PRESS RELEASE: Regulatory Agency Concerned About Leveraging Practices and Volatile Security Price Slumps in Australia

PRESS RELEASE: Regulatory Agency Concerned About Leveraging Practices and Volatile Security Price Slumps in Australia
April 24, 2019
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It looks like the most recent set of product intervention powers will be directed at the massive risks that retail business owners face.

Following the series of notices coming from the desks of the Australian Securities and Investments Commission (ASIC), it is noteworthy to point out a much-overlooked point. At a meeting not long ago in Sydney, a high-ranking executive in charge of market regulation in ASIC, Ms. Calissa Aldridge dropped some opinions that revealed what ASIC was thinking about the retail brokerage activities.

Even though linking up extra market activities with leveraging may not raise too many eyebrows, it definitely gets some attention when the initial source is the regulatory body. Even though the target is on regulators from Europe making alarming retail clients shedding a lot of cash on the trading floor, ASIC is devoting more time to the link between how the market is organized and the leverage it considers totally absurd.

Regulatory Body Zooms in on Leverage

ASIC’s senior executive Calissa Aldridge did not waste time in making very clear their worries with the brokers on the Australian market. Branding the brokers over their worrisome leverage practices is just one side of the crisis. The way the entire market has been organized is another source of major worry for the regulatory agency.

Clearly, in the know of the transformation on the trading floor in recent years, ASIC clarified on the risks of volatile cash slump situations which the agency believes is not getting the adequate attention that it deserves. The advent of algorithms on the trading floors have only increased the possibility of financial crises leading to devastating outcomes.

Aldridge pointed out that regular observing 500:1 leveraging transaction during trading is clearly not a good option, especially for retail marketers who do not have all the needed experience and skills. The point being focused on here by the regulator can be argued because only a few investors are trading with such leverage values.

Bulk Customers and Volatile Security Price Slumps

The regulatory body has done the grouping of retail and bulk customers based on exposure in the market. However, ASIC has lately pointed out that brokers should refrain from using sheer sizes alone to conclude on eligibility for bulk volume transactions. An alternative option presented by the regular is that trading brokers should peg the limit of consideration at a nominal capital of a minimum of half a million dollars.

While commenting on volatile security price slumps, Ms. Aldridge believes that similar critical events should be envisaged at all platforms of all markets. These events have devastating effects on not only the bulk volume transactions but also the retail sector as well.

After all the back and forth talk, it was observed that ASIC does not have the authority to impose a ban on various products. This cannot be done prior to the political moves in the Australian parliament which empowered ASIC in the first place even though a thorough definition of the depth and width of these powers remains a source of controversy.

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