ASIC consults on financial requirements for issuing retail OTC derivatives

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ASIC has released a consultation paper to seek feedback on the financial requirements for issuers of over-the-counter (OTC) derivatives, such as contracts for difference or margin foreign exchange, to retail investors.


As the market for retail OTC derivatives in Australia is growing, ASIC has reviewed the financial requirements of issuers of these products. This is to ensure that issuers have adequate financial resources to manage their operating costs and risks and the owners of issuers are committed to the viability of the business.

ASIC Commissioner, Greg Medcraft, said ‘Owners of issuers of complex and risky OTC derivatives such as contracts for difference and margin forex should have enough skin-in-the-game to commit to the success of the business and its compliance with the relevant laws. Increasing numbers of Mum and Dad investors are trading in these complex and risky products and it’s important the interests of all parties are aligned.

‘We want issuers to be required to address operational risks with good cash flow forecasting and by holding sufficient liquid funds against losses and expenses that could arise from these risks,’ Mr Medcraft said.

Consultation Paper 156: Retail OTC derivatives: Financial requirements (CP 156) seeks feedback on:

  • requiring issuers to create rolling 12-month cash flow projections,
  • removing the current requirements to hold surplus liquid funds (SLF) and adjusted surplus liquid funds (ASLF) and replacing these with a requirement to hold net tangible assets (NTA) of at least the greater of $1 million or 10% of average revenue,
  • specifying the net tangible asset (NTA) liquidity requirements for issuers,
  • introducing a reporting framework concerning the level of NTA held by issuers, and
  • a staged implementation process.

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ASIC is seeking feedback on Consultation Paper 156: Retail OTC derivatives: Financial requirements (CP 156) by 4 July 2011.  Click to view the Consultation Paper.
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ASIC will consider updating regulatory guidance based on the response to the consultation paper. Current guidance for financial risk frameworks for issuers is in Regulatory Guide 166.  Click to view this guide.

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