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ASIC Benchmarks

ASIC Benchmarks


 

ASIC has developed seven disclosure benchmarks for over-the-counter contracts for difference (OTC CFD’s) to assist retail investors understand the risks associated with these products, assess their potential benefits and decide whether investment in the products is suitable for them.

As an issuer of OTC CFD’s AxiTrader provides the information set out below explaining whether and how it addresses the benchmarks.

These disclosures are a summary only and should not be relied upon solely. The Product Disclosure Statement (PDS) sets out the information in detail and is available on this website. Clients should ensure they review the PDS in full before deciding whether to acquire AxiTrader’s products.

Benchmark 1: Client Qualification

AxiTrader operates a client qualification policy that is designed to ensure that Australian resident clients have appropriate experience in or knowledge and understanding in AxiTrader’s derivative products. This policy has been developed by reference to ASIC Regulatory Guide 227 and best industry practice.

Applicants can demonstrate appropriateness by satisfying one of the three criteria below:

  • Demonstrated trading experience in the same or similar products; or
  • Pass a multiple choice quiz designed to demonstrate adequate knowledge of the products and financial markets; or
  • Complete a training course that meets the minimum requirements.

A diagrammatic explanation of the above exists further down the page.

1. Sufficient Trading Experience

In order to establish that an individual has had appropriate experience, account applicants must be able to demonstrate all of the following. That they have:

  • Within the past three (3) years, operated a Margin Forex or CFD or Futures account; and
  • Had at least two months of trading experience; and
  • Conducted at least 20 transactions on a non-advised basis.

If a potential client fails to completely satisfy all three of the above criteria, then they either attempt the quiz (part 2) or attend a training course (part 3)

2. Multiple-choice quiz:

In order to qualify as a potential client for AxiTrader, you must record a pass score (of 70% or greater). The quiz consists of 10 (ten) multiple choice questions, with at least one correct answer required from each of the following sections:

  • Previous experience in investing in financial instruments, including securities and derivatives.
  • Understanding of the concepts of leverage, margins and volatility.
  • Understanding of the nature of CFD trading.
  • Understanding of the processes and technologies used in trading.
  • Preparedness to monitor and manage the risks of trading.
  • AxiTrader has a large pool of suitable questions for each category from which the quiz questions are selected. These questions are altered each time the quiz is taken.

If a mark of 70% or greater is achieved, you will be deemed qualified to trade through AxiTrader. If a pass grade is not achieved, then you will be required to complete a training course, as per part 3.

3. Training Course:

To be deemed eligible to trade with AxiTrader, an individual must undertake and complete a training course that satisfies the following criteria:

  • A duration of 8-16 hours
  • If the course does not meet the minimum time required, then it will be deemed an insufficient qualification
  • Regulated by ASIC
  • The provider must operate under an AFSL that allows them to provide general financial product advice.
  • Provides ongoing support and coaching for a minimum 6 (six) week period.
  • You must provide AxiTrader with a copy of your certificate of completion.

If a training course fulfills all three of the above requirements, then an individual will be deemed qualified to trade with AxiTrader.

If you cannot fully satisfy one of the aforementioned elements, then you will not be considered qualified to be a client with AxiTrader.

RG227: Benchmark 1 - Client Qualification

Benchmark 2: Opening Collateral

AxiTrader offers a full suite of payment options for clients to fund their accounts.

AxiTrader provides credit card funding for the ease of providing secure electronic payment system to its clients. This is used for both instantaneously funding accounts and meeting margin calls.

AxiTrader does not encourage the use of leverage products with borrowed funds.

AxiTrader does not accept “cash equivalents” as opening collateral (e.g. no securities as deposits).

AxiTrader has chosen not to comply with ASIC’s suggested benchmark on Opening Collateral requirements, which suggest limiting initial funding by credit card to a maximum of $1000.

Benchmark 3: Counterparty risk (hedging)

AxiTrader implements strict controls to ensure that the procedures it adopts when managing exposure to market risk are followed. Further, AxiTrader ensures that the counterparties, with which it transacts to hedge client trades, are of appropriate financial standing. AxiTrader only hedges its positions through Tier 1 and 2 prime brokers that hold a minimum capital of 40 million USD (equivalent).

‘Hedging’ refers to the process where a financial service provider such as AxiTrader reduces or removes its exposure to market risk by entering into a corresponding transaction with another entity. AxiTrader’s main Prime Brokerage account is with Morgan Stanley. This is used in conjunction with several Tier 2 accounts, thus spreading the risk of a default on behalf of one of the hedging companies.

Furthermore, AxiTrader has enforced trading limits with its prime brokers, which are automatically applied and can only be adjusted by the CEO of AxiTrader, upon request.

Benchmark 4: Counterparty risk (Financial resources)

AFSL Compliance

Monthly financial reports are prepared to ensure compliance with AxiTrader’s AFSL Conditions and the financial requirements which are contained in ASIC Regulatory Guide 166.

An annual financial audit is also conducted by an ASIC approved auditor.

