Is There a Loophole Excluding CFDs and Forex from OTC Trade Reporting?

Despite what some brokers apparently believe, ASIC expects CFDs and margin FX to be reported and will use their enforcement

Through TRAction Fintech’s ongoing interaction with the FX and CFD industry in Australia, it has come to our attention that a handful of brokers are of the opinion that CFDs and margin FX are not covered in the OTC Trade Reporting Rules, therefore meaning that they do not need to report to an Australia Derivative Trade Repository (ADTR). Brokers have either received this advice or have come to their own conclusion that CFDs and margin FX are not subject to reporting requirements.

While the handful of brokers that have decided not to report are understandably quiet on their reasons for not reporting, we have learnt that this view likely stems from omissions in the description of products covered in ASIC Regulatory Guide (RG) 251. On page 28 of ‘RG251: Derivative Transacting Reporting’ there is a table headed ‘Products that must be reported’.

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The table for foreign exchange derivatives lists:

Non-deliverable forwards
Non-deliverable options
Exotic options
Precious metals swaps

The table for equity derivatives lists:

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Equity swaps
Equity index swaps
Equity options

As you can see from the above list, there is no specific mention of either margin FX or CFDs. We took this issue up with ASIC’s OTC Derivatives team back in June 2015 and they advised us that FX and CFDs were caught by the more general clauses in other parts of the overall legislation.

TRAction has heard that AFMA, on behalf of the industry, has also investigated this exclusion further with ASIC and wasn’t able to resolve the issue in favor of brokers not having to report.

We also hear through the licensed trade repositories that their discussions with ASIC around the issue have been unambiguous.

ASIC expects CFDs and margin FX to be reported and will use their enforcement powers over those that choose not to.

Sophie Gerber is the co-CEO of TRAction Fintech, a regulatory technology firm providing compliance solutions for brokers, including Best Execution and Derivative Trade Reporting and principal of legal firm, Sophie Grace which provides legal and compliance advice to financial service firms including FX and CFD brokers.

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