Updates on Contracts for Differences around the world

We have been interested in CFDs since 2008 when we dug into the topic for a research report. Now with substantial interest in reducing transaction-related costs and avoiding Financial Transactions Taxes, CFDs are reportedly seeing a surge of interest. Hard data on CFDs are impossible to produce given the OTC nature of the market, but we took a look at news about CFDs from around the world and have the following report.

Singpore: The Wall Street Journal reports that “While there are no official statistics on CFD trading in Singapore, about 23,000 traders in Singapore, or about 0.52% of the adult population, have made at least one CFD trade over the past 12 months, the highest percentage in the world, according to Investment Trends. In Australia it’s around 0.25%, while in the U.K. it’s 0.05%, it says.”

Canada: Torys LLP, a law firm, reports that “Canadian securities regulators are proposing to change the early warning and alternative monthly reporting regimes to require disclosure of acquisitions of public company securities at the 5% level rather than at the current 10% level…. In determining whether the 5% reporting threshold has been reached, the proposed rules would require certain derivatives to be included in the ownership calculation, such as total return swaps and contracts for differences, if they are substantially equivalent in economic terms to conventional equity holdings. These derivatives would be defined as “equity equivalent derivatives.”

US: FX Week reports that rolling spot FX trades may be seen as a CFD and hence get banned as a bilaterally traded product. “A large portion of the foreign exchange spot market could still be subject to mandatory clearing and exchange trading under the US Dodd-Frank Act, despite the widely held assumption that spot, swaps and forwards had won a full exemption from the rules, FX Week understands…. On the basis that no-one takes physical delivery in rolling spot, and the practice effectively creates a new contract, some suggest rolling spot could be seen as a contract for difference (CFD), which would be classified as a swap under Dodd-Frank and would therefore be mandated for execution on swap execution facilities (Sefs). That could have major implications for the market, as some estimate rolling spot makes up more than half of daily spot trading.” This inclusion itself would be interesting since right now CFDs are banned from US trading. This is a tough story to follow logically, but is typical for the confusion that Dodd-Frank has created.

Australia: The Australian Securities Exchange reports that their centrally cleared CFD market is still alive and well. Key stats include:

– Trading volume for the week ending 22 March 2013: 2,544,903 contracts.
– Open Positions as at 22 March 2013: 5,222,365 contracts.
– Open Position value (AUD) as at 22 March 2013: $61,673,090.
– Total number of ASX CFDs traded since market commencement: 684,514,000 contracts.
– Total number of trades since market commencement: 481,577.

Here is a link to ASX’s comparable historical CFD data.

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