Category: Industry

ASIC has warned Australian financial services licensees that offer over-the-counter derivatives to retail investors located overseas could be breaking laws abroad, with Chinese authorities having alerted the watchdog that some online platforms have engaged in illegal activity.

Many jurisdictions (such as Europe, Japan, North America and China) had restricted or prohibited the provision to retail investors of certain OTC derivatives. These included binary options, margin foreign exchange and other contracts for difference (CFDs) to mitigate harm to retail investors.

AFS licensees are on notice that in addition to overseas consequences of potential breaches of overseas law. ASIC will also consider whether AFS licensee are making misleading or deceptive statements about the scope or application or effect of an AFS licence.

According to our source, Rakuten Securities Australia has informed its oversea (non-Australian) clients to close their accounts by the 17th of May.

In particular, Chinese authorities have informed ASIC that: ‘some online platforms are illegally engaged in forex margin trading activities.’ AFS licensees with China-based clients may be conducting unlicensed or illegal activities in China if they are providing margin foreign exchange products to retail clients in China.

Temporary product intervention measures have recently been extended in Europe by the European Securities and Markets Authority (ESMA). Authorities in the United Kingdom and Germany have announced permanent measures.

ASIC is concerned that some OTC derivative issuers that hold AFS licenses (or their agents) may be marketing or soliciting clients located in China, Europe and other jurisdictions to open accounts with Australian-based AFS licensees on the basis doing so will avoid the overseas intervention measures.

Traders rebought the US dollar as sentiment has deteriorated notably, pushing safe-haven assets such as the USD or US bonds higher.

Earlier on Monday, the US Manufacturing PMI dropped from 57.7 to 55.0 (worse than the expected  56.8) while the Services survey utterly collapsed from 57.6 to 50.9 (hugely worse than the expected  55.0). Those were the lowest services number since July 2020 and the weakest Manufacturing survey since October 2020, dragging the US Composite PMI down to July 2020 lows from 57.0 in December to 50.8.

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: "Soaring virus cases have brought the US economy to a near standstill at the start of the year, with businesses disrupted by worsening supply chain delays and staff shortages, with new restrictions to control the spread of Omicron adding to firms' headwinds."

The US economy seems to be slowing at a fast pace, right into this year's monetary policy tightening.

Hawkish Fed?

Still, the main focus for this week will be on Wednesday's Federal Open Market Committee (FOMC) decision. While market participants do not expect any changes to monetary policy, the Fed should formally hint at the first rate hike in March. 

Moreover, investors will pay close attention to the comments regarding the balance sheet run-off as several FOMC participants have recently noted they would want to start reducing the balance sheet right after the first rate hike (thus, in March). 

However, considering the recent rout in stocks, the Fed might choose a cautious way of communication - the balance sheet reduction could be postponed for a couple of months, possibly supporting risk assets with such a dovish tilt. We shall see.

Technically speaking, the EURUSD is hanging right at the short-term uptrend line, where the 50-day moving average (the purple line) also stands. This formation looks like a consolidation flag pattern, usually leading to a continuation of the primary trend, which in this case is bearish. Should the euro drop below 1.13, we might see a quick decline toward the current cycle lows near 1.12, with a possible breakdown toward 1.10.

Alternatively, if the situation improves, the euro might continue higher to 1.1360, with the main resistance at this month's highs at 1.1480.

The UK Financial Conduct Authority (FCA) and the Australian Securities and Investments Commission (ASIC) today announced they have agreed two Memoranda of Understanding to ensure there is continuity once the UK leaves the European Union. The MoUs cover trade repositories and alternative investment funds (AIFs).

These agreements will provide reassurance by ensuring arrangements are in place for cross-border cooperation between the FCA and ASIC. The FCA and ASIC also support the continuity of existing equivalence decisions to provide certainty to businesses post-Brexit.

