IG warns of proposed CFD trading rules in Japan

The regulatory agency in Japan (FSAJ) has announced a public consultation period running to 16 November 2009 on its proposals to restrict gearing on CFDs over certain markets. It basically proposes to limit leverage on contracts for difference which has prompted IG Group (which has recently moved to the Japanese market), to issue the following statement:

“The Financial Services Agency in Japan (”FSAJ”) have announced a short period of public consultation on proposals to limit leverage on contracts for difference (”CFDs”) over certain asset classes. They propose restricting leverage to 5 times for shares, to 10 times for equity indices and to 50 times for bonds. The public consultation will run until 16 November 2009 with any restrictions coming into force approximately one year later.

These proposals do not affect CFDs on commodities or precious metals or binary options. During the consultation period the Group will lobby the FSA directly as well as via industry channels.

Revenue in September from the products affected represented approximately 0.5% of Group revenue.”

Contracts for difference on commodities, precious metals or binary bets are not covered by the new proposals which are due to be implemented in late 2010. In itself, this development is not significant for numbers, affecting only a very small part of the overall business but it is likely to weigh on sentiment and question the long term viability of the Japanese division.

Comments: Of course, the real problem for IG and its peers would be if regulatory authorities in the UK and Australia considered similar proposals. Having said that, regulation usually takes a while to get implemented and I don’t know if CFD brokers would have enough lobbying power to block this from being applied as this would affect their profits. If the regulation had affected the big four banks’ profits it would probably have been a different story…

Tags: CFDs, contracts for difference, gearing, IG Group, leverage

This entry was posted on Friday, October 23rd, 2009 at 11:36 am and is filed under Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.