Australian Regular Worried After Numerous Announcements
The last couple of weeks have seen a slew of announcements come from the Australian Securities and Investments Commission, including strict new regulations on retail brokers. During the Australian FIX Conference, Clarissa Alridge, the Senior Executive Leader of Market Supervision for ASIC shared her opinions regarding the recent implementations put into place.
The new laws implemented are focused on the ridiculous scales of leverage in Australia. Investment bankers and companies have been borrowing capital at an excessive amount to fund investments or projects. This has resulted in companies to stop selling stock in order to finance projects, subsequently causing for lower trade volumes in Australia. These new laws hope to redefine the Australian Trading Market.
ASIC Focusing on Leverage
Clarissa Aldridge called out the Australian Brokerage Industry, claiming their ridiculous leverage has caused numerous other issues and is now only one part of the problem. Alridge noted that the regulator is concerned about the structure of the market.
Stock sales have been diminishing for several years now with the rise of leveraging. There have also been additional risks when it comes to flash crash events; this is something that was massively underestimated by industry analysts. Brokers have adopted an Algo-Centric approach when trading and this has caused for stressful liquidity. The Australian Securities and Investments Commission is seeing 500-to-one leverage offers from retail investors. This is highly unrealistic and inappropriate.
Flash Crash Events
The ASIC is encouraging retail brokers to consider normal capital for trader accounts. This is due to brokers using their position sizes to determine the wholesale cost of flash crash events. This causes clients to have a capital upwards of $500,000.00 or more. Ms. Aldridge noted that this type of trading on flash crash events have real consequences for not just the wholesale market but also the retail market as well. New companies wanting to provide wholesale will find difficulties attaining such high levels of capital.
However, with all these warnings and new laws implemented by the ASIC, the Australian Parliament has still chosen to not ban these form of financing. Instead, they’ve just made it harder with watchdog product intervention powers now at their disposal.
Mrs Alridge commented during the FIX Conference, stating: “These products are highly risky. We have seen lots of examples of retail investors losing significant sums of money and we are really trying to target this on a range of fronts.”