Online Broker Says No Dodd-Frank Link To Ceasing Gold, Silver CFDs

Online brokerage CMC Markets PLC (CMCM.LN) said Monday there is no link between the decision of its Australian branch to stop offering some gold and silver derivative products and post-financial crisis regulatory reforms in the U.S.

Senior dealer Matt Lewis said that the decision to cease trading July 2011 gold and silver contracts-for-difference was driven by the lack of investor interest in the products.

"From our perspective we simply see much more transaction flow in the spot gold and silver markets," he told Dow Jones Newswires. "In terms of client flow or interest you could count the (futures) trades on one hand, whereas spot gold is in our top five traded instruments."

The markets blog Zero Hedge said Sunday that CMC "has just formally joined the increasingly larger group...which is now advising customers that gold and silver trading will be prohibited in a month".

The site put this down to regulations in the Dodd-Frank law which prevent businesses trading over-the-counter metals and foreign exchange contracts with retail investors. Leveraged trades with retail investors, such as margin trading, are also prohibited.

"It appears that ever more brokers are interpreting the law loosely enough to where practically all gold and silver products will soon be removed from retail participation," Zero Hedge said.

However, traders in Australia pointed out that contracts for difference--which allow participants to make bets on the direction of future price movements--are already illegal in the U.S.

"This affects U.S. companies really," said Ben Potter, a markets strategist at IG Markets in Melbourne. "We haven't got many U.S. clients really," he said.

The Dodd-Frank law, passed to prevent the sort of excesses which characterized financial markets before the 2008 bankruptcy of Lehman Brothers Inc., wouldn't prevent trades which take place on exchanges, such as CME Group Inc.'s (CME) Comex.

Over-the-counter trades are those that take place directly between two participants, without a central clearing entity such as an exchange.

-By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com

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