Finsa Pty Limited, trading as Core Spreads Australia, has produced this policy document to outline the procedures that it adopts to manage its exposure to market risk and to reveal the counterparties with which it transacts to hedge that risk. The purpose of the document is to provide clients with an insight to our hedging procedures so that they are better informed to assess the counterparty risk in dealing with us.
The term ‘hedging’ refers to the process where a financial service provider, such as Core Spreads Australia, reduces financial exposure by entering into a corresponding transaction with another entity. Core Spreads Australia hedges client exposures on a net basis. Each and every trade entered into by the client represents market exposure for Core Spreads Australia. When one client trades in one direction and another one trades in an equal and opposite direction the market exposure is offset. Core Spreads Australia follows a model that gives aggregate client exposure the opportunity to offset itself before being hedged in the underlying market. When clients trade in the same direction however, market risk builds up for Core Spreads Australia, which is then reduced by hedging in the underlying market. Risk limits, governed and assessed by the board of directors, dictate the maximum market risk that Core Spreads Australia can undertake.
Core Spreads Australia hedges its market exposure in the Underlying equity, FX and Derivatives markets. To make these hedges Core Spreads Australia holds margin with counterparties. In selecting the counterparties, Core Spreads Australia considers competitive rates, credit rating, efficiency of service, reliability of technology, reputation and financial standing. It is important to note that Core Spreads Australia’s hedging practice may not eliminate risk to clients.
For FX products, Core Spreads Australia’s main counterparties are CMC Markets and IG Markets.
For non-FX products, Core Spreads Australia’s main counterparties are CMC Markets and IG Markets.
We have back up agreements with other institutions in the event of losing connectivity with either of our main counterparties such as with SpreadEx and Scope Markets.