Foreign exchange brokers who automatically generate trades on behalf of clients are under the watch of the corporate regulator.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
The Australian Securities and Investments Commission said it was concerned about the number of companies unlawfully using "mirror trading" to generate trades - either through software or expert advice - without individual instructions from clients.
Fairfax Media understands more than half a dozen brokers in Australia use the type of trading. ASIC has launched Federal Court proceedings against one, Monarch FX, and its former director Quinten Hunter.
ASIC alleges Monarch unlawfully used software to generate trades without instructions from clients and is seeking to stop it from operating a financial services business.
It also alleges Monarch recommended clients set up an self-managed super fund to trade on forex markets.
"ASIC is concerned about the number of companies operating similar business models to Monarch FX, which use trading software to automatically execute trades in foreign exchange contracts on clients' accounts without instructions for each transaction," it said.
"ASIC considers that this would constitute a [managed discretionary account] service, which requires operators to hold [an] appropriate Australian financial services licence."
The watchdog has also shut down the Japanese business of foreign exchange broker Pepperstone after it found it didn't have a licence for that country.
Japan was Pepperstone's biggest market, accounting for 40 per cent of its revenue in the 2014 financial year.
It was also at the centre of the NAB/ABS insider trading case in May, with former banker Lukas Kamay using his Pepperstone account to allegedly reap millions in unlawful trades.
It is understood Pepperstone, which is planning to list on the ASX, was attracting Japanese clients with leverage of up to 400:1, far above the regulatory maximum of 25:1, which mean clients can trade $25 of any major currency for every $1 in their account.
Pepperstone has an Australian financial services licence. But ASIC commissioner Cathie Armour said an AFS licence didn't give companies a pass to operate in other countries.
"ASIC reminds all holders of an AFS licence that they must ensure that, when providing financial services in foreign jurisdictions, they understand and comply with the regulatory requirements of offering a service in that jurisdiction," Ms Armour said.
Pepperstone told clients earlier this month that it would not take on new Japanese customers from December 31.
