A licensee that incurs actual or contingent liabilities by transacting with clients as principal (dealing on its own account in financial products, including as counterparty to derivatives or foreign exchange, other than where excluded) must hold adjusted surplus liquid funds: surplus liquid funds reduced by the counterparty risk, market risk and other adjustments the guide sets out, at a level of at least one hundred thousand dollars plus five per cent of adjusted liabilities between one million and one hundred million dollars plus one half of one per cent above one hundred million, with reduced rates where the licensee's liabilities to clients are secured or hedged as described. The licensee must certify compliance at least monthly, its governing body must affirm at least annually that there will be compliance over the coming year, and it must report to ASIC when the calculated level falls below the reporting triggers (within ten business days where adjusted surplus liquid funds fall below one hundred twenty per cent of the required amount, and immediately where below one hundred per cent) and stop entering into principal transactions where the condition requires. The adjustments use standard discounts for the risk that assets cannot be realised and the risk of counterparty default, or an internal risk model that ASIC has not objected to.
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