Stockbrokers Financial Requirements – ASX Market Integrity Rules and ASIC Requirements

Key Financial Obligations of Market Participants of Security Exchanges, including the Australian Securities Exchange (ASX)

Market Participants are required to comply with either the financial requirements of the ASIC Market Integrity Rules or with the ASX’s financial requirements, if they are ASX clearing participants. In either case, similar requirements apply.

Two of the areas of particular focus by the regulator, ASIC, are:

a. Not excluding assets from the calculation of Liquid Capital

To meet a key requirement of their obligations, participants are required to maintain a Liquid Capital ratio that is at all times greater than its Total Risk Requirement. Liquid Capital is based on the participants’ current assets less liabilities.

A common mistake found in reviews is to include current assets that are not realisable within 30 days. Subject to some exceptions, such assets are excluded in the calculation of net assets. Typical examples of such assets are prepayments which are not realised within 30 days and debtors overdue by more than 30 days.

b. Failure to exclude Deferred Tax Assets from Core Capital

Participants are also required to maintain a minimum Core Capital. The amount required varies depending on the type of participant. For example, for trading participants the value is $100,000.

One common issue is the failure to exclude Deferred Tax Assets, such as the value of accumulated tax losses, from Core Capital in situations where, based on accounting standards, they are not likely to be realised. Entities sometimes continue to include these assets, even when there is no clear likelihood that the entity will make taxable profits in the future to utilise the Deferred Tax Assets.