Client Money Protection
When selecting a CFD provider, it's important to research the policies followed by the company concerning the use of client money. Asking the right questions allows you to stay informed and choose the best CFD provider for you.
Are my funds held on a segregated basis?
Yes - we segregate all client money, holding your funds in a separate, regulated trust account at approved top-tier banks. This means that your money is not pooled with IG’s money.
We also keep your net running, unrealised profits in a regulated trust account. And, unlike other providers, we do not use your deposits or your unrealised profits to hedge in the underlying market.
What is hedging?
When you open a CFD position, some CFD providers may then hedge that position in the underlying market.
For example, let's say you bought 1,000 Westpac share CFDs. As the CFD provider sold the CFDs to you, it would have a corresponding short CFD position. If the price of Westpac shares went up, you would make a profit while your provider would make a loss. To reduce this risk, some CFD providers may hedge client positions in the underlying market. In this case, if the provider did hedge, it would buy 1,000 Westpac shares.
Now the CFD provider would hold two positions – a short position on 1,000 share CFDs, and a long position on 1,000 shares. If the share price rose, the provider would make a loss on the short position, but this would be offset by a profit on the long position. Likewise, if the share price fell, the provider would make a loss on the long position which would be offset by a profit on the short position.
Your CFD position remains unchanged – when the price of Westpac goes up, you make a profit, and when it falls you make a loss.
We hedge client exposures in the underlying market (on a net basis, or directly through our direct market access offering), but we only use our own funds to finance such hedging activity.
Some other Australian CFD providers routinely use their clients' money (as opposed to their own money) to hedge their risk from clients. While this practice is permitted under ASIC rules, we believe it exposes clients to counterparty risk from hedging counterparties and other clients.
What is counterparty risk?
If you are involved in a transaction, the 'counterparty' is the person or company on the other side of that transaction. When trading CFDs, as you are buying or selling the CFD from the CFD provider, the CFD provider is the counterparty.
Counterparty risk is the risk that the counterparty does not fulfil their obligations.
How are my funds protected with IG?
We use only our own money for hedging purposes and do not pass client money to hedging counterparties or to any part of the business as working capital. As a result, counterparty risk with IG is very low compared with some other Australian providers.
We are not an investment bank, have no exposure to corporate or sovereign debt and do not initiate speculative positions in the market. Furthermore, the IG Group is debt-free, with substantial liquidity and capital reserves significantly in excess of regulatory requirements.
Where do you hold my funds?
All money held on behalf of clients is held in a separate trust account at a top-tier Australian bank.
What happens if IG Markets goes into liquidation?
As all deposits lodged with us are held on trust for you in a regulated trust account, in such circumstances those deposits would attract all the legal protections afforded to trust money. Net unrealised running profits are also held in trust by us (in excess of our regulatory requirements) and would normally be similarly protected for your benefit as beneficial owner. Please see our PDS for further information.
Are there any additional safeguards in place regarding client money?
IG’s compliance with AFSL obligations, license conditions, client money legislation and the PDS are audited annually by its statutory auditors.
IG Group Holdings PLC, the parent of IG Group, is listed on the London Stock Exchange and is a constituent of the FTSE® 250 index. It has a current market capitalisation of approximately $2.5 billion and capital resources for the year ended May 2012 of $492.3 million. An unrivalled balance sheet and adherence to both London Stock Exchange and Financial Services Authority rules afford clients the security, resources and stability of a multinational organisation.
IG Markets is regulated by ASIC and is a holder of Australian Financial Services Licence 220440. IG Group companies are regulated by the local regulators in each country of operation.
As the longest established CFD provider in Australia and one of the longest established globally, IG Markets' staff typically have a wealth of experience in the industry, and are trained to exacting standards on an ongoing basis.
Being a Smart Consumer
Choosing the right CFD provider is the first step in managing your trading risk.
All traders are advised to look for information in a CFD provider's Product Disclosure Statement (PDS) for information about how the provider hedges client positions and stores client funds. Calling client services for information and looking into financial statements (if available) can also be beneficial.
Our PDS, Counterparty Credit Management and Hedging Policy and Financial Statements are available for you to download. It is also recommended you read our Regulatory Benchmark Disclosure, designed by ASIC to help you understand the risks associated with CFDs, assess your potential benefits and decide whether investment in CFDs are suitable for you.
ASIC has also produced a guide on its MoneySmart website, which can help you assess the risks of CFDs:
Before opening a CFD account, you should ask your provider the following questions. If they can't answer 'Yes' to all, then you're not getting the best possible client money protection.
|Client Money Protection|
|IG is regulated by ASIC|
|All money is held in regulated trust accounts at top-tier Australian banks|
|IG only uses its own funds for hedging|
|We segregate your net unrealised profits in regulated trust accounts at top-tier Australian banks|