ASIC wants to remake rules for retail OTC derivatives issuers

Rick Steves

Submissions regarding the abovementioned consultation paper are due by 29 July 2022

ASIC is proposing to remake its class order on the financial requirements for issuers of over-the-counter (OTC) derivatives to retail clients.

The Australian financial watchdog released a consultation paper with the proposal as the class order is due to expire on 1 October 2022.

The financial requirements for retail OTC derivative issuers aim to ensure AFS licensees have adequate financial resources to operate their business in compliance with the Corporations Act and to manage the operational risks inherent in the OTC derivatives market.

Retail OTC derivative issuers can comment on ASIC’s consultation paper

The consultation paper outlines ASIC’s rationale for proposing to remake the instrument for five years, including that the financial requirements remain appropriate and are operating effectively and efficiently.

Submissions regarding the abovementioned consultation paper are due by 29 July 2022, thus leaving two further months for the regulator to evaluate commentary provided by AFS licensees and make any suggested changes before the class order expires, on 1 October 2022.

Legislative instruments cease automatically after a period of time unless action is taken to preserve them. This ensures that instruments are kept up-to-date and only remain in force while they are relevant and fit for purpose.

Under CO 12/752, retail OTC derivative issuers must:

  • meet a net tangible asset (NTA) requirement where the licensee must hold the greater of $1,0000,000 or 5% of average revenue;
    prepare, each quarter, projections of cash flows over a 12-month period based on their reasonable estimate of revenues and expenses over that term;
  • meet an NTA liquidity requirement where the licensee must hold 50% of the required NTA in cash or cash equivalents and 50% in liquid assets;
  • financial trigger point reporting obligations if licensees fail to hold the required NTA.

 

Marex obtained ASIC license for OTC derivatives products

ASIC has recently approved Marex to operate in the country with its OTC derivative products, futures execution, clearing services, and broader OTC offerings.

Besides acquiring the ASIC license, Marex has opened an office in Sydney, from where the operation will be based. The firm already has more than 70 are based in Asia Pacific out of Hong Kong and Singapore, with plans to expand further in the region.

The Sydney office will be led by Nick Burke, head of APAC Sales for Marex Solutions. The Marex Australia team, which will be under his responsibility, will provide local clients with OTC derivative products to hedge commodity and foreign exchange price risk.

Marex Australia will then expand its product set to include futures execution, clearing services and broader OTC offerings.

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