IGMarkets Australia Ltd has expressed confidence on Tuesday that its local contracts-for-difference (CFD) trading presently stands on solid ground as it gave assurance that ample disclosure of risks are being observed and the company even procedurally vet all clients who open accounts.

Company chief executive Tamas Szabo is welcome to the steps being taken by the Australian Securities and Investments Commission (ASIC) to achieve tighter industry regulation but he lamented that the corporate watchdog may be mistaken in some aspects.

He said that as a rule, all CFD providers highlight the risks of CFDs on both advertising the moment the account has been opened.

The statement is in reaction to concerns raised by ASIC acting chairperson Belinda Gibson when she said that the agency is concerned "whether a lot of people in the CFD market really understand that this is a leveraged play in equities and (that) they really understand things like counterparty risk with CFD providers."

A CFD is an agreement to exchange the difference in value of a given asset between the time at which the contract is opened and at the time it is closed. It is usually utilised by knowledgeable investors who are risking short-term positions in volatile markets.

Mr Szabo gave assurance to ASIC that as far as their company is concerned, "we make sure they have the right amount in savings and earnings that we believe is sufficient for someone to trade CFDs," and their vetting process rejects up to 10 percent of applications by prospective CFD clients.

He lauded ASIC's initiative to improve the transparency regarding counterparty risk and said that it was well founded, as he gave assurance that IGMarkets is not in the business of passing its clients funds to brokers in order to broker its hedging positions.

Mr Szabo conceded that such practices could unduly expose clients to the risk of losses in the event that CFD provider or broker experiences financial difficulty.

According to Investment Trends, CFD traders accounted for only four percent of all direct share traders in June 2009 but volatility in the equity market boosted the CFD market and delivered up to 43 percent revenue jump or $79.1 million for IGMarkets from the period of 12 months leading to May 31 this year.

As of June 2009, IGMarkets had already secured 25 percent of the CFD market as compared to its rival CMC Markets' 22 percent though the latter has a 41 percent share of unique clients and the highest trading volume. Other providers include City Index, MF Global, First Prudential Markets, Macquarie Prime and Commonwealth Securities.