As a result of ASIC's intervention, licensed retail OTC derivatives issuer XTrade.au Pty Ltd (AFSL No. 343628) (XTrade), formerly O.C.M. Online Capital Markets Pty Ltd, will implement changes to the way it handles client money.

ASIC's surveillance raised concerns that XTrade group's payment processes may not comply with the requirements of the Corporations Act to pay client money into client trust accounts on the day it is received or on the next business day. Client money accounts were only reconciled on a periodic basis.

ASIC was also concerned that XTrade's parent company was depositing a 'buffer' into the client trust account to cover any potential shortfall. The Corporations Act does not permit a licensee to deposit funds belonging to the licensee into client money accounts, by way of a 'buffer' or otherwise. ASIC expects a licensee to maintain appropriate and prudent reconciliation practices in respect of its client money accounts: see paragraph 42 of ASIC Regulatory Guide 212 Client money relating to dealing in OTC derivatives (RG 212). 

ASIC Commissioner Cathie Armour said, 'The protection of client money is an important safeguard of investors' interests. Using a general buffer or delays in paying client money into the correct client money trust account can breach these legislative protections.'

Background

The client money provisions protect the interests of clients of licensees. The provisions require licensees to separate client money from money belonging to the licensee, hold the money on trust and sets limits on how the money is used, withdrawn or otherwise dealt with.

ASIC's work on the retail OTC derivatives sector continues.