Key Insights
- ASIC has issued an interim stop order preventing FXCM from issuing CFDs to retail clients due to deficiencies in its target market determination.
- The regulator found FXCM wrongly included medium-risk investors for CFDs, despite risks involving leverage, volatility, liquidity and pricing.
- The 21-day order blocks new retail accounts but allows existing clients to vary or close CFD positions.
SYDNEY (MarketsXplora)— Australia’s corporate regulator has issued an interim stop order against Stratos Trading Pty Limited, trading as FXCM, halting the firm from issuing contracts for difference (CFDs) to retail clients after finding significant flaws in its target market determination (TMD).
The Australian Securities and Investments Commission (ASIC) said on Thursday it acted because FXCM’s TMD “inappropriately included investors with a medium risk appetite” in the target market for its CFD products — a categorisation the regulator argued does not align with the inherent risks of leveraged trading.
Regulator Flags Mismatch Between Risk Profile and Product Design
ASIC said the risks associated with FXCM’s CFDs — including leverage exposure, price volatility, liquidity constraints and pricing risk — make the instruments inherently unsuitable for investors whose tolerance sits at a medium level, regardless of any additional investment characteristics FXCM had identified in its documentation.
Under the interim stop order, FXCM is prohibited from issuing CFDs to retail clients or opening new trading accounts that would allow them to trade the products. The order covers CFDs tied to a wide range of underlying assets, including currency pairs and forex baskets, treasuries, commodities, stock indices, individual stocks, stock baskets and cryptocurrencies.
ASIC said the action was taken to prevent the distribution of products that are “unlikely to be consistent with the financial objectives, situation or needs” of consumers described in FXCM’s nominated target market.
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Existing clients are not fully restricted: the order permits them to vary or close their current CFD positions, ensuring no forced disruptions for traders already exposed to the products.
The interim order will remain in force for 21 days unless the regulator revokes it earlier.