A Trading Participant, other than a Principal Trader, must comply with the margin obligations in this Part.
Maximum penalty: $1,000,000
7.2.2 Calling Initial Margin
(1) As soon as possible after the execution of the Client’s instructions, a Trading Participant must Call at least the minimum Initial Margin that is determined from time to time under the Clearing Rules.
(2) In calculating the amount of Initial Margin, a Trading Participant must not offset the Initial Margin on another Contract due by the Client to the Trading Participant unless that other Contract is for the opposite position in the same delivery month and in respect of the same commodity.
(3) Nothing in Rule 7.2.2(1) prevents a Trading Participant from Calling an amount higher than the minimum Initial Margin referred to in Rule 7.2.2(1).
(4) A Trading Participant must not accept anything but cash in satisfaction of Initial Margin from a Client, unless the Trading Participant has agreed to accept and has received Cover by way of Approved Securities.
7.2.3 Calling Variation Margin
(1) Subject to Rule 7.2.3(2), a Trading Participant must Call Variation Margin from the Client when the Client has a net debit Variation Margin Position, unless the Client is a Clearing Entity and the Contracts are registered with the Clearing Facility in the name of that Clearing Entity.
(2) Where the amount of a Call in Rule 7.2.3(1) would be $1,000 or less, the making of such a Call shall be at the discretion of the Trading Participant.
7.2.4 Liability for Margins
A Trading Participant’s Client agreement must provide that:
(a) liability of the Client for the Initial Margin shall arise upon execution of the instructions given by the Client, irrespective of the time when the Call is made; and
(b) liability for Variation Margin shall arise at the same time as the Variation Margin comes into existence, irrespective of the time when any Call is made.
7.2.5 Satisfaction of Calls for Margin
(1) A Trading Participant’s Client agreement must provide that Calls for Initial Margin and Variation Margin must be satisfied by payment unless the Trading Participant agrees to accept and receives, in lieu of payment, Approved Securities.
(2) A Trading Participant’s Client agreement must provide that:
(a) if the Trading Participant receives Approved Securities in accordance with Rule 7.2.5(1), such Approved Securities shall be retained by the Trading Participant until such time as the liability of the Client is extinguished either by the relevant contracts being Closed Out or payment being made by a Buyer or delivery in accordance with the Rules being effected by a Seller; and
(b) if the liability of the Client is not extinguished, as set out in Rule 7.2.5(2)(a), then the Approved Securities may be realised by the Trading Participant and the proceeds applied against that liability.
(3) A Trading Participant must ensure liability of a Client for Initial Margin is Covered at all times.
7.2.6 Time for payment of Margins
(1) Where a Call is made for Initial or Variation Margin, the Trading Participant must stipulate the time for payment or lodgement of Approved Securities, which must not be greater than:
(a) 24 hours if the Client’s address is within Australia; or
(b) 48 hours if the Client’s address is outside Australia.
(2) Subject to Rules 7.2.6(4) and 7.2.10, a Trading Participant must not provide credit for a Client beyond the periods specified in Rules 7.2.6(1)(a) and (b).
(3) A Trading Participant’s Client agreement must provide that time shall be of the essence in respect of payment or lodgement under this Part 7.2.
(4) A Trading Participant will not be in breach of Rule 7.2.6(2) where the Trading Participant exercises a reasonable discretion to not Close Out in accordance with Rule 7.2.8(3).
7.2.7 Spread Margins
(1) Where a Trading Participant holds a Spread position on behalf of a Client, the Trading Participant must Call an Initial Margin of not less than the amount for that Spread determined by the Clearing Facility.
(2) When one leg of a Spread is in the first delivery (spot) month, the Initial Margin required on that leg must not be less than the amount required by the Clearing Facility on the first delivery (spot) month, and the other leg of the Spread must attract the normal Initial Margin requirements.
