ASIC Proposes Changes to Securities and Futures Markets Regulation

If the proposals are put into law, firms' risk management systems will have to change significantly

The Australian Securities and Investments Commission (ASIC) released a consultation paper this Wednesday which proposed changes to regulations governing the futures and securities markets. ASIC’s proposals would see changes to capital requirements in the securities markets and a shift in the risk management regulation of the futures markets.

At the moment, ASIC risk management in the futures markets is set so that firms must hold a set amount of net tangible assets. The Australian regulator is proposing a change to a “risk-based capital regime.”

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In effect, this would mean that firms would have to calculate how much risk they are exposed to – something one would imagine they do anyway. They must then hold a level of liquid assets greater than the amount of risk that they are exposed to.

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A whole new rule book

Alongside this, ASIC plans on creating a single capital rulebook for securities and futures market participants. Currently, no such rulebook exists, and there is a clear separation between the regulation of securities and futures markets.

Today’s consultation paper also brought the futures and securities markets together under proposed changes to capital requirements. ASIC’s consultation paper states that it will seek to change these rules so that futures market participants must hold core capital of $1,000,000 and securities market participants must hold $500,000

Participants in both markets may also have to start preparing liquidity stress tests akin to those used by banks in the EU. Though not as in-depth as those tests, firms will have to start preparing 12-month cash flow projections for both normal and stress scenarios.

Using this information, firms will then have to create contingency funding plans and procedures for managing potential liquidity risks. They will also have to prepare for the possibility of escalating liquidity problems.

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