Over the past few months, brokerages in Australia have been preparing themselves for the introduction of the reporting requirements imposed by ASIC. Most Australian margin FX, CFD and binary options brokers are Reporting Entities in what is known as ‘Phase 3B’ of the trade reporting requirements for Over-the-Counter (OTC) derivatives which have been phased in over the past 12 months in Australia.
On 8 October 2015, ASIC hastily announced that they would move the commencement for Phase 3B entities from 12 October 2015 to 4 December 2015. This will allow brokerages to properly implement the requirements. Many brokerages have taken the opportunity to engage firms to assist them with the requirements which can seem overwhelming if you’re dealing with them alone.
Now with some extra time to meet the requirements, we take the opportunity to examine what a trade repository or the regulator, ASIC, can surmise about your business from the data they’ll be receiving from Monday onwards.
Q: Does the data identify my individual clients?
A: With the cost of leads increasing steadily as more brokers enter the market, service offerings standardise and spreads become thinner, and protecting the relationship with the client is paramount for brokers. In cases that the client is an individual, the ASIC reporting rules require a unique ID and the client’s legal name. No phone numbers, emails or addresses are required in the reports.
Q: I’d like to keep my trade volume figures private, are these exposed in the data I report?
A: No. Most brokerages have elected to use the “snapshot reporting” provisions of the trade reporting legislation for their transactions. This means that you are effectively only reporting transactions open at the end of the day. If a transaction is opened and closed before the end of day it is not required to be reported. In these circumstances, the data won’t capture the total trade volume of your firm or individual clients.
Q: What is the definition of “end of day”?
A: There isn’t one. We suggest you choose an end of day that aligns with the end of day on your servers and your current reporting processes and stick to it (subject to daylight savings which shifts the end of day for many brokers twice a year by one hour).
Q: Could the data reveal the profit or loss of my firm?
A: No. Again, due to closed transactions not being reported there is no possible way to ascertain the profitability or revenue of a Reporting Entity.
Q: Can ASIC work out whether my clients are trading profitably?
A: No. Again, due to closed transactions not being reported there is no possible way to ascertain the profits or losses of your clients.
Q: Will the information I provide identify whether we are an STP broker or running a book?
A: No. As most brokers will benefit from single sided relief they will not have to report all or some of their hedging trades (trades done with another reporting entity). Therefore there would be no possible way to extract or calculate the ‘risk model’ of the broker from the data and trades reported.
Q: Can ASIC reconcile our client money on trust with the collateral figures from reported trades?
A: No. Due to an anomaly in the legislation, brokers with retail clients or clients that are not Reporting Entities don’t have to report how much collateral was posted by the client. Brokers only have to report the collateral that they post for trades, i.e. hedging trades. Again, single-sided relief may apply to your hedging trades meaning the collateral you have posted with your hedging counterparty doesn’t get reported to any trade repository. Similarly it is not possible for ASIC to know from the reported trades whether you have posted client money (under the Corporations Act provisions allowing you to do so) or firm capital with your hedging counterparties.
If you have any other concerns about the data which needs to be reported, don’t hesitate to be in touch with us to discuss further.