ASIC Confirms Extension of Retail OTC Derivative Brokers’ Financial Requirements for 5 Years

ASIC has remade its class order on the financial requirements for issuers of over-the-counter (OTC) derivatives to retail clients. The class order is due to expire on 1 October 2022.  

The new instrument, which was made following public consultation in June 2022​, sets out the financial requirements for issuers of OTC derivatives to retail clients. 

The financial requirements aim to ensure Australian financial services licensees have adequate financial resources to operate their business in compliance with the Corporations Act 2001, and to manage the operational risks inherent in the OTC derivatives market. ASIC has made the instrument for five years.

Under the instrument, retail OTC derivative issuers must:

• ​meet a net tangible asset (NTA) requirement where the licensee must hold the greater of $1,000,000 or 10% 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,

• ​comply with financial trigger point reporting obligations if licensees fail to hold the required NTA.