Stress testing of capital adequacy

The capital requirements and surplus position of AxiTrader is monitored on a daily basis. AxiTrader’s risk exposure that our clients face is calculated by our position keeper and reconciliation software in real time. This software is monitored by risk management staff, 24 hours a day, 5 days a week at all times whilst the foreign exchange markets are operating. Our free margin levels with our hedging counterparties are displayed at all times, showing how much market movement or increase in client position size can be sustained with the current level of funds.

Daily stress testing is conducted and alerts have been established at pre-defined levels to ensure that appropriate remedial action is taken in the event of market movements that are adverse to AxiTrader’s financial position.

Benchmark 5: Client Money

This information is made available by AxiTrader to explain how client money is handled. The purpose is to provide clients with an insight into how client money is segregated and may be utilised by AxiTrader so that clients are better informed to assess the safety of their funds relative to other financial product providers.

Client money is held with Australian Authorised Deposit-taking Institutions (ADIs) in compliance with the Corporations Act Regulations.

Funds are not held in individual segregated accounts but are pooled with other client’s funds. AxiTrader maintains Client Segregated Trust Accounts in a number of currencies for this purpose.

Clients should take care to understand that our holding of client monies in one or more Segregated Accounts does not afford them absolute protection and that in the event of AxiTrader becoming insolvent clients become unsecured creditors of AxiTrader. A further discussion on this topic is available in section 7 of the Product Disclosure Statement and section 23 of the Client Agreement.

AxiTrader currently holds Client Segregated Trust Accounts with the following Banks:

  • National Australia Bank Limited
  • St George Bank – A division of Westpac Banking Corporation

As an Australian Financial Services licensee, AxiTrader is permitted to pool client money in one or more accounts and use this money to meet collateral obligations it incurs with its hedge counterparties in relation to client transactions. Importantly, AxiTrader is only permitted to deduct the initial margins due from its clients on their open positions for this purpose. We are not permitted to use these funds in any other way in our business.

AxiTrader maintains a Client Money Policy setting out the circumstances under which it is entitled under the Regulations to deduct monies from the Segregated Trust Accounts.

The Policy allows AxiTrader to use money deposited by one client to meet the margin or settlement requirements of another client. The pooling of Client funds in one or more Segregated Accounts in this way exposes clients to the risk of a deficit in the Segregated Account if one client or a group of clients fail to pay money they owe.

To ensure that the balance of funds held in Segregated Trust Accounts at least equals the balance of AxiTrader’s liabilities to its Clients, a daily reconciliation is performed. On the basis of the reconciliation, AxiTrader either pays to or withdraws money from the Segregated Trust Accounts reflecting the net settlement of all obligations to its clients. That reconciliation is subject to independent daily review.

In the event of AxiTrader’s insolvency and in the event that the daily reconciliation and settlement has not been performed, there may be a deficit in the Segregated Trust Accounts. It is for this reason that AxiTrader is required under the conditions of its Australian Financial Services Licence to have and to maintain sufficient financial resources of its own to mitigate the risk of its insolvency. Refer to Benchmark 4 – Counterparty Risk (Financial Resources).

Updated 17 February, 2015

Benchmark 6: Suspended or halted underlying assets

Foreign exchange markets trade continuously. They open at 05:00pm American EST* Sunday evening (Monday morning NZ time) and close at 05:00pm, American EST** on Friday (Saturday morning NZ time). They are open 24 hours during this period.
Prices are continuously streamed during this period. Because foreign exchange is not an exchange-traded product, it is not possible to suspend or halt the streaming of these prices.

For our futures, commodities and index products, AxiTrader will halt client trading and the use of client money in an asset or derivative when a trading halt exists for the underlying asset, or trading in the underlying asset has been suspended through an exchange or otherwise.




* Eastern Standard Time (America)

Benchmark 7: Margin Calls

AxiTrader establishes minimum margin requirements for all instruments. These margin requirements are set out in the Product Schedule available on the website.

The MT4 trading system monitors the margin requirements of all open positions for each client against the client’s account equity. Clients can monitor their margin requirements and the margin ratio within the MT4 trading application.

Where account equity falls below the total margin requirement a margin call is generated and sent to the email address provided by the client to AxiTrader. Clients are advised that they must maintain sufficient equity to meet the total margin requirement at all times. We are not obliged to allow time to forward funds to meet Margin Calls as markets can be volatile and AxiTrader may without notice, in its discretion, close out all or some positions if the margin requirements are not satisfied. Whilst the account remains in margin deficit a Margin Call email will be sent every 30 minutes. Clients must ensure that they monitor their margin requirements as AxiTrader cannot guarantee that Margin Call emails will be received and should not rely on this.

Refer to Section 11 of the Client Agreement

If a client’s free equity falls below the Liquidation Level AxiTrader is entitled, but not obligated, to close all open positions. We do not guarantee that positions will be closed and clients are warned not to rely on AxiTrader to do so. We also cannot guarantee that if positions are closed by AxiTrader that a deficit on the account will be avoided. Clients must be aware that they remain liable for any debit balance arising on their account.

The Liquidation Level is currently 20% but is subject to change.

If AxiTrader does close positions then the position with the largest margin requirement will be closed first and then subsequently in descending order until the margin ratio is above the Liquidation Level.

Updated 17 February, 2015

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