Australian Regulator Seeks to Impose Leverage Restrictions on Crypto-Settled Derivative Products
The Australian Securities and Investments Commission has put forward a proposal to apply leverage restrictions and negative balance safeguards to specific derivative instruments that settle in cryptocurrency.
The financial watchdog overseeing securities markets in Australia is looking to broaden leverage restrictions and additional protections for everyday investors to encompass specific trading instruments that are settled using cryptocurrency.
This past Monday, the Australian Securities and Investments Commission (ASIC) put forward plans to widen the regulatory scope for contracts for difference (CFDs), which enable market participants to speculate on asset price fluctuations without taking ownership of the actual underlying asset.
These regulations typically apply to instruments settled through cash payments or by netting obligations between counterparties. ASIC is now proposing to include contracts that settle through the transfer of digital assets, including those that track assets outside the cryptocurrency space, as long as they satisfy the remaining requirements that define a CFD.
ASIC indicated that specific cryptocurrency futures contracts and options that have predetermined expiration dates would continue to fall outside the scope of the CFD regulatory framework.
The current regulatory framework in Australia, which was put into place in 2021, establishes maximum leverage ratios and mandates that service providers liquidate trading positions when the funds in an account drop below predetermined thresholds. Protection against negative balances also ensures that client losses cannot exceed the capital deposited in their CFD trading account.
The financial regulator has opened a consultation period for the proposed expansion and related modifications, with the deadline for public feedback set for Nov. 9.
In a separate regulatory development, Australia enacted new legislation this past April designed to bring cryptocurrency trading platforms and tokenized asset custody services under the umbrella of its financial services licensing requirements, with full implementation scheduled for April 9, 2027.
ASIC has additionally mandated that cryptocurrency businesses operating under temporary enforcement exemptions within the current financial services legal framework submit applications for proper licenses by Sept. 30 or request modifications to their existing license arrangements.