The corporate regulator wants to tighten financial requirements for over-the-counter (OTC) derivatives issuers to ensure they have enough cash on hand to meet operating costs and that they have a vested interest in doing so.
“Owners of issuers of complex and risky OTC derivatives, such as contracts for difference (CFD) 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,” ASIC commissioner Greg Medcraft said.
“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.”
ASIC has released a 24-page consultation paper on its proposals and wants feedback from the industry.
Its proposals, if adopted, include a requirement that issuers provide quarterly rolling 12-month cash-flow forecasts to ensure they have enough money on hand to meet operating costs, and show they will have access to enough money to meet liabilities over the next 12 months, including any additional liabilities they might incur over the year.
Issuers would also need to hold net tangible assets equal to $1 million or 10 per cent of average revenue, whichever is greater. They would need to hold the NTA half in cash and half in other liquid assets.
“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,” Medcraft said.
Meanwhile, ASIC permanently banned Sydney-based derivatives trader Omar Diab from providing financial services after finding he conducted business without a licence.
Diab was a director of Xenith Capital Pty Ltd and Xenith Investment Corp Aust Pty Ltd. He opened CFD accounts on behalf of his clients through CMC Markets.
However, ASIC said CMC Markets was not suspected of any wrongdoing with respect to Diab.
