Sydney 8 June 2015. The Australian Securities and Investments Commission (ASIC) has blocked the proposed IPO of an Australian foreign exchange brokerage, due to rising concerns surrounding the amount of brokers targeting retail traders in the country. The IPO paperwork for the proposed FX Primus float was lodged in April of this year, and so far the regulator has blocked any efforts for it to go ahead due to a variety of concerns about the float itself.
A spokesman from ASIC gave this statement when a request for more information was placed, "ASIC had a number of concerns and an interim stop order was placed on the FX Primus Group Limited's prospectus on April 30, 2015. ASIC also notes the extensive regulatory and enforcement work conducted in the FX space and our concerns in relation to companies listing in Australia and conducting business in emerging markets”.
At this point FX Primus, which is based in Cyprus, has released no statements with regards to the IPO blockage. This is not the first time FX Primus have had issues with regulators, in May of 2015 Mauritius announced the suspension of FX Primus licence by the Financial Services Commission (FSC).
The rapidity with which brokers are registering in Australia has long been a point of discussion within the Council of Financial Regulators, which includes ASIC, the Reserve Bank of Australia, the Australian Prudential Regulation Authority and the Treasury. The rapid expansion of the online forex brokerage industry in Australia is understood to be a major point of concern for senior regulators, especially those with extensive experience in international foreign exchange markets.
The largest point of concern for regulators at present is that due to Australia’s current regulations with regards to using leverage in forex trading, many brokers see the market as a very lucrative opportunity. Australia currently allows leverage ratios of up to 500:1 which is a far higher than most forex markets. The US for example allows a leverage ratio of only 50:1, and there have been many calls on Australian regulators to tighten up leverage rules in Australia. Responsible forex platforms will often limit leverage voluntarily such as VantageFX, which limits leverage to 100:1 unless very specific conditions and permissions are met.
The worries of regulators are not without merit, as the dangers of leverage in the Australian market became all too evident with the removal of the cap on the Swiss Franc. A 30% adjustment essentially overnight, meant highly leveraged accounts found themselves deeply in debt essentially instantly. Industry experts say rather than blocking competition in the region, the leverage regulations should be revisited, however there has been no official comment on that at this time.
Despite these issues, the retail forex market in Australia is a fast growing market sector, turning over billions each and every day. For quite a long time now it has been made clear by industry experts that current regulations in Australia are not sufficient to protect retail traders, and yet no solid action has been taken by regulators. Leverage is just one of the issues facing regulators, and yet though it would be a seemingly easy fix to simply bring regulations in line with the more mature markets of Japan and the United States, no changes have been proposed.
