Commonwealth Consolidated Regulations

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Retail clients and wholesale clients: contract for difference

             (1)  This regulation makes arrangements about the value of a derivative that:

                     (a)  is a contract for difference; and

                     (b)  is provided by a person who carries on a business of issuing contracts for difference to other persons ( holders ).

             (2)  Paragraph 761G(7)(a) of the Act does not apply to the derivative.

             (3)  In this regulation:

"contract for difference" means a derivative to which all of the following apply:

                     (a)  the value of the derivative, or the amount of consideration to be provided under the derivative, is ultimately determined, derived from or varies by reference to (wholly or in part) the change, between the acquisition and termination of the derivative, in the amount or value of an underlying specified under the terms of the derivative;

Note 1:    For example, a derivative under which, at termination, the amount of consideration payable depends (wholly or in part) on the change in the level of a stock market index over the term of the derivative.

Note 2:    There may be other factors that affect the value of the derivative. For example, fees and costs.

                     (b)  the derivative is not able to be traded on a licensed market;

                     (c)  the derivative:

                              (i)  does not terminate on a fixed date; or

                             (ii)  if the derivative terminates on a fixed date--it is a derivative of a kind that are typically terminated before the fixed date;

Note 1:    For example, the derivative may have a fixed termination date if the underlying has a fixed termination date.

Note 2:    This means that options, futures, swaps and forward rate agreements will generally not be contracts for difference.

                     (d)  the holder has the right to terminate the derivative;

Note:       The terms of the derivative may provide for its termination in other circumstances. For example, on the occurrence of an event of default or on the issuer (other than the holder) exercising a right to terminate the derivative.

                     (e)  on termination, the obligations of the parties are settled in cash or by set-off between the parties.

"terminate" , in relation to a derivative, includes the derivative being closed out.

"underlying" , in relation to a derivative, means any thing (of any nature whatsoever and whether or not deliverable) other than the derivative, including, for example, one or more of the following:

                     (a)  an asset;

                     (b)  a rate (including an interest rate or exchange rate);

                     (c)  an index;

                     (d)  a commodity.

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