media release

IR 06-06 ASIC reports on ICAP Europe Limited

Published

ASIC has today published its second assessment report about ICAP Europe Limited (IEL).

ASIC has concluded that IEL, which operates a licensed financial market in forward rate agreements, has adequate arrangements for the supervision of its market in accordance with its obligations under the Corporations Act.

ASIC has not recommended any changes to IEL’s structure as a result of this assessment.

Background

A financial market is defined as a facility through which offers to buy and sell financial products are regularly made. Anyone who operates a financial market in Australia must obtain a licence to do so, or otherwise be exempted by the Minister.

A forward rate agreement (or “FRA”) is an interest rate hedge that allows borrowers and lenders to lock into future interest rates without exchanging the principal of the loan. Under a FRA, the interest rate on an expected loan (or a deposit) is fixed for an agreed amount, term and date. On the agreed future date, the difference between the rate struck under the FRA and the prevailing market rate is settled between the client and the bank. Where the client has locked into a borrowing rate that is lower than the prevailing market rate at the end of the period, the bank pays the difference to the client. Conversely, if the borrowing rate is higher than the prevailing market rate at the end of the period, the client pays the difference to the bank.

As part of the conditions of granting a licence to operate a financial market, the licensee must supervise the market in accordance with Part 7.2 of the Corporations Act.

Under the Corporations Act, ASIC is required to conduct an assessment of how well licensed financial markets are complying with their obligations to supervise their markets. ASIC must do this at least once per year in relation to each licensee. ASIC can also assess how well a licensee is complying with its other obligations under the Act.

End of release


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