Four days before Christmas, Treasury released a policy paper that proposes to force local trading institutions to hold client money - including that of so-called 'mum and dad investors' - in trust.

Currently, small and medium-sized Australian trading firms use client money to hedge against risk. The process is similar to a bookmaker laying off bets with other bookies to reduce exposure to a large payout.

The sector affected, known as contracts-for-difference (CFD) and foreign exchange (FX), is worth $12 billion a year.

Under the government's proposed change to the Corporations Act, up to 20 Australian-owned traders say they could be forced out of the market or have to curtail products they offer because they don't have the financial clout to hold money in trust without hedging.

The policy paper, overseen by Assistant Treasurer Kelly O'Dwyer, appears to have been driven by a group of four international traders - the London-based IG, CMC Markets, Canadian forex exchange OANDA and US-based Gain Capital.

Together, they established the 'Australian CFD and FX Forum', a group that claims to be representing best-practice in the industry to protect the interests of consumers.

It took on a lobbyist, Hugh Fraser of FCC Partners, who has spearheaded the forum's campaign in Canberra.

Fairfax Media has spoken to the chief executives of at least six rival Australian trading companies. All said the proposed change would reduce competition in the market and be negative for online traders at home.

Some even claimed the forum is an example of "astroturfing" - the use of artificial grass roots to create an impression of widespread support for a particular political agenda.

In November, Fairfax Media exposed the Family Office Institute Australia, whose submission informed large parts of a Senate report that recommended the government shield privately-owned companies from increased tax transparency. The "institute" had no members and was established by a group of tax lawyers that represent the ultra-rich.

Interests of who?

Critics of the Australian CFD and FX Forum say even its name is misleading as none of the Australian companies in the industry have joined the group and it only represents the multinational trading giants.

Instead, they claim, the main effect of the draft bill will be to boost the business of those four member companies - which already use the model of keeping client money on trust - to the detriment of local player and consumers.

Australian companies that believe they are in a fight for their existence have now established the rival 'CFD and Margin FX Association' in an attempt to reverse the government's course.

Association director Matthew Murphie said: "We are concerned that the proposed changes, which have been promoted by just four large foreign companies, are at their heart anti-competitive."

Fairfax Media attempted to contact the forum but did not receive a response.

Who will really benefit?

In a recent press release on the forum's website, director Paul Casey, the head of compliance at CMC Markets, commented on the government's proposed legislation.

"The issue has been extensively examined by ASIC and Treasury in recent years.  Legislative reform to benefit and better protect investors is straightforward and should be introduced as soon as possible," he said.

Mr Casey said the existing system had put investor funds in peril and detracted from "Australia's standing and reputation as a global leader in financial services regulation".

But some Australian companies in the market that will not be affected by the change say it will be detrimental.

Alex Douglas, managing director of IBFX - one of the companies not affected - said the existing rules were "pretty good as they are".

"There's no doubt that one group has put in a big lobbying effort, all under the guise of providing greater protection for clients. But it is undeniable that a consequence of that will be that it will damage some of the small players and reduce competition," he said.

Geoff Worboys of Halifax Investment Services said: "The market won't be as competitive and the consumer is the person that's going to suffer."

In its policy paper, Treasury said the global financial crisis and subsequent corporate failures "demonstrated that Australia must have a robust client money regime which adequately protects retail clients and their client money".

A spokeswoman for Ms O'Dwyer said the government "encourages all interested stakeholders to lodge a formal submission".

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