The Government is implementing a range of reforms to make over-the-counter derivatives markets safer and ensure that regulatory reforms do not impose an unnecessary compliance burden on industry. These reforms include:
- Requiring central clearing of over-the-counter interest rate derivatives denominated in Australian dollars and four other global currencies;
- Providing relief from the trade reporting requirements for organisations that undertake small amounts of over-the-counter derivative activity by allowing 'single-sided' reporting;
- Permanently exempting end users from the regulatory framework applying to over-the-counter derivatives; and
- Increasing cross-border cooperation in derivatives market regulation between Australia and Singapore.
Central clearing of over-the-counter interest rate derivatives
Following the consultation process earlier this year, the Government will mandate central clearing of over-the-counter interest rate derivatives denominated in Australian dollars and four global currencies for the major domestic and foreign banks.
This aligns Australia with our global peers in progressing reforms agreed by the G20 in the aftermath of the global financial crisis.
A Ministerial determination and regulations will be made available for public consultation in early 2015. Rules setting out the details of implementation will be released at the same time by the Australian Securities and Investments Commission.
'Single- sided' reporting for Phase 3B entities
Financial services organisations that engage in small amounts of over-the-counter derivative activity will benefit from 'single-sided' reporting relief, provided they conclude their derivatives transactions with counterparties that are already required to report the trade.
This will apply to all Phase 3B entities as defined in the trade reporting rules.
This means that the trade reporting compliance burden will mainly fall on larger financial institutions that are systemically important, while still providing regulators with information they need to effectively supervise over-the-counter derivatives markets.
Regulations setting out the details of the 'single-sided' reporting regime will be released for public consultation in early 2015.
Permanently exempt end users from the regulatory framework
Research indicates that end users, in particular non-financial corporates, do not play a systemically significant role in over-the-counter derivatives markets in Australia.
We have permanently exempted end users from the regulatory framework applying to over-the-counter derivatives. The previous relief was due to expire on 31 December 2014.
This permanent exemption provides certainty for end users that they can continue to use over-the-counter derivatives to hedge their business risks without incurring unnecessary compliance costs.
Information sharing agreement between Australia and Singapore
We are also formally implementing an information sharing arrangement between the Australian Securities and Investments Commission and the Monetary Authority of Singapore for derivatives market regulation.
Cross-border cooperation between over-the-counter derivatives regulators is crucial to ensuring that regulation of these global markets occurs at the lowest possible cost to industry.
Fostering such cooperation is a declared objective of G20 leaders and global supervisors such as the Financial Stability Board.
The Government remains committed to ensuring our regulatory system facilitates an efficient and safe over-the-counter derivatives market.
Karen Wu – 0428 350 139