Australia outlines next step in OTC derivatives rules

The Australian government has published a paper on the implementation of Australia’s G-20 OTC derivatives commitments.

The Australian government has published a paper on the implementation of Australia’s G-20 OTC derivatives commitments.

The proposals reflect similar efforts worldwide to make central clearing of derivatives trades mandatory and to increase transparency in the market.

As part of the Australian government’s wider process of instigating changes in compliance with global OTC derivative reforms, the paper consults stakeholders for their views on a proposed clearing mandate which would combine G4-IRD and AUD-IRD mandates into one single determination, as issued by the relevant government minister.

The advantages of increased centralisation of AUD-IRD clearing have already been broadly espoused. As the report notes, “regulators have repeatedly noted that there would be a substantial financial stability benefit from increased central clearing of AUD-IRD. Having monitored Australian-headquartered dealers’ progress in implementing appropriate clearing arrangements, the regulators are satisfied that the incremental cost of mandatory central clearing of AUD-IRD would be very low for trades between internationally active dealers in the Australian market.” It is believed that the transition would be a fluid and straightforward one, given the pre-established operational arrangements of many large Australian dealers.

This particular consultation is a result of an earlier paper released in February 2014 which consulted internationally active dealers on a proposal for mandatory central clearing of interest rate derivatives denominated in four global currencies (US dollars, euros, Japanese yen and British pounds).

Alongside this earlier consultation emerged a Report on the Australian OTC Derivatives Market by the Australian Prudential Regulatory Authority, the Australian Securities and Investments Commission and the Reserve Bank of Australia. The report recommends a central clearing mandate for interest rate derivatives denominated in Australian dollars – limited to internationally active dealers. The Australian Government advises stakeholders to consider this report in conjunction with their current proposal paper.

The Australian Treasury has published a consultation website through which stakeholders are able to offer comment and feedback, which can be accessed HERE.
The full proposal paper can be downloaded HERE.