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ASIC Raises Minimum Net Capital Requirement for Brokers

Over the past couple of decades, Australia has turned into one of the most desired locations for forex brokers, a sort of safe haven away from the draconian surveillance of other financial regulatory bodies around the world. Up until now, you only needed AUD $50,000 to set up a brokerage firm on the continent, a miniscule amount compared to let's say Switzerland, where the minimum is set at 20 million Swiss Francs. This joy is over, though.

As we reported a while ago, the Australian Securities and Investments Commission (ASIC) has been seriously considering raising its minimum net capital requirement. Today it becomes clear that the proposition has been officially approved and is backdated to take effect from January 31, 2013.
With the new provision in ASIC's rules, brokers are required to possess a minimum amount of AUD $500,000 to run a legitimate business. This figure is expected to double to AUD $1,000,000 a year from the day the current increase became valid. It's important to mention here that these changes extend solely to market makers. Firms that run on a true STP and/or ECN model can continue operating with the old minimum of AUD $50,000.
It's no surprise then that brokers like ThinkForex, which recently moved its headquarters to Australia, or the local AxiTrader are ecstatic about the news. The higher net capital requirement generally favors big fish and smaller brokers which cannot cover the new minimum will either go out of business or will have to adapt to STP. Most seem to choose the second way, outsourcing their market-making to larger players.
In effect, the increase is not as high as to deter foreign brokers from venturing on the continent - the British HY Markets, for example, recently opened a subsidiary branch in Melbourne – nor to stop domestic entrepreneurs from opening new brokerage firms as in the case of Intelligent Financial Markets which recently obtained its ASIC license. Compared to other preferred forex destinations like Cyprus (where a broker needs to have a net capital of $1 million or more), or the USA ($20 million are required to run a brokerage there), Australia remains a very competitive location for brokers – even for the smaller ones.
TAGS: asic  increase  net capital requirement  broker  forex  australia 
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