ASIC scutinises online trading sites

AN Australian Securities and Investments Commission survey of online trading web sites outlined some consumer protection and disclosure issues that need to be addressed by the industry.

The survey identified 29 sites as offering online trading in Australia.

ASIC commissioner Jillian Segal said the survey was necessary because of an increase in online securities trading by retail investors and ASIC’s obligation to ensure the new industry was taking seriously its responsibilities to protect and educate investors as well as to promote market efficiency and integrity.

“It is not surprising the survey found the industry was generally doing the right thing to protect consumers,” Ms Segal said.

“We did find that two thirds of the sites which were looked at did not have information on internal or external dispute resolution schemes, others did not disclose their physical location, postal address or if they were licensed.

“Other sites did not disclose any information about a privacy policy nor did they contain any educational material.”

Ms Segal said the issue of most concern to ASIC was sites that allowed retail investors to “borrow” up to $25,000 to trade over a single day with repayment coming from the sale of the securities at the end of the day. This “offer” was not accompanied by any warning of the high risks involved when engaging in speculative day trading.

She said ASIC would encourage “execution only” brokers over the next 12-18 months to become members of an approved alternative dispute resolution scheme. ASIC will also encourage online trading web site operators to assess their sites against and adhere to the Good Disclosure template. A summary of the template includes:

• Disclosing the identity of the principal;

• Having a dealers licence if conducting a securities business;

• Privacy policy complying with Privacy Amendment (Private Sector) Bill;

• Disclosing a complaints handling procedure;

• Clearly and prominently disclosing disclaimers that limit liability;

• Clearly and prominently disclosing product and transaction information, and the order handling and payment process; and

• Advertising on the site being identifiable as such.

The site should also state its capacity to process transactions, explain what contingencies are in place if retail investors cannot access the system, and clearly describe its security features.

The site should include material about the risks in investing in the securities market and how to manage those risks.

If the site provides specific retail investment advice, it must comply with the Corporations Law “know your client” provision and be appropriately licensed.

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