Commenting on the news, the Chief Executive of the UK FCA, Andrew Bailey, said: “The FCA and ASIC have always had a strong relationship, which will continue after Brexit. The MoUs we have agreed today will ensure the FCA and ASIC have an uninterrupted exchange of information and can supervise the cross-border activity of firms. They provide a strong signal to the markets that the UK will continue to play an important role after Brexit. The MoUs will also provide much-needed assurance to our regulated stakeholders.”

These MoUs will enter into force on the date EU legislation ceases to have direct effect in the UK. This will occur when the UK leaves the EU, or at the end of the transition period if a Withdrawal Agreement is in place.

ASIC remains committed to take steps to provide, where appropriate, for continuing recognition post-Brexit of the equivalence of the UK’s regulatory and supervisory regime in relation to UK-based foreign financial services providers and market operators that operate in Australia under licences and exemptions or are otherwise recognised for the purposes of the Australian regulatory regime.

The Securities and Futures Commission (SFC) has banned Mr Wang Can, a former licensed representative of China Galaxy International Securities (Hong Kong) Co., Limited (CGIS), for 30 months for misconduct.

Wang was licensed under the Securities and Futures Ordinance to carry on dealing in securities and advising on corporate finance regulated activities and was accredited to CGIS from 9 April 2013 to 6 February 2016.  Wang is banned from 16 May 2019 to 15 November 2021.

The SFC found that Wang asked his friend to open a securities account in September 2014 and conducted personal trading in that account for at least nine months.

Wang became privy to information regarding a proposed acquisition of Linmark Group Limited (Linmark) in November 2014 when he assisted CGIS to prepare pre-engagement documentation for a potential client. He went on to purchase shares of Linmark through his friend’s account and sold them two days after Linmark announced the proposed acquisition on 3 December 2014 and made a profit of $7,800.

Wang breached CGIS’ staff dealing policy by failing to disclose to his then employer his personal trading activities and beneficial interests in his friend’s account.  He also breached CGIS’s staff dealing policy in that employees are prohibited from trading on the basis of price sensitive information or confidential information related to its clients or potential clients.

Wang was fined $7,800, equivalent to the profits that he gained from trading in the shares of Linmark.

In deciding the sanction, the SFC took into account all relevant circumstances, including Wang’s remorse and willingness to accept the SFC’s disciplinary action.

The Cyprus Securities and Exchange Commission (CySEC) has issued a statement warning the regulated forex Cyprus Investment Firms (the ‘CIFs’) about offering their services to the clients from Russia unless they have a license in that country.

The Cyprus Securities and Exchange Commission, better known as CySEC, is the financial regulatory agency of Cyprus. It supervises and controls the operation of the Cyprus Stock Exchange, grants operation licenses to investment firms, including investment consultants, brokerage firms, and brokers, imposes administrative sanctions and disciplinary penalties.

In 2016 the Bank of Russia introduced licensing for Retail FX brokers and only has given around ten Russian FX license. The licenses were mainly given to the Russia-based brokers and other forex financial institutions. Also as the EU regulatory framework states, the firms can only provide their services in jurisdictions in which they are authorized or regulated. So the companies regulated by CySec may not be able to offer their services in Russian unless they are also authorized by the Bank of Russia. However, a lot of brokers which are based in other form Russia countries have continued to offer the services to Russian customers from abroad.

CySEC advises CIFs to consult with their legal consultants regarding the necessary measures required to ensure compliance with the Bank of Russia new regulatory requirements and reminds about the duty of CIFs to fully comply with the provisions laid down in the released statement.

The Securities and Futures Commission (SFC) has reprimanded and fined BOCI Securities Limited (BSL) HK$10 million over BSL’s internal system and control failures in its investment product selling practices.

BOCI Securities Limited is licensed under the Securities and Futures Ordinance (SFO) to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities) and Type 5 (advising on futures contracts) regulated activities.

The disciplinary action followed an investigation which found that BSL had failed to comply with various regulatory requirements concerning client profiling, product due diligence and suitability assessment in its sale and distribution of investment products, including bonds listed under Chapter 37 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The company specifically failed to do the following:

- properly assess and determine its clients’ risk tolerance level and investment strategy in certain cases;

- ensure the investment recommendations and/or solicitations made to its clients were reasonably suitable in all the circumstances;

- ensure the clients had sufficient net worth to be able to assume the risks and bear the potential losses of trading in derivative products and/or leveraged transactions;

- conduct proper and adequate product due diligence on certain investment products.

(SFC) of Hong Kong is the independent statutory body charged with regulating the securities and futures markets in Hong Kong. The SFC is responsible for fostering an orderly securities and futures markets, to protect investors and to help promote Hong Kong as an international financial center and a key financial market in China.

The Commodity Futures Trading Commission (CFTC) has announced that the U.S. District Court for the Southern District of Texas entered judgment against defendant Kelvin Ramirez of Houston, Texas in a CFTC enforcement action that found that he had fraudulently solicited and misappropriated funds from clients in a forex trading scheme.

The Court’s order requires Ramirez to pay $735,983.48 in restitution to defrauded clients and a civil monetary penalty of more than $2.2 million.  Additionally, the defendant is now permanently enjoined from engaging in conduct that violates the Commodity Exchange Act (CEA) and the regulations thereunder, and is permanently banned from registering with the CFTC and trading in any CFTC-regulated markets.

The court entered an order of default judgment and permanent injunction against the defendant following a CFTC Complaint filed on January 14, 2019. In the Order, issued on July 12, 2019, Judge Keith P. Ellison found that the CFTC had sufficiently pled CEA violations by alleging that Ramirez fraudulently solicited more than 400 clients to invest in commodity pools that purportedly trade in forex, trade forex through accounts managed by Ramirez, and subscribe to Ramirez’s forex trading education and signals service, then misappropriated the funds provided to him for these purposes.  

The court found that all of these representations were false and that the defendant absconded with his clients’ money.  In total, Ramirez fraudulently solicited and misappropriated over $735,000.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets.  The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The Fair Trade Commission (FTC) has fined four global banks operating in Korea for illegally sharing information and colluding in price bids to win foreign exchange derivatives contracts from five Korean companies. Foreign exchange derivatives refer to financial products designed to avoid the risks of the exchange rate and interest rate fluctuations in foreign exchange transactions.
The Korea Fair Trade Commission (KFTC) is South Korea's regulatory authority for economic competition. It is a ministerial-level central administrative organization under the authority of the Prime Minister and also functions as a quasi-judicial body. The KFTC formulates and administers competition policies, and deliberates, decides, and handles antitrust cases.

According to the FTC, JPMorgan Chase has to pay the biggest fine of 251 million won ($223,000), followed by HSBC with a 225 million won fine. Deutsche Bank faces a penalty of 212 million won, and Standard Chartered (SC) Bank Korea gets 5 million won in fines. In total, South Korea’s Fair Trade Commission has fined JP Morgan, HSBC, Deutsche Bank and StanChart a combined $613,000 for rigging forex derivative prices.
The South Korean agencies have been investigating some foreign investment banks. The Financial Supervisory Service (FSS) has also been probing into a number of cases involving investment banks' price rigging of forex derivatives contracts separately.
According to the FTC, the investigation was about a worldwide scandal that helped global regulators to look into the implications of several investment banks such as JP Morgan Chase, HSBC and Citibank. From March 2010 to February 2012, JP Morgan Chase, HSBC, Deutsche Bank, and SC Bank conspired seven times to sell currency contracts to five corporate clients. The banks were offering the same price to avoid competition when the companies were looking to assign the banks to manage their contracts. Also, the four had worked together in order for one of them to win contracts should their clients decide to choose only one bank for derivatives trading management. This would enable them to take turns in winning the bids.
The regulator states that putting fines on the banks will bring back the market order and make companies deal through the fair competition.