Small Brokers Fear New Capital Plan

The Age

Wednesday July 9, 2008

Ruth Williams

SMALL stockbrokers are concerned at news the Australian Securities Exchange is set to heighten dramatically the minimum capital requirements for some broking companies, which will substantially increase costs in a time of extreme market volatility.

"It does have some of the smaller brokers saying 'where to from here?', especially when the market has been not too good," said Securities and Derivatives Industry Association managing director David Horsfield. "Quite a few people are struggling at the moment."

The ASX has revealed plans to raise the "core liquid capital" required of clearing participants - brokers authorised to clear and settle trades - from $100,000 to $2 million by the end of this year, and to $10 million by the end of next year.

Small brokers unable to meet the new limits could outsource their clearing, but this would still increase their cost of doing business, Mr Horsfield said.

ASX spokesman Matthew Gibbs said the exchange was "cognisant" of the pressure the changes might place on some companies, but said the changes would strengthen integrity and was in the interests of "all market users".

Mr Gibbs said that of about 90 participants, only five or six broking companies would not now meet the $2million threshold. But according to industry sources, up to 30 may not have the $10 million required by the end of next year.

Mr Gibbs declined to comment on this. "That is not something we want to speculate on now," he said.

He said the move would bring Australia into line with overseas standards and was part of "harmonisation" after the merger of the Sydney Futures Exchange and the ASX in 2006.

"It is not true to say that these changes have happened just as a result of subprime or recent market volatility, (but) it's true that recent events have underlined the importance of raised standards to reduce risk and strengthen market integrity," he said.