Be - Briefed CFDs. David Land

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Be - Briefed

CFDs

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Australian Disclaimer

 This presentation is introductory in • Information about CMC Markets’ services  This presentation is introductory in

nature. It provides a high level overview of some of the key matters relevant to trading Contracts for Difference (CFDs). This presentation provides general

i f ti l d d t t k i t

• Information about CMC Markets services, including our fees and charges, is also contained in our Financial Services Guide (FSG), which can be obtained by calling 1300 303 888 or visiting our website

k t information only and does not take into

account your objectives, financial

situation or needs. It is important for you to consider these matters before making any trading or investment decisions.

www.cmcmarkets.com.au.

• This information is provided by CMC Markets Pty Ltd (ACN 100 058 106, AFS Licence No 279437) which is a subsidiary of CMC Markets Asia Pacific Pty Ltd (ACN any trading or investment decisions.

 Investing in CFDs carries significant risks and may not be suitable for all investors. Losses can exceed your initial deposit. We therefore recommend that you seek

i d d t d i d f ll

CMC Markets Asia Pacific Pty Ltd (ACN 100 058 213, AFS Licence No 238054), the issuer of CMC Markets’ CFDs. The

examples in this presentation are

hypothetical and are provided for illustrative Th t i t d d t t independent advice and ensure you fully

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Agenda

 What are CFDs?

- Mechanics, traders and uses.

 Key regulatory issues for the product and for providers

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What are CFDs

 Mechanics

A Contract for Difference (CFD) is a contract between the trader and the provider where each party agrees to pay / receive the

the provider where each party agrees to pay / receive the difference between the entry and exit price of the contract.

Typically the trader is only required to pay a margin amount to open Typically the trader is only required to pay a margin amount to open

and hold the position open.

The share CFD trader pays a daily financing charge in order to keep The share CFD trader pays a daily financing charge in order to keep

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What are CFDs

 Benefits to traders  Benefits to traders

A margin requirement means that the trader can operate using leverage there is only a borrowing cost while the position is open leverage – there is only a borrowing cost while the position is open Low cost – commission on share CFDs is typically much lower than the equivalent dealing in the physical market

the equivalent dealing in the physical market

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What are CFDs

 Uses for traders

Outright directional trading – simply taking a view of future direction of price

of price Hedging

Diversification

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Key regulatory issues for the product and

id

providers

 Client Suitability  Client Suitability

- Can a provider collect information on clients and then allow or disallow them to trade CFDs based on the information?

disallow them to trade CFDs based on the information?

- At this time it remains unclear – this may be construed as advice for the client.

for the client.

- Providers may choose to decline some account applications in any

case case

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Key regulatory issues for the product and

id

providers

 Market integrity  Market integrity

Issues include insider trading and front running

Market monitoring in these areas will improve in line with new trading techniques including algorithmic trading – this will likely see higher number of requests for information on trading activity

number of requests for information on trading activity

There will also remain significant focus on the activity of trading prior to and after takeover announcements

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Key regulatory issues for the product and

id

providers

 Disclosure

In terms of CFDs and the wider financial community there is a high degree of expectation around the readability of disclosure

degree of expectation around the readability of disclosure documents such as PDS’s

Education of CFD traders will be a regulatory focus as well as being Education of CFD traders will be a regulatory focus as well as being

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Operational issues

 Capital adequacy of providers

Of course this is an issue that will impact any provider in a financial transaction

transaction

How does a trader make an informed decision about the solvency of a counterparty? Clearly this will need standards that can be

a counterparty? Clearly this will need standards that can be adhered to in order to continue doing business. A consultation

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Operational issues

 Handling of client monies

Should margin be used to pay prime brokers? Or for operations? Or for nothing at all?

for nothing at all?

Should deposited client funds be able to be used for any of these items?

items?

If a provider is using client funds on deposit to pay for operations then what will happen if regulations change to restrict this as was then what will happen if regulations change to restrict this as was seen in the UK.

The ideal from the regulatory perspective will be to see no client The ideal from the regulatory perspective will be to see no client

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Operational issues

The key issue is that clients are able to be paid for positions profits The key issue is that clients are able to be paid for positions, profits

etc. Counterparty risk will be an issue for the year ahead. Other things to consider

Other things to consider

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Operational issues

 In CFD Land the focus for providers will remain on platform  In CFD Land the focus for providers will remain on platform

supremacy. With regards to marketing standards guidelines will also need to be adhered to.

 In an extraordinarily competitive environment the ability to provide more features at a lower price remains key

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Settlement

 CFDs are a mark to market product

 Largely this occurs in real time though rather than at the end of the day

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Agenda

 What are CFDs?

- Mechanics, traders and uses.

 Key regulatory issues for the product and for providers