ASIC: Retail OTC Derivatives Investors Compensated Over A$17.4m by Eight Financial Issuers

Since March 2021, eight OTC derivatives issuers that breached financial services law have paid out or promised to pay out more than A$17.4 million to more than 2,000 retail customers, according to the Australian Securities and Exchange Commission (ASIC).

Seven contracts for difference providers

Since March 2021, seven issuers have paid out or committed to pay out A$4.3 million to 1,500 retail customers for issuing CFDs that exceeded leverage limits.

The affected clients suffered losses on more than 150,000 CFD trades. There are around 100 CFD instruments that exceed the maximum leverage permitted.

The seven CFD providers are:

Capital Com Australia Pty Ltd

CMC Markets Asia Pacific Pty Ltd

Eightcap Pty Ltd

IG Australia (IG Markets Limited and IG Australia Pty Ltd)

Pepperstone Group Limited

Saxo Capital Markets (Australia) Limited

StoneX Financial Pty Ltd trading as City Index

The issuers themselves reported the excess leverage to ASIC and proposed remedies, with the amount they would each have to pay ranging from tens of thousands of dollars to millions of dollars. The reasons for the breaches were said to be change management weaknesses and manual errors.

ASIC also found some shortcomings in these remediation programmes. In estimating customer losses, three firms used specific behavioural assumptions that resulted in them calculating a smaller number of compensation than they would have in the case of no leverage breach. Further, these three firms, as well as another issuer, failed to compensate for the fees or charges incurred in issuing CFDs in breach and the interest on these amounts.

Following the review by ASIC, the four firms agreed to pay an additional A$2.8 million in compensation to retail customers.

Binance

Between May and September this year, Oztures Trading Pty Ltd (Binance) committed a serious breach of the financial services laws when it incorrectly categorised retail customers as wholesale customers. The company is required to compensate 523 customers for approximately AU$13.1 million.

As a result of Binance's error, these customers did not have the protections that customers would normally be offered when trading retail OTC derivatives. Binance has compensated them for the net trading losses and fees incurred between 7 July 2022 and 25 February 2023.