ASIC has remade class order [CO 12/752] Financial requirements for retail OTC derivative issuers which was due to sunset on 1 October 2022.
The new instrument, ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705, sets out the financial requirements for issuers of over-the-counter (OTC) derivatives to retail clients. The financial requirements aim to ensure Australian financial services licensees have adequate financial resources to operate their business in compliance with the Corporations Act 2001, and to manage the operational risks inherent in the OTC derivatives market. ASIC has made the instrument for five years.
Under the instrument, retail OTC derivative issuers must:
- meet a net tangible asset (NTA) requirement where the licensee must hold the greater of $1,000,000 or 10% of average revenue
- prepare, each quarter, projections of cash flows over a 12-month period based on their reasonable estimate of revenues and expenses over that term
- meet an NTA liquidity requirement where the licensee must hold 50% of the required NTA in cash or cash equivalents and 50% in liquid assets,
- comply with financial trigger point reporting obligations if licensees fail to hold the required NTA.
The instrument was made following public consultation through Consultation Paper 363 Remaking ASIC class order on financial requirements for retail OTC derivative issuers (CP 363) which was issued in June 2022. ASIC received one submission in response to CP 363 which was supportive of the proposed recommendation to remake [CO 12/752] without significant changes.
Background
Under the Legislation Act 2003, legislative instruments cease automatically, or 'sunset' after a period of time unless action is taken to preserve them. This ensures that instruments are kept up-to-date and only remain in force while they are relevant and fit for purpose.
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ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705