ASIC Proposes Continuation of Retail OTC Derivative Brokers’ Financial Requirements Until 1 October 2027

ASIC has today released a consultation paper proposing to remake 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.  

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The financial requirements in CO 12/752 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.   

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; and

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

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.

"We have proposed to make the instrument for a period of five years, so that it expires on 1 October 2027. We consider that this period will provide sufficient certainty for industry and, if required, allow progress to be made in amending the primary law or regulations,"the commission said.