The contracts-for-difference (CFD) industry is moving to a fully segregated client funds model in the wake of ASIC investigations and cooperation with key CFD providers.
The Australian Contracts For Difference Forum has worked for the past nine months with ASIC chair Greg Medcraft on "re-self-regulation", CMC Markets head of Australia Louis Cooper said.
Forum members included CMC Markets, GFT, IG Markets, City Index, Capital CFDs and Saxo. The group was formed in response to the failure of MF Global Australia, which collapsed owing investors $313 million.
Cooper said the forum members had 85 per cent to 90 per cent of the CFD market share and the move to the "fully segregated client funds model" would ensure CFD providers "will not use any client funds to fund their [the firms'] trading positions".
Benchmarks would include the suitability of the customers, the ways to ensure they understood the products, and guidelines about advertising in the appropriate media.
Cooper said the industry did have CFD providers that were "well-capitalised but not well-governed" and guidelines should be released in the next two months.
In April, ASIC permanently banned a former CFD dealer, Simon Marcus Gundry, of Mornington, Victoria, and his online investment business SSG Trading.
Although the business was deregistered on 28 April 2008, Gundry continued to use the business name to induce 15 investors to invest $835,168, but the money was spent on Gundry's living expenses.
Separately, late last year ASIC revealed that more than 30 per cent of CFD brokers did not comply with client money laws, just months after the MF Global Australia collapse.
The corporate regulator said eight out of 40 CFD and margin foreign exchange derivatives issuers did not deposit client money into a separate trust account.
The CFD industry's move to self-regulate is similar to a move by hedge funds group the Alternative Investment Management Association, which worked with Australian institutions on principles for investors and published a guidelines paper in September last year.
ASIC has also had hedge funds in its sights, with the publication in February of its draft disclosure guidance for hedge funds.
