Abstract：Saxo Capital Markets (Australia) resolved eight interim stop orders from the Australian Securities and Investments Commission (ASIC) concerning new contracts for difference (CFDs) for retail clients. The orders were lifted after Saxo amended its target market determinations (TMDs), addressing ASIC's concerns over potential retail client losses.
Saxo Capital Markets (Australia) Limited, after having faced eight interim stop orders from the Australian Securities and Investments Commission (ASIC), managed to turn things around on May 18, 2023. The orders, initially issued on May 16, 2023, were instated due to concerns over inadequacies in Saxos target market determinations (TMDs) for new contracts for difference (CFDs) to be issued to retail clients. After Saxo amended its TMDs, addressing the ASIC's apprehensions, the orders were revoked.
Saxo Restricted from Offering Eight Derivatives
The temporary stop orders had barred Saxo from issuing eight types of derivatives to retail clients and setting up new trading accounts for these clients. The derivatives included Single Stock CFDs, FX CFDs, ETFs CFDs, Index CFDs, Commodity Futures CFDs, Bond CFDs, Index Option CFDs, and Cryptocurrency Derivatives. The orders remained active for 21 days or until an earlier revocation.
ASIC‘s Concerns with Saxo's TMDs
ASIC expressed concern that Saxo’s TMDs inappropriately included retail clients intending to use CFDs as a major part of their investment portfolio, and clients with an investment timeframe of up to one or three years, considering the potential significant aggregate overnight financing fees. ASIC's concern also extended to clients seeking growth and income via Single Stock CFDs, ETF CFDs, and Index CFDs, as the high proportion of CFD retail clients often loses money trading CFDs.
ASICs Effort to Protect Retail Clients
ASIC states that the interim orders were established to shield retail clients from obtaining CFDs from Saxo, which may not align with their financial objectives, situation, or needs. However, the orders did not hinder existing Saxo clients from altering or closing their CFD positions.
ASIC's Emphasis on Design and Distribution Obligations
The ASIC highlighted the importance of issuers adequately defining target markets for their products under the design and distribution obligations (DDO). Issuers are required to account for the risks and features of their products and strategize product distribution to ensure alignment with the target market.
Track Record of ASIC‘s Interim Stop Orders
Up to now, ASIC has issued 36 interim stop orders under DDO, Saxo CFDs being part of these. From the 36 orders, 31 have been revoked following amendments or withdrawals of the products in response to ASIC’s concerns, while five are still effective.
ASICs Call for Improvement
Earlier in May, ASIC urged investment product issuers to 'up their game', following an initial review that revealed significant opportunities for enhancing compliance with design and distribution obligations.
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