Under ASIC’s Reporting Rules, most Australian margin FX and CFD brokers are Reporting Entities that are required to report their transactions as they are considered to be over-the-counter (OTC) derivatives.
We take a look at what a trade repository or ASIC can surmise about your business from the data they receive.
Q: Does the data identify my clients?
A: 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.
Likewise, where the client is a business, you are required to report only information which is otherwise publicly available. No phone numbers or emails 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: The transaction volumes report will be available to the trade repository and ASIC. Since the transition to intra-day trade reporting (and the closure of the snapshot exemption for many types of transactions), the volumes open and closed through the day are reported along with a snapshot of the open positions at the end of the day.
For OTC derivatives which still have the snapshot exemption available, this means that you can elect to only report 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, therefore the reported data won’t capture the total trade volume of your firm or individual clients for that type of OTC derivative.
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: Not necessarily. The trade repository will receive your transaction data including P&L information for trades occurring under the ASIC reporting regime. Where you are eligible for single-sided relief for your hedge trades, the trade repository will not see those trades unless your counterparty also reports to ASIC. Technically your overseas counterparty is meant to designate to the trade repository that the trades need to be passed through to ASIC, however ASIC’s recent consultations papers have indicated that this process is not working as efficiently as they would like so it’s likely there are currently gaps in that data. Therefore it’s like that ASIC will not have full details to conduct profitability analysis on your firm and in any event, are unlikely to be using the data to generate this type of analysis unless you come under detailed regulatory scrutiny.
Q: Can ASIC work out whether my clients are trading profitably?
A: Yes, ASIC can extrapolate profitability from the transactions reported on individual 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 (and as outlined above), ASIC will be unlikely to have the details of all hedging trades. Therefore, under the current reporting rules 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.