Approved Ratings Agency means a credit rating agency holding an Australian financial services licence authorising it to give general advice by issuing a credit rating.
Approved Securities means securities appearing on the list below for which a Trading Participant has, and is able to demonstrate, direct control over and authority to liquidate:
(a) a letter of credit or guarantee in favour of the Trading Participant issued in documentary form by an Australian ADI or by a foreign bank with at least a short-term investment grade credit rating from an Approved Ratings Agency (provided that the Australian ADI or foreign bank is not the Client);
(b) a letter of credit or guarantee in favour of the Trading Participant issued by the New South Wales Treasury Corporation, the Queensland Treasury Corporation or the Tasmanian Public Finance Corporation;
(c) not more than 75% of the market value of shares in one or more of the top 100 Australian companies listed on an Australian stock exchange approved under the Corporations Act, measured by market capitalisation at the time the Cover was lodged;
(d) not more than 70% of the market value of shares in one or more of the top 10 listed New Zealand companies, measured by market capitalisation at the time the Cover was lodged;
(e) not more than 90% of the market value of Australian government securities that have a residual maturity of over one year;
(f) not more than 95% of the market value of Australian government securities that have a residual maturity of under one year;
(g) for a Trading Participant trading on a foreign financial market, not more than 90% of the market value of foreign government securities that have a residual maturity of under 12 months if:
(i) the security is approved by that foreign financial market;
(ii) the security is acceptable as Cover by a futures broker of that country; and
(iii) the country has a Standard & Poor’s long-term and short-term credit rating for sovereigns of AAA and A-1 respectively;
(h) not more than 95% of the market value of bills of exchange accepted or endorsed by an Australian ADI (provided the Australian ADI is not the Client); and
(i) not more than 95% of the market value of Negotiable Certificates of Deposit issued by an Australian ADI (provided the Australian ADI is not the Client).
Clearing Facility means, when used in relation to the activities or conduct of a Market, the clearing and settlement facility with which the Market operator has clearing and settlement arrangements for transactions effected through the Market.
Initial Margin means the amount which a Trading Participant requires to be paid by a Client in respect of a Futures Market Contract entered into or proposed to be entered into on behalf of a Client.
Variation Margin means the difference between the value of a Futures Market Contract or Option Contract as shown in the contract, and the value of that contract at any given time.
Part 7.2 Obligations for Trading Participants
7.2.1 Margin obligations
A Trading Participant, other than a Principal Trader, must comply with the margin obligations in this Part.
7.2.2 Calling Initial Margin
(1) As soon as possible after the execution of the Client’s instructions on a Market, a Trading Participant of that Market must Call at least the minimum Initial Margin that is determined from time to time under the Clearing Rules of that Market.
(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 on the same Market in the same delivery month and in respect of the same commodity.
(3) Nothing in subrule (1) prevents a Trading Participant from Calling an amount higher than the minimum Initial Margin referred to in subrule (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 subrule (2), a Trading Participant must Call Variation Margin from a Client when the Client has a net debit Variation Margin position, unless the Client is a Clearing Participant of the Clearing Facility for that Market and the Contracts are registered with the Clearing Facility for that Market in the name of that Clearing Participant.
(2) Where the amount of a Call in subrule (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 subrule (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 paragraph (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 subrule (4) and Rule 7.2.10, a Trading Participant must not provide credit for a Client beyond the periods specified in paragraphs (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 subrule (2) where the Trading Participant exercises a reasonable discretion to not Close Out in accordance with subrule 7.2.8(3).
7.2.7 Spread margins
(1) Where a Trading Participant holds a spread position executed on a Market 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 for that Market.
(2) When one leg of a spread position executed on a Market 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 for that Market 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 subrule (3), where a Client is in default by failing to pay a Call (or lodge Approved Securities) within the time stipulated under subrule 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 subrule (1).
(3) A Trading Participant shall not be obliged to Close Out futures positions in accordance with subrule (1) where the Trading Participant exercises a reasonable discretion to not Close Out having regard to:
the expertise and financial status of the Client;
any genuine attempts by the Client to meet the Call within the time prescribed; and
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 of a Market is dealing in Contracts on behalf of Clients on a market other than the relevant Market, the Trading Participant must comply with any margin obligations contained in the rules of that market.
(2) Where the rules of a market referred to in subrule (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 market as if it were dealing in Contracts on behalf of Clients on the relevant 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 on a Market, including, but not limited to, the maintenance of a Margin Action Book and a Margin Default Register for the relevant Market.
(4) For the purposes of subrule (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 subrule (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 subrule 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 subrule 7.2.8(3), the notification referred to in subrule (1) must be given as soon as there is any doubt to a reasonable person that the funds will not arrive from the Client.