Global financial crisis slows clearing house strategy

The global economic crisis and impact on fund flows has hit plans to lift the minimum capital requirements for brokers utilising the Australian Clearing House, which provides clearing and settlement services for products traded on the Australian Securities Exchange (ASX).

A review of the arrangements conducted by both the Reserve Bank and the Australian Securities and Investments Commission (ASIC) has cited developments in financial markets over recent months and suggested they have made it appropriate to reassess the timetable for the implementation of an increase in minimum capital.

It said, in particular, the market for third-party clearing had not evolved in the way originally anticipated when Australian Clearing House announced the prospective change in capital requirements in July last year.

"Given these developments, an increase in minimum capital requirements to $10 million in January 2010 is likely to result in some small brokers finding their ability to offer competitive broking services curtailed," the review analysis said.

It said this could, in turn, impact on the efficiency of providing broking services to regional and some retail clients.

"There is, therefore, a strong case for a more gradual implementation of the increase in minimum capital requirements, with an initial increase to perhaps $5 million in the first half of 2010, followed by an increase to $10 million some time after that," the review said.

It said a phased increase to $10 million would allow further time for the third-party clearing market to deepen and become more competitive and provide further scope for smaller brokers to examine various alternative business strategies.

Commenting on the outcome of the review, the Minister for Superannuation and Corporate Law, Senator Nick Sherry, said he endorsed the desirability of a lengthier period of implementation.