An Article in Sydney Morning herald
http://www.smh.com.au/business/risky...0627-zbwb.html
Should open your eyes
Those who support "free for all " and self regulation is enough will tell you///" Oh don;t bother .. we have integrity.."
Sure many do, but when things go bad.. it is the fine print that counts
Risky rise of non-broker brokers
June 28, 2010
A CRACKDOWN by the Australian Securities Exchange on stockbrokers in the wake of the Opes Prime and Tricom disasters has pushed the risks of share trading into less regulated areas, with at least 500 businesses offering stockbroking and derivatives services using models similar to the collapsed Sonray Capital group.
The Australian Securities and Investments Commission confirmed there are at least 500 companies in Australia that are not market participants but have an Australian Financial Services Licence (AFSL) and offer market exchange-traded equities. This means ASX liquidity requirements don't apply. Nor do the ASX's market rules.
What is even more disturbing is that even after ASIC takes over the ASX's supervisory powers this year, the corporate watchdog's market integrity rules, which take in most of the ASX's old market rules, including powers to fine brokers up to $1 million, won't apply to this growing sector of the market.
The Stockbrokers Association of Australia's Doug Clark told BusinessDay this sector has been of concern for some time. He said ''non-broker brokers'' offered like services to stockbrokers and should be regulated as such. "We have urged government and ASIC to apply the new market integrity rules to non-broker brokers, but they have chosen not to at this stage," he said.
In many cases, these non-broker brokers have product disclosure statements showing that if the entity goes belly up, the investor becomes an unsecured creditor. This clause, buried on page 37 of a 41-page PDS, has shocked most Sonray clients, who believed their money was safe. Instead they have been told their funds are frozen and their accounts aren't in their own name but are co-mingled with other clients' money. The upshot is most clients are now unsecured creditors.
Such entities have proliferated in the past couple of years as an unintended consequence of the tough new rules that have been imposed on market participants by the ASX in its quest to improve market integrity.
Besides pushing risks into less regulated areas, another unintended consequence of the ASX's tougher regulation is to put financial pressure on some well-known, well-run brokers with a long history of success.
In the case of liquidity requirements, from July 1, the ASX has lifted the minimum core capital requirement for stockbrokers who clear their own trades from $2 million to $5 million. This is a big leap, particularly given the requirement was $100,000 less than 18 months ago. The requirement for ''third party clearers'' that clear other participants' trades rises to $10 million.
Ironically, Tricom's delayed settlement had nothing to do with its minimum core capital. Its problems related to its securities lending practices, and Opes Prime's collapse was also due to its securities lending practices rather than straight brokering.
In the case of Sonray Capital, Lift Capital, Storm and Geelong-based broker Chartwell Enterprises, none were market participants, so they were not subject to ASX rules. They all operated under an AFSL and were regulated by ASIC.
Despite having one of the lowest trade settlement fail rates in the world, in a bid to further improve market integrity, the ASX is also looking at introducing another impost: margining of cash equities trading, which requires clearing participants to put down a certain percentage of every trade on deposit with the ASX for three days, T+3. If it is introduced, as many believe it will be, it will push more entities outside of the ASX's orbit and into the less transparent world that groups such as Sonray operate in.
This new impost would have to be met by clearing participants from capital, funding or other bank facilities such as guarantees.
The Reserve Bank, which first raised equity margining in a paper it published on risk management in 2008, acknowledged it could create liquidity problems for market participants and lead to a reduction in trading activity.
On the ASX's Australian Clearing House figures, equity margining would result in some $330 million of new daily margins being required, spread over about 50 clearing participants.
Like the ASX's decision to increase the core liquidity requirements of market participants to $5 million from July 1 this year, equity margining will push more brokers into using third-party clearing to cut their capital costs. While this might sound good in theory, third-party clearers carry their own counterparty risks. If a broker fails to settle and goes belly-up, the onus is on the third-party clearer to settle with the ASX.
Australia has three third-party clearers: Berndale Securities, which is run by Bank of America; Fortis; and Penson Securities. Berndale faced big uncertainties in 2008 when its then parent, Merrill Lynch, was saved from collapse by merging with Bank of America, and Fortis was bailed out by its government during the GFC.
The changes are aimed at cleaning up the integrity of the stock market by minimising risks surrounding stock settlement, following the disastrous delay in settlement by Tricom Equities in 2008, which wreaked havoc on the stock market and culminated in its bankers forcing it to liquidate $1.5 billion of stock.
A spokesman for the ASX said: "The ASX makes no apologies for raising the standards to strengthen market integrity."
That may be so, but there is a problem that needs tackling. If these higher standards are causing a proliferation of entities like Sonray, and evidence would suggest that they are, then it is incumbent on ASIC and the federal government to crack down on them. As a start, it should include them in the new market integrity rules being composed by ASIC. The fact that they are not being included in these new guidelines is outrageous, particularly given
http://images.smh.com.au/2009/12/03/...x127-90x90.jpg Adele Ferguson
More Adele Ferguson articles
http://www.smh.com.au/business/risky...0627-zbwb.html
Should open your eyes
Those who support "free for all " and self regulation is enough will tell you///" Oh don;t bother .. we have integrity.."
