ASIC Proposes Extending CFD Capital Floor to 2032
ASIC has proposed extending the net tangible assets requirements for retail OTC derivatives issuers until October 2032, keeping the AU$1 million minimum. The regulator says the rules are working, but the floor has not been indexed for inflation since 2014.
The Australian Securities and Investments Commission (ASIC) has proposed extending the capital rules for issuers of retail over-the-counter (OTC) derivatives by five years, freezing the current net tangible assets (NTA) requirements until 1 October 2032. The proposal, published Tuesday, covers Instrument 2022/705, which sets the financial resources test for Australian financial services license holders offering OTC derivatives to retail clients, including CFDs.
The current rules require issuers to hold NTA of at least AU$1 million or 10% of average revenue, whichever is greater. Half must be held in cash or cash equivalents, and the remainder in liquid assets. This threshold has remained unchanged since January 2014, when it was phased in under Class Order 12/752.
ASIC's consultation states that the eight instruments under review, including the derivatives capital test, are operating effectively and form 'a necessary and useful part of the legislative framework.' No changes are proposed to the current requirements. The instrument self-repeals on 1 October 2027, and the extension would carry it to 2032.
Notably, the regulator did not propose indexation of the AU$1 million floor for inflation, unlike a recent decision on other capital thresholds. On 30 July, ASIC announced it would index net tangible assets thresholds for responsible entities and similar operators annually, starting in 2027. That move reflected years of inflation eroding real values. The derivatives floor, set in 2012 and effective from 2014, has not been adjusted, leaving its real value significantly lower today.
For retail traders, the extension means continuity: brokers will continue to face the same minimum capital requirements, which are designed to ensure they can meet obligations to clients. However, the lack of indexation could be a concern, as the real value of the safety net diminishes over time. The leverage caps for retail CFDs, which include negative balance protection, expire in May 2027, earlier than the capital rules. Whether those caps will be renewed or adjusted remains unknown.
ASIC is seeking public comment on the proposal, with submissions due by a date yet to be determined. The regulator has not disclosed how many license holders are affected or offered any rationale for not adjusting the floor.
This is information, not investment advice.
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