7.2.8 Obligation of Close Out
(1) Subject to Rule 7.2.8(3), where a Client is in default by failing to pay a Call (or lodge Approved Securities) within the time stipulated under Rule 7.2.6(1), a Trading Participant must, immediately upon expiry of that time period, Close Out to the extent necessary to counter the Call, all or any existing Open Positions in any Market held by the Trading Participant on account of the Client.
(2) A Trading Participant’s Client Agreement must provide that the Trading Participant shall not be liable to the Client for any loss sustained by the Client as a result of the Trading Participant Closing Out in accordance with Rule 7.2.8(1).
(3) A Trading Participant shall not be obliged to Close Out futures positions in accordance with Rule 7.2.8(1)where the Trading Participant exercises a reasonable discretion to not Close Out having regard to:
(a) the expertise and financial status of the Client;
(b) any genuine attempts by the Client to meet the Call within the time prescribed; and
(c) whether relevant actions or omissions of third parties resulted in the Client failing to pay the Call.
7.2.9 Margin Requirements—Trading on Financial Markets other than Markets operated by the Market Operator, Margin Action Book and Margin Default Register
(1) Where a Trading Participant is Dealing in Contracts on behalf of Clients on Financial Markets which are not Markets operated by the Market Operator, the Trading Participant must comply with any margin obligations contained in the rules of that Financial Market.
(2) Where the rules of a Financial Market referred to in Rule 7.2.9(1) do not contain any margin obligations, the Trading Participant must comply with the margin obligations set out in this Part when Dealing in Contracts on behalf of Clients on that Financial Market as if it were dealing in Contracts on behalf of Clients on the Market.
(3) A Trading Participant must ensure that it has procedures in place to determine the Initial Margin and Variation Margin Calls are being made as soon as possible after the execution of the Client’s instructions, including, but not limited to, the maintenance of a Margin Action Book and a Margin Default Register.
(4) For the purposes of Rule 7.2.9(3), a “Margin Action Book” is a document recording, without limitation, the following information about action taken in relation to Margin Calls:
(a) Client name;
(b) amount of Call required;
(c) time and date Client contacted;
(d) Client response; and
(e) date funds received.
(5) For the purposes of Rule 7.2.9(3), a “Margin Default Register” is a document recording, without limitation, the following information in relation to non-receipt of Margin payments:
(a) Client name;
(b) amount of the Call;
(c) time and date of the initial Call and any subsequent Calls;
(d) details of escalation and other relevant steps taken by the Trading Participant;
(e) details of whether the Trading Participant closed out the Client’s positions and, if not, the reasons why the Trading Participant has not done so, having regard to Rule 7.2.8(3); and
(f) date and amount of funds received or details of action taken by the Client.
7.2.10 Credit lines
A Trading Participant must not accept credit lines for payment of margins unless:
(a) the Trading Participant is an Australian ADI and:
(i) the monies are lent by a separate credit division of the Australian ADI;
(ii) such monies are lent in accordance with normal credit policy of the Australian ADI; and
(iii) the facility is used to pay obligations for Initial and Variation Margins and that such obligations are met by actual payment into the clients’ segregated account of the Trading Participant through a direct call on the facility; or
(b) the credit is provided to Clients of the Trading Participant by a related entity of the Trading Participant to meet Initial Margins and Variation Margins and:
(i) the related entity’s core business activity is the provision of credit to Clients; and
(ii) the related entity is not a subsidiary of the Trading Participant.
7.2.11 Notifying ASIC
(1) A Trading Participant must advise ASIC, in writing, as soon as a Call has not been met by a Client and the Trading Participant has not closed out the Client’s positions.
(2) Subject to any reasonable discretion exercised by the Trading Participant in accordance with Rule 7.2.8(3), the notification referred to in Rule 7.2.11(1) must be given as soon as there is any doubt to a reasonable person that the funds will not arrive from the Client.
