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#1 28-12-2019 16:46:10

johnedward
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From: Paris - France
Registered: 21-12-2009
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ASIC implements new rules for institutional traders

ASIC implements new rules for institutional traders


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As market participants wait for Australia's ASIC regulatory agency to implement restrictions on leverage for contracts for differences (CFDs), the regulator has implemented new rules regarding institutional clients.

The regulator has excluded the "price and value test" which is used by CFD issuers to rank clients among institutional traders.

Institutional clients in Australia are similar to professional traders in Europe, they may have access to a wider range of investment assets, but they don't enjoy the same level of protection as regular traders.

More specifically, the price and value test allows licensees to categorise their traders as institutional when the price or value of financial product supplied to a person exceeds $500,000 (AUD). The amended rules don't affect the other criteria applicable to institutional investors.

According to Sophie Gerber, director at TRAction Fintech: "The justification for the amendment appears to be that the face value of $500,000 AUD within a CFD could be reached with a modest initial margin."

"Traders that are considered to be institutional are excluded from certain rules, including the issuance of disclosure documents, the product disclosure statement and guide to financial services; the ability to register complaints with the AFCA; ensuring that staff who deal with traders properly handle traders' funds."

What should CFD issuers be doing?

All ASIC licensees who issue CFDs should examine their institutional traders and determine their classification. If they have been classified as institutional traders on the basis of price and value, licensees should check whether these traders can meet any of the other requirements.

"When it is no longer appropriate for a client to be classified as an institutional trader, the license holder must inform the client of his or her reclassification, in particular by providing him or her with information and informing him or her of his or her new client protection benefits", adds Gerber.

"Client funds must also be reconciled immediately to ensure that any of their funds that were previously classified as institutional  comply with the rules for handling individual client funds."

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