Overview of ASIC CFD Rules Implementation at IBKR (Australia) - Retail Investors Only

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The Australian Securities and Investment Commission (ASIC) enacted new rules applicable to retail clients trading CFDs, effective 29 March 2021. Wholesale or Professional Investor clients are unaffected.

The rules consist of: 1) leverage limits; 2) a margin close out rule on a per account basis; 3) negative balance protection on a per account basis; 4) a restriction on the incentives offered to trade CFDs; and 5) a standardized risk warning.

All clients are initially categorised as Retail Clients. IBKR may in certain circumstances agree to reclassify a Retail Client as a Wholesale or Professional Investor Client. Refer to this link for information regarding Australian regulatory status under IBKR Australia

The following sections detail how IBKR (Australia) has implemented the ASIC Decision.

1 Leverage Limits

1.1 ASIC Margins
Leverage limits were set by ASIC at different levels depending on the underlying:

3.33% for major currency pairs; Major currency pairs are any combination of AUD; USD; CAD; EUR; GBP; CHF; JPY
5% for non-major currency pairs and major indices;
- Non-major currency pairs are any combination that includes a currency not listed above, e.g. USD.CNH
- Major indices are IBUS500; IBUS30; IBUST100; IBGB100; IBDE40; IBEU50; IBFR40; IBJP225; IBAU200
10% for non-major equity indices; IBES35; IBCH20; IBNL25; IBHK50
20% for individual equities

1.2 Applied Margins - Standard Requirement

In addition to the ASIC Margins, IBKR (Australia) establishes its own margin requirements (IB Margins) based on the historical volatility of the underlying, and other factors. We will apply the IB Margins if they are higher than those prescribed by ASIC.

Details of applicable IB and ASIC margins can be found here.

1.2.1 Applied Margins - Concentration Minimum

A concentration charge is applied if your portfolio consists of a small number of stock or CFD positions, or if the two largest positions have a dominant weight. We stress the portfolio by applying a 30% adverse move on the two largest positions and a 5% adverse move on the remaining positions. The total loss is applied as the maintenance margin requirement if it is greater than the standard requirement.

1.3 Funds Available for Initial Margin

Your account must have sufficient equity to post initial margin to open a CFD position. Account equity includes cash, unsettled realized profits and unrealized profits from existing CFD and non-CFD positions.

2 Margin Close Out Rule

2.1 Maintenance Margin Calculations & Liquidations

ASIC requires IBKR to liquidate CFD positions latest when account equity falls below 50% of the initial margin posted to open the positions. IBKR may close out positions sooner if our risk view is more conservative.

The basis for the calculation is the initial margin posted at the time of opening a CFD position. In other words, and unlike margin calculations applicable to non-CFD positions, the initial margin amount does not change when the value of the open position changes.

2.1.1 Example

You have AUD 2000 cash in your account and no positions. You want to buy 100 CFDs of XYZ at a limit price of EUR 100. You are first filled 50 CFDs and then the remaining 50. Your available equity for additional positions reduces by the initial margin requirement as your trades are filled:

	Cash	Equity*	Position	Price	Value	Unrealized P&L	IM	MM	Available Equity*	Excess Equity*	MM Violation
Pre Trade	2000	2000							2000	2000
Post Trade 1	2000	2000	50	100	5000	0	1000	500	1000	1500	No
Post Trade 2	2000	2000	100	100	10000	0	2000	1000	0	1000	No

*Equity equals Cash plus Unrealized P&L. Available equity is equity in excess of initial margin requirements. Excess equity is equity in excess of maintenance margin requirements.

The price increases to 110. Your equity is now 3000, and your available equity has increased correspondingly:

	Cash	Equity	Position	Price	Value	Unrealized P&L	IM	MM	Available Equity	Excess Equity	MM Violation
Change	2000	3000	100	110	11000	1000	2000	1000	1000	2000	No

The price then drops to 95. Your equity declines to 1500 and you can no longer open additional positions but there is no margin violation since it is still greater than the 1000 requirement:

	Cash	Equity	Position	Price	Value	Unrealized P&L	IM	MM	Available Equity	Excess Equity	MM Violation
Change	2000	1500	100	95	9500	(500)	2000	1000	-500	500	No

The price falls further to 85, causing a margin violation and triggering a liquidation:

	Cash	Equity	Position	Price	Value	Unrealized P&L	IM	MM	Available Equity	Excess Equity	MM Violation
Change	2000	500	100	85	8500	(1500)	2000	1000	-1500	-500	Yes

3 Negative Equity Protection

The ASIC Decision limits your CFD-related liability to the assets in your IBKR account, meaning all assets in your IBKR account can be liquidated to satisfy a CFD margin-deficit

Therefore assets in your account, including CFD and non-CFD assets can be used to cover losses arising from CFD trading, with your CFD positions being liqudated first, followed by your non CFD positions.

4 Incentives Offered to trade CFDs

The ASIC Decision imposes a ban on monetary and certain types of non-monetary benefits related to CFD trading. IBKR does not offer any bonus or other incentives to trade CFDs.

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