Schedule: Forms
Form 1 Part 1
DIRECTORS’ DECLARATION
CLIENT FUNDS
As directors of ....................[entity name] (“the Participant”), we are responsible for maintaining an effective internal control structure, including establishing and maintaining accounting records and effective internal controls designed to ensure compliance with the requirements of Rule 2.2.6 of the ASIC Market Integrity Rules (FEX Market) 2013 in relation to clients’ segregated accounts.
In carrying out this responsibility, we have had regard to the interests of the clients and owners of the Participant, and to the general effectiveness and efficiency of the operations of the Participant.
In the opinion of the directors, the Participant maintained, in all material respects, during the .......[insert number] month period ended ............[insert date] suitably designed and effective internal controls to comply with the requirements of Rule 2.2.6 of the ASIC Market Integrity Rules (FEX Market) 2013 in relation to clients’ segregated accounts.
We have audited the accounting records and internal control policies and procedures (“internal controls”) of ..............................[Entity Name] (the “Participant”) designed to ensure compliance with the requirements of Rule 2.2.6 of the ASIC Market Integrity Rules (FEX Market) 2013 (“FEX Rules”) in relation to clients’ segregated accounts (the “Clients’ Segregated Accounts Rules”) in order to express an opinion about their effectiveness for the period/year ended .................[date] (“the Financial Year”).
The directors of the Participant are responsible for maintaining an effective internal control structure, including establishing and maintaining accounting records and effective internal controls designed to ensure compliance with the requirements of the Clients’ Segregated Accounts Rules. We have conducted an independent audit of the internal controls designed to ensure compliance with the requirements of the Clients’ Segregated Accounts Rules in order to express an opinion on them to the directors of the Participant for the Financial Year ended.........................[insert date].
Our audit has been conducted in accordance with Australian Auditing Standards and accordingly included such tests and procedures as we considered necessary in the circumstances. Our procedures included examination, on a test basis, of evidence supporting the Participant’s accounting records and operation of its internal controls in relation to compliance with the requirements of the Clients’ Segregated Accounts Rules. These procedures have been undertaken to form an opinion whether in all material aspects, the Participant maintained suitably designed and effective internal controls to ensure compliance with the requirements of the Clients’ Segregated Accounts Rules for the Financial Year.
This report has been prepared for the Participant in order to meet its obligations to give this report to ASIC in accordance with Rule 2.3.5(1)(b) of the FEX Rules. We disclaim any assumption of responsibility for reliance on this report to any person other than the Participant and ASIC, or for any purpose other than that for which it was prepared.
Inherent Limitations
Because of the inherent limitations of any internal control structure it is possible that fraud, errors or non-compliance with laws and regulations may occur and not be detected. Further, the overall internal control structure, within which the internal controls designed to ensure compliance with the requirements of the Clients’ Segregated Accounts Rules operate, has not been audited, and no opinion is expressed as to its effectiveness.
An audit is not designed to detect all weaknesses in internal controls or all instances of noncompliance with the requirements of the Clients’ Segregated Accounts Rules as it is not performed continuously throughout the period/year and the tests performed over the internal controls are on a sample basis having regard to the nature and size of the Participant.
Any projection of the evaluation of internal controls to future periods is subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with them may deteriorate.
The audit opinion expressed in this report has been formed on the above basis.
[Qualified] Auditor’s Opinion
In our opinion, [except for the matters referred to in the qualification below,] the Participant maintained, in all material respects during the Financial Year, suitably designed and effective internal controls to comply with the requirements of the Clients’ Segregated Accounts Rules
Qualification (if applicable)
Name of Audit Firm ........................................................................................................
Name of /Director/Partner ........................................................................................................
Address of Audit Firm ........................................................................................................
Date ........................................................................................................
Notes to ASIC Market Integrity Rules (FEX Market) 2013
The ASIC Market Integrity Rules (FEX Market)) 2013 (in force under s798G(1) of the Corporations Act 2001) as shown in this compilation comprises those Rules amended as indicated in the tables below.