The Australian Securities and Exchange Commission (ASIC ASIC The Australian Securities and Investments Commission (ASIC) is the prime regulator in Australia for corporate, markets, financial services, and consumer credit. It is empowered under the financial service laws to facilitate, regulate, and enforce Australian financial laws. The Australian Commission was set up and is administered under the Australian Securities and Investment Commission Act of 2001. ASIC was initially the Australian Securities Commission based on the 1989 ASC Act. Initially, the The Australian Securities and Investments Commission (ASIC) is the prime regulator in Australia for corporate, markets, financial services, and consumer credit. It is empowered under the financial service laws to facilitate, regulate, and enforce Australian financial laws. The Australian Commission was set up and is administered under the Australian Securities and Investment Commission Act of 2001. ASIC was initially the Australian Securities Commission based on the 1989 ASC Act. Initially, the Read this Term) has issued two interim stop orders against Interactive Brokers Australia Pty Ltd, thus temporarily preventing it from issuing Stock Yield Enhancement Program (SYEP) Derivatives to retail investors.

ASIC Takes Action against Interactive Brokers Australia

As announced on Thursday, the regulator found deficiencies in the product's target market determination (TMD) and product disclosure statement (PDS). Now, with the interim stop order, the broker cannot offer or issue a PDS or provide general advice about the SYEP derivatives to retail traders for 21 days unless the order is revoked earlier.

With SYEP Derivatives, retail investors can lend eligible securities to Interactive Brokers, who usually on-lend the securities to short sellers. In return, the original holders of the securities receive interest from the broker, which also puts up cash collateral to secure the obligation to return the securities to the investors.

"ASIC made the interim orders to protect retail investors from acquiring SYEP Derivatives where they may not be suitable for their financial objectives, situation or needs," the regulator stated.

Multiple Violations

The regulator highlighted that Interactive Brokers violated the requirements around TMD of the SYEP Derivatives by inappropriately defining the target market inventors, among other things.

The Aussie regulator pointed out that the SYEP Derivatives are exposed to securities lending risks and counterparty risks in case Interactive Brokers default. Further, the regulator raised concerns about Interactive Brokers's defective PDS as it omitted information like benefits, fees and commissions. On top of that, the PDS included a misleading statement on the forfeiture of voting rights.

"ASIC expects Interactive Brokers to consider the concerns raised regarding the TMD and PDS and take immediate steps to ensure compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term. ASIC will consider making a final order if the concerns are not addressed in a timely manner. Interactive Brokers will have an opportunity to make submissions before a decision is made about any final stop orders," the market supervisor stated.

ASIC's Concerns for Risky Products

ASIC has been raising concerns about risky financial products for a while now. It issued a warning last August, asking brokers to be "careful about or reconsider" offering high-risk investment instruments or products, offerings of securities lending and crypto-assets, to retail investors.

The latest notice also pointed out that the Aussie regulator issued 24 interim stop orders design and distribution obligations (DDOs), which induce orders against SYEP Derivatives. The regulator lifted 19 of those orders as the entities addressed the concerns or withdrew the products.

"A TMD is an important requirement under DDO," ASIC stated. "It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (the target market) and matters relevant to the product's distribution and review."

"ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm."