Promoted by the ASX, public market listed CFDs will be a world first that will introduce a new style of CFD to the Australian financial scene.
Instead of coming as a package with the provider organising the price making, the trading and the margin lending through private platforms where every product is different, ASX CFDs will be offered through an ASX platform with multiple price makers and standard product designs. Features such as transaction and margin management will also be standardised and separately organised by the exchange.
As well as cash dividends for long holders (which all CFDs offer), ASX CFDs will offer cash payments in lieu of dividend imputation franking credits for those eligible to receive them while another distinguishing feature will be lots of publicly available trading information like daily and other regular price summaries for individual listed CFDs. There will be volume turnover figures and long and short open positions, as well movements in these positions.
“Listed CFDs will offer the usual statistics that accompany all markets where retail traders are active,” says Ken Chapman, the ASX’s general manager of new markets.
While there is no way of telling whether traders will accept market listed CFDs over the very established unlisted CFDs, one thing the new arrivals will do is continue to spread the CFD message.
There is no question that as far as their profile as trading instruments goes, CFDs are on a roll. Relatively simple to understand and trade, they have rapidly become the preferred trading derivative for the growing number of private traders attracted by the booming share market, especially over the past two or three years.
A recent annual survey by Sydney-based financial researcher Investment Trends Pty Ltd not only identified 31,000 primary clients of CFD providers at the end of April but also noted it was double the number of traders 12 months previously. In addition, the researcher identified another 27,000 investors very interested in trading CFDs within the next 12 months.
It’s all been happening without there being any public market in CFDs to date.
While the trading action has been taking place over-the-counter, which is how private market arrangements are described, CFDs have certainly attracted plenty of public attention. They are a growing influence in the underlying markets that their price movements are based on, especially the Australian share market.
Each day anywhere between 10,000 and 12,000 share market transactions are believed to be CFD sourced which is about five per cent of all share market transactions. One point to note is that CFD market activity is all guesstimates. No-one knows how much action there is in CFDs. If there is one thing that current CFD participants guard closely, it’s the business they do.
Whether it is important that traders are aware of CFD market activity information is often dismissed by current providers who argue that traders are more interested in what happens in the underlying assets than what takes place in CFD markets themselves.
However Mark Johnston, Investment Trends principal, notes that research has suggested aspiring traders are showing an increased appetite for greater knowledge and information about CFD fundamentals and trading before they begin. They have said they first want to learn more about CFDs, he says. “The key for CFD providers seeking to attract the next wave of traders lies in recognising where their needs differ from those of early adopters of CFDs,” Johnston says.
What all traders want, he says, are low transaction fees. Being able to offer competitive fees is a pre-requisite for success for the ASX or anyone else wishing to attract traders. “You don’t necessarily need to be the cheapest, but you do need to be competitive with other providers”, he says.
ASX CFDs will be very competitive, reckons Chapman, because economies of scale will see listed CFDs able to be offered at lower costs. His actual claim: the costs of trading and holding positions will be less although he declined to be more specific as yet.
For those wishing to gain insights into listed CFDs the ASX has begun releasing some information in advance of the launch.
While far from giving a complete picture, what has been disclosed is that the initial product list will comprise single share CFD contracts over the top 50 Australian shares, six index contract CFDs (five of them overseas indices), eight foreign exchange contracts along with commodity contracts over gold and oil.
Markets for ASX CFDs will be made by various members of a 10 strong group of so-called designated price makers who will compete to provide prices, although as Chapman says this won’t stop anyone else from putting a price into the market’s central order book. The price maker members include Merrill Lynch, ABN AMRO, UBS, Commonwealth Bank, IMC Pacific, Optiver, TimberHill and Susquehanna.
Along with multiple price makers, there will be a similar number of brokers expected to be active when things finally happen. Current experienced over-the-counter CFD promoters such as Commsec, Man Financial and First Prudential Markets are expected to be also active in the ASX CFDs. A number of equity brokers are also readying themselves for the market launch including ABM AMRO Morgans, Bell Potter, Morrisons and Opes Prime. The timetable, according to Chapman, is a participant readiness date by the end of August with the trading system running on a maintenance basis from early September and the 66 contracts then being rolled out over a four week period from mid-September. This suggests the full offering will be available by mid-October.