting operation, the orders will remain in force for 18 months from the day the instrument commences. The 18‑month limit is a statutory feature of the product intervention power under the Act and imposes an automatic expiry unless continued by separate legislative action or replaced by a longer‑term rule.

• Authority under the Act. The instrument was made under subsection 1023D(3) of the Corporations Act 2001 (s 3). That statutory source is the relevant enabling provision that gives ASIC product intervention powers. The instrument does not record any subsequent amendments to its own terms in the text provided.

• Notification obligations that create transitional obligations. Section 8 requires CFD issuers who issued CFDs to retail clients in the 12 months before commencement to notify those clients of the instrument’s terms within 10 business days after commencement. That creates a one‑time transitional duty tied to the commencement date.

The document does not include a schedule of earlier versions or subsequent amendments. It is a single legislative instrument that came into force on the dates specified and that, by its own structure, expires after 18 months unless judicially stayed or otherwise altered consistent with the Corporations Act. For the current statutory status, users should confirm registration date and check whether any court orders or subsequent instruments have altered operation; the text itself anticipates the possibility of court orders staying its operation (notes after ss 5 and 6).

The instrument as provided contains no litigation history, no judicial findings, and no case law citations. It does, however, expressly contemplate the possibility of court intervention affecting its operation. Specifically, the instrument’s notes after sections 5 and 6 state that, subject to the Court making an order staying or otherwise affecting the operation of the orders, the orders will remain in force for 18 months from commencement, by reference to subsection 1023G(2) of the Corporations Act. That language recognises an avenue for judicial challenge or interlocutory relief but does not record any particular litigation.

Practical points for counsel and compliance teams

• Potential for judicial review or interlocutory relief. The instrument recognises court power to stay or otherwise affect its operation. Where parties consider the instrument exceeds statutory power under the Act or is otherwise legally vulnerable, the instrument’s text anticipates recourse to the courts. No proceedings are recorded in the instrument itself.

• No cases named. The instrument does not cite any cases, nor does it contain judicial gloss on its provisions. Any judicial interpretation will therefore come later if and when litigation occurs. Until such cases exist, interpretation must proceed from the instrument’s text, the Corporations Act, and standard principles of statutory construction.

• Enforcement actions under the Act not itemised. The instrument does not list specific enforcement actions or administrative sanctions that ASIC might take for non‑compliance. Enforcement would be conducted under the broader Corporations Act regime. The absence of litigation history means there is no precedent on how courts will construe the instrument’s interaction with existing contracts or on the reasonableness of issuers’ implementation of the close‑out and margin rules.

Because the instrument contains no recorded litigation, practitioners should monitor court filings and ASIC communications for any applications that seek stays or challenge the product intervention order, and be prepared for case law to develop regarding the instrument’s interpretation, territorial reach, and contractual impact.

This section flags technical and operational pitfalls that arise directly from the instrument’s text and that may create legal or compliance risk if overlooked.

Definition scope and exclusion of exchange‑traded derivatives

• The instrument’s definition of contract for difference excludes derivatives that are able to be traded on a licensed market and generally excludes derivatives that terminate on a fixed date or are of kinds that typically terminate on a fixed date (s 4, contract for difference definition). Practitioners must carefully classify products. A misclassification of a product as a CFD when it is exchange‑traded could lead to unnecessary compliance action, while treating an OTC CFD as exchange‑traded to avoid obligations will not be permitted. The text also notes options, futures, swaps and forward rate agreements will generally not be CFDs, but firms should check contract terms against the definitions in the Act (s 4, notes).

Geographic and residence tests , gap risks

• The conditional prohibition in s 5 applies only if the issuer is an Australian body corporate, an Australian citizen, or ordinarily resident in Australia, or if the issue or offer is received in Australia (s 5(6)-(9)). Firms with cross‑border structures may find that different group entities fall inside or outside these tests. A mistaken reliance on an offshore entity to carry on issuance could expose an issuer group to enforcement if offers are received in Australia or if an entity is, in law, ordinarily resident in Australia. The instrument does not define "received in this jurisdiction" beyond the plain words; firms should take a conservative approach to marketing and order routing to avoid being captured.

Initial margin percentages , class determination and operationalising notional values

• The instrument prescribes initial margin percentages by reference to categories such as major currency pair, minor currency pair, major stock market index, minor stock market index, gold, other commodities, cryptoassets, and other underlyings (s 7(2)). Determining which category applies may require legal and market definition work. For example, classifying a particular index as major or minor, or deciding whether an underlying is "gold" or another commodity, affects minimum margin by a factor of two or more. Issuers must map their product ranges carefully to the categories and document their classification methodology.

• Related to this, margin is expressed as a percentage of notional value at time of issue. Systems must be able to compute the notional value accurately at issuance and enforce minimum margin collection. Execution systems, risk checks and client onboarding flows may need upgrades to prevent issuance where initial margin is short.

Compliance requires coordinated legal, risk, operations, product and marketing workstreams. Below are concrete, source‑grounded steps framed against the instrument’s specific sections.

1. Product and contract remediation

• Ensure CFD contract terms explicitly include the initial margin minima by underlying required under s 7(2). Amend standard terms for any CFD offered to retail clients after 29 March 2021 to require the specified initial margin on issue.

• Include explicit negative balance protection terms as required by s 7(5), limiting issuer recourse to derivative retail client money and derivative retail client property held for the benefit of the retail client in relation to the CFD trading account, and to other qualifying monies that the issuer paid into the client money account in relation to the client’s dealings.

• Implement contractual provisions that specify which CFDs may be terminated under the close‑out mechanism for the purposes of s 7(3), ensuring any specification of CFDs issued before 29 March 2021 is consistent with those CFDs’ original terms (note to s 7(3)).

2. Margining, systems and risk management

• Update margin‑calculation systems to compute notional values at time of issue and enforce collection of initial margin at or above the percentages in s 7(2).

• Implement real‑time or near real‑time computation of net equity as defined in the instrument (s 4). Net equity must aggregate derivative retail client money and property and unrealisied P&L across open CFDs connected to the CFD trading account.

• Calculate and continuously monitor the aggregate close out protection amount for each retail client’s open CFDs (s 7(4)). Ensure systems can identify when net equity falls below the threshold and trigger prescribed close‑out actions.

• Ensure systems can effect termination of open CFDs "as soon as market conditions allow" consistent with s 7(3). Document the criteria used to determine when market conditions allow termination, and retain audit logs of decisions and execution.

3. Client money, custodial and reconciliation practices

• Review client money account arrangements and reconciliation processes to ensure derivative retail client money and derivative retail client property are identified and held in ways that satisfy the instrument’s recourse limitation (s 7(5); s 4 references to s 981B). Ensure segregation, reconciliation and reporting align with the Corporations Act client money rules.