Sure many do, but when things go bad.. it is the fine print that counts
Risky rise of non-broker brokers
June 28, 2010
A CRACKDOWN by the Australian Securities Exchange on stockbrokers in the wake of the Opes Prime and Tricom disasters has pushed the risks of share trading into less regulated areas, with at least 500 businesses offering stockbroking and derivatives services using models similar to the collapsed Sonray Capital group.
The Australian Securities and Investments Commission confirmed there are at least 500 companies in Australia that are not market participants but have an Australian Financial Services Licence (AFSL) and offer market exchange-traded equities. This means ASX liquidity requirements don't apply. Nor do the ASX's market rules.
What is even more disturbing is that even after ASIC takes over the ASX's supervisory powers this year, the corporate watchdog's market integrity rules, which take in most of the ASX's old market rules, including powers to fine brokers up to $1 million, won't apply to this growing sector of the market.
The Stockbrokers Association of Australia's Doug Clark told BusinessDay this sector has been of concern for some time. He said ''non-broker brokers'' offered like services to stockbrokers and should be regulated as such. "We have urged government and ASIC to apply the new market integrity rules to non-broker brokers, but they have chosen not to at this stage," he said.
In many cases, these non-broker brokers have product disclosure statements showing that if the entity goes belly up, the investor becomes an unsecured creditor. This clause, buried on page 37 of a 41-page PDS, has shocked most Sonray clients, who believed their money was safe. Instead they have been told their funds are frozen and their accounts aren't in their own name but are co-mingled with other clients' money. The upshot is most clients are now unsecured creditors.
Such entities have proliferated in the past couple of years as an unintended consequence of the tough new rules that have been imposed on market participants by the ASX in its quest to improve market integrity.
Besides pushing risks into less regulated areas, another unintended consequence of the ASX's tougher regulation is to put financial pressure on some well-known, well-run brokers with a long history of success.
In the case of liquidity requirements, from July 1, the ASX has lifted the minimum core capital requirement for stockbrokers who clear their own trades from $2 million to $5 million. This is a big leap, particularly given the requirement was $100,000 less than 18 months ago. The requirement for ''third party clearers'' that clear other participants' trades rises to $10 million.
Ironically, Tricom's delayed settlement had nothing to do with its minimum core capital. Its problems related to its securities lending practices, and Opes Prime's collapse was also due to its securities lending practices rather than straight brokering.
In the case of Sonray Capital, Lift Capital, Storm and Geelong-based broker Chartwell Enterprises, none were market participants, so they were not subject to ASX rules. They all operated under an AFSL and were regulated by ASIC.
Despite having one of the lowest trade settlement fail rates in the world, in a bid to further improve market integrity, the ASX is also looking at introducing another impost: margining of cash equities trading, which requires clearing participants to put down a certain percentage of every trade on deposit with the ASX for three days, T+3. If it is introduced, as many believe it will be, it will push more entities outside of the ASX's orbit and into the less transparent world that groups such as Sonray operate in.
This new impost would have to be met by clearing participants from capital, funding or other bank facilities such as guarantees.
The Reserve Bank, which first raised equity margining in a paper it published on risk management in 2008, acknowledged it could create liquidity problems for market participants and lead to a reduction in trading activity.
On the ASX's Australian Clearing House figures, equity margining would result in some $330 million of new daily margins being required, spread over about 50 clearing participants.
Like the ASX's decision to increase the core liquidity requirements of market participants to $5 million from July 1 this year, equity margining will push more brokers into using third-party clearing to cut their capital costs. While this might sound good in theory, third-party clearers carry their own counterparty risks. If a broker fails to settle and goes belly-up, the onus is on the third-party clearer to settle with the ASX.
Australia has three third-party clearers: Berndale Securities, which is run by Bank of America; Fortis; and Penson Securities. Berndale faced big uncertainties in 2008 when its then parent, Merrill Lynch, was saved from collapse by merging with Bank of America, and Fortis was bailed out by its government during the GFC.
The changes are aimed at cleaning up the integrity of the stock market by minimising risks surrounding stock settlement, following the disastrous delay in settlement by Tricom Equities in 2008, which wreaked havoc on the stock market and culminated in its bankers forcing it to liquidate $1.5 billion of stock.
A spokesman for the ASX said: "The ASX makes no apologies for raising the standards to strengthen market integrity."
That may be so, but there is a problem that needs tackling. If these higher standards are causing a proliferation of entities like Sonray, and evidence would suggest that they are, then it is incumbent on ASIC and the federal government to crack down on them. As a start, it should include them in the new market integrity rules being composed by ASIC. The fact that they are not being included in these new guidelines is outrageous, particularly given
http://images.smh.com.au/2009/12/03/...x127-90x90.jpg Adele Ferguson
More Adele Ferguson articles
