Investors see $17m recompense after OTC breaches

The Australian Securities and Investments Commission (ASIC) has directed over $17 million in compensation to be paid to thousands of investors wronged by eight retail over-the-counter (OTC) derivatives issuers.

The breaches committed by the issuers revolved around contracts for difference (CFDs) exceeding the leverage ratio limits permitted by the ASIC Corporations (Product Intervention Order – Contracts for Difference) Instrument 2020/986 (PIO) and the misclassification of retail investors as wholesale by Binance Australia Derivatives which resulted in inadequate customer protections.

Over 1,500 retail clients of seven CFD issuers have been paid a combined $4.3 million since March 2021 for the first breach, while 523 clients of Oztures Trading Pty Ltd (trading as Binance) are set to be compensated a combined $13.1 million.

The corporate watchdog said the impacted clients suffered losses on over 150,000 CFD trades across 100 different instruments from issuers including:

• 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

ASIC also said it had conducted a review into the compensation payments made by the issuers and their “underlying compensation methodologies”, finding cause for additional compensation to be paid.

“Three of the CFD issuers used certain behavioural assumptions to estimate retail client losses caused by the breaches of the PIO, which resulted in a lower compensation amount than an amount calculated as if the provider had not issued the over-leveraged CFDs at all,” an ASIC statement said.

“These same three CFD issuers, and one other CFD issuer, had not compensated clients for fees or charges incurred on CFDs issued in breach of the PIO or interest on these amounts.

“ASIC’s review resulted in these four CFD issuers paying or agreeing to pay additional compensation totalling more than $2.8 million to retail clients. All of the seven CFD issuers cooperated with ASIC through the review and remediation of affected clients.”

“OTC derivatives are complex, high-risk financial products. It is important that retail clients get the protections they are entitled to under the law when dealing with these risky products,” ASIC Deputy Chair, Sarah Court, said.

“These protections include the CFD product intervention order, design and distribution obligations, and access to external dispute resolution through the Australian Financial Complaints Authority.”