Aussie watchdog ponders derivatives competition

Australian market regulator, the Australian Securities and Investments Commission, is proposing levelling the playing field to allow competition in the country’s derivatives markets, a year after the successful launch of competition in equities.

Australian market regulator, the Australian Securities and Investments Commission (ASIC), is proposing levelling the playing field to allow competition in the country’s derivatives markets, a year after the successful launch of competition in equities.

ASIC has tabled a consultation paper which would amend the market integrity rules for the Australian Securities Exchange’s derivatives market, ASX 24, and the market integrity rules which will apply to a new firm which has applied for an Australian market licence – FEX Global Pty Ltd (FEX).

CP 195 proposes amendments to market integrity rules on risk management to ensure all market participants demonstrate prudent risk management regardless of whether they are executing business for client accounts or for house accounts on the ASX 24 and/or FEX markets.

The consultation asks the market for feedback on supervisory policies and procedure requirements to ensure compliance by market participants with market integrity and operating rules and proposes additional rules on capital, reporting, margins and disclosure in relation to clearing arrangements for market participants that would trade on the FEX market.

Last year, ASIC brought competition to the country’s equities markets by permitting the launch of Chi-X Australia as an alternate venue to rival incumbent bourse, the ASX.

The regulator has consulted at length on FEX’s application for an Australian market licence. In March 2011 it released a consultation paper to gain feedback on FEX’s application for a licence to operate an exchange market for energy, commodity and environmental derivatives.

Presently, only two domestic australian market licenses exist to operate retail and wholesale exchange-traded derivatives markets in Australia. Both are controlled by the Australian Securities Exchange Group (ASX).

The FEX Group presently runs a licensed OTC swap execution facility in Australia called Mercari Direct. Since January 2011, Mercari has been licensed to offer OTC markets in commodity, energy, interest rate, foreign currency and environmental products.

In May 2011, ASIC proposed market integrity rules for FEX and consulted on minor amendments to the ASIC Market Integrity Rules to facilitate competition.

“ASIC is finalising its advice on the FEX application for an Australian market licence to the Minister for Financial Services and Superannuation, who is ultimately responsible for granting the licence,” a release from the regulator read.

ASIC is seeking feedback on the proposals by 21 December 2012.

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