There are fundamental differences in the way ASX-listed CFDs are traded compared to OTC (over the counter) CFDs. Only ASX-listed CFDs offer the added protection of being listed, traded and cleared on ASX.
Transparency and trading
Transparency is a key ingredient in a well informed market. ASX reports on all ASX-listed CFDs transacted, open positions, bid, offers and their volumes. In fact, all the market information you are used to seeing from the ASX. This means a fundamentally better informed market.
There are fundamental differences in the way ASX-listed CFDs are traded compared to OTC CFDs. When trading ASX-listed CFDs, your order is entered directly via a Participant into the ASX-listed CFD central market order book. This order book is available for the market to see. All orders are executed on a strict price/time priority. This means that the first order with the best bid or offer price is always executed first.
In contrast, customers executing OTC CFDs do not have their orders in the ASX-listed CFD central market order book. These orders are transacted with the OTC CFD counterparty (typically described as a CFD Provider). The customer's order is not protected by the ASX's price/time priority or client order precedence rules.
ASX is required under the Corporations Act to ensure that its markets are fair, orderly and transparent. ASX ensures a sound operational and front-line regulatory environment for its exchange-traded markets and clearing and settlement facilities, providing effective systems and infrastructure together with services designed to maintain and enhance the integrity, efficiency and effectiveness of its trading, clearing and settlement facilities. For the ASX-listed CFD trader, this means being able to participate in the market with confidence.
As the central market operator, ASX is independent of the parties with whom you are receiving advice and dealing through enabling it to act fairly and impartially. This separation of responsibility between broker and exchange also provides customers with choice as to whom they wish to execute their business through.
Having a central market also means there is one standard contract specification for all ASX-listed CFDs, not a different product depending on who you execute through.
ASX-listed CFDs trade in a centrally cleared marketplace. The Clearing House - ASX Clear (Futures) - provides central counterparty clearing for the ASX-listed CFD market.
Through the novation process, ASX Clear (Futures) becomes the principal to all trades and liable to perform against all contracts to which it is a party and effectively 'guarantees' performance to other Clearing Participants. Novation and thus the clearing guarantee become effective on registration of the contract between Clearing Participants, being the buyer and seller.
This exposure is then managed and the clearing guarantee put in place. This is achieved by the collection of the various margins, the collection of which protect against extreme price movements and prevent Participants from accumulating large unpaid losses that could potentially impact on the financial position of other market users. This is a key component that differentiates exchange-traded markets from over-the-counter (OTC) markets, where such a strict margining regime is not in place.
The ASX-listed CFD market also has access to the Clearing Guarantee Fund for use in the event of default of one or more Clearing Participants. The Clearing Guarantee Fund represents a significant component of the overall capital adequacy of ASX Clear (Futures).
The Fidelity Fund of Australian Securities Exchange Limited
Australian Securities Exchange Limited maintains compensation arrangements, to provide a fidelity fund for losses suffered by clients of ASX 24 Participants where a client has given money or other property to a Participant in connection with effecting a transaction on ASX 24 and the Participant has misappropriated or fraudulently misused the money or other property.
Compensation is not available for trading losses or for losses arising as a result of poor advice given by a futures broker. Only ASX-listed CFDs offer the added protection of being listed, traded and cleared on ASX.