FXCM Joins the Australian CFD Forum Call to Require Mandatory Segregation of Client Funds

IG Markets, GFT Global Markets and CMC Markets created the Australian CFD Forum to petition the regulator to apply harsher

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FXCM has joined other CFD brokers in the country to require segregation of company and client funds by law, the Australian Sydney Morning Herald reports.

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Last month the Australian Competition and Consumer Commission (ACCC) approved self-governing standards for the industry that say that client money should be segregated and protected. These standards were proposed by the Australian CFD Forum, an industry body that was created by CMC Markets Asia Pacific, GFT Global Markets UK and IG Markets. It is believed that IG Markets is still unsatisfied with the law, holding that it should provide more consumer protection.

Jaclyn Klein, FXCM’s Vice President for Corporate Communications, has stressed the company support of the move. “If there were any regulatory moves in Australia to prevent pooling of client funds we would be fully supportive of this direction,” she said. FXCM client funds in the UK are segregated by law, so the broker is familiar with the possible effects of such a requirement elsewhere in the world.

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Jaclyn Klein, FXCM’s Vice President for Corporate Communications, has stressed the company support of the move. “If there were any regulatory moves in Australia to prevent pooling of client funds we would be fully supportive of this direction,” she said. FXCM client funds in the UK are segregated by law, so the broker is familiar with the possible effects of such a requirement elsewhere in the world.

Local brokers voiced their objection to the Australian CFD Forum course of action, claiming that this is a move spearheaded by non-Australian firms who will gain from a new law at the expense of smaller, local companies.”We are opposed to foreign firms operating under the guise of the ‘Australian CFD Forum’ trying to lobby for a change in Australian law,” Owen Kerr, Director of the local Pepperstone, told Forex Magnates. “We see this type of anti-competitive industry lobby power exerted in US politics and it is not something we should accept in Australia.”

As for the debate in question, however, Kerr’s firm is rather agnostic. “Given we have significant balance sheet strength any changes to the law would not affect our operations,” he said. But other Australian brokers such as AxiTrader, oppose the move itself, saying the ACCC standard contained “exclusionary and cartel provisions.” “They are anti-competitive and constitute a barrier to entry to the CFD industry by Australian companies,” he added.

Tamas Szabo, Chief Executive of the Australian operations of IG Markets, explained that about 40% of Australia’s CFD and FX brokers use client money to hedge trades. He is quoted as saying: ”It is a $200 million hazard. There’s an example of a firm with roughly $70 million of client money, with about $3 million of their own cash in the business. If the markets don’t move it’s pretty sustainable but as soon as you see significant market moves then it is a problem. Sometimes clients can’t pay that quickly and that could be a hole in the firm’s balance sheet. Alternatively if there is a large bad debt from a client or a group of clients, again that puts a hole in the firm’s balance sheet and if that hole is greater than the cash they have on reserve, it potentially means the firm will go under.”

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