The Australian regulator has reminded market participants they must adhere to their client money obligations and must not consider ‘buffers’ as client money in segregated accounts, warning noncompliance could incur a A$1 million penalty.
In its latest market supervision update, the Australian Securities and Investments Commission (ASIC) said market participants should be aware of the illegality of using buffers in segregated accounts.
Buffers are monies added by a market participant to the trust account to ensure the client money trust account has adequate funding.
“Buffer money is not client money, as it does not fall within the client money definition … and cannot be considered to be money for the purposes of a client money trust account,” the update read. “Accordingly, the practice of depositing buffer money in a client money trust account or segregated account is not permitted.”
The watchdog said client money segregation obligations applied to market participants of both the Australian Securities Exchange (ASX) and newly launched alternative venue Chi-X Australia.
“These client money provisions are prescriptive with respect to establishing and maintaining a client money trust account,” the read the market supervision update.
ASIC warned market participants that they should remove from segregated funds money which is not client money “as soon as practicable”.
“This should be done within one month after the money has been paid into the client money account,” ASIC wrote. “As participants are obliged under market integrity rule 3.5.9 to reconcile trust accounts by the end of each business day, ASIC expects best practice to be that client money is removed the day after the reconciliation.”
Client segregation of funds came into sharp focus last year when an estimated US$1.6 billion from client accounts held by US futures broker MF Global went missing after the firm filed for bankruptcy in October. It is alleged former company CEO Jon Corzine deliberately used client funds to cover the firm’s own prop trading shortfalls.