New 'high-risk' derivatives on the rise

An innovative financial product, known as perpetual futures contract (perps), are currently under the scope of the market regulator, spreading concerns that the "speculative" product may be unlawfully distributed towards retail investors.

According to the Digital Finance Cooperative Research Centre (DFCRC), perps are leveraged derivatives with no fixed expiry date, and unlike traditional futures, perps "trade continuously and use a funding-rate mechanism to keep the contract price close to the underlying spot price."

The DFCRC noted the product offers "concentrated liquidity" by avoiding the periodic fragmentation between liquidity and price discovery, while eliminating the need to roll positions by closing exposure in a contract with expiry dates.

Responding to Financial Standard's enquiry, ASIC said it is aware of the increasing exposure of perps among retail investors.

"ASIC is aware of speculative, high-risk derivatives known as perpetual futures, or perps, being offered to Australian retail investors," an ASIC spokesperson said.

"Businesses offering derivatives, including perps, will generally require an Australian financial services licence (AFSL).

"ASIC takes unlicensed conduct seriously and where it identifies serious misconduct it won't hesitate to take further action."

ASIC said it will continue to monitor developments in the digital assets space and is working with providers to ensure they are fully licensed, in line with INFO Sheet 225.

ASIC has also imposed a product intervention order (PIO) with several contracts for difference (CFD) issuers and since commencement more than $40 million have been refunded with CFDs that were in contravention of the PIOs.

The PIO will remain in place until 23 May 2027, and ASIC intends to remake the order by incorporating any updates required to capture new and emerging high-risk products.

Earlier this month, OKX Australia launched the USDT-settled Equity Perpetual Contracts, noting the product is exclusively available to wholesale investors.

"Equity perpetual contracts are synthetic perpetual derivative contracts that reference an OKX-calculated index, providing synthetic exposure to the price movements of selected equities and commodities. Clients do not obtain ownership of any underlying equity or commodity at any time," OKX Australia said on LinkedIn.