ASIC surveillance after MF Global’s collapse has revealed a great concern within the OTC derivatives industry in that more than 30% of providers have failed to comply with client money laws. 

“After MF Global’s collapse it is disheartening to read that there are a large proportion of providers who are not complying with the most important procedure in running a company, the protection of client money,” said Andrew Merry, Managing Director, Capital CFDs. 

Section 981D of the Corporations Act states that client money held by OTC derivative licensee can be used for the purpose of meeting obligations in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee (including dealings on behalf of people other than the client). 

“When Capital CFDs came to Australia, we were stunned to find out that the Corporations Act allowed operators to use client funds to finance operational costs, which is clearly not in the interest of the client. We brought with us the UK practice of quarantining client monies and not using it for any operational purposes at all, including the hedging of client positions. I believe we are getting closer to having this standard applied across the industry with Treasury considering a change to the law,” said Merry.

 4 June 2012

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