ASIC has today released rules implementing Australia's mandatory central clearing regime for over-the-counter (OTC) derivatives of financial institutions – the ASIC Derivative Transaction Rules (Clearing) 2015 (derivative transaction rules (clearing)) and explanatory statement.
The mandatory central clearing regime will assist to reduce systemic risk in OTC derivatives markets and applies to transactions in OTC interest rate derivatives denominated in Australian dollars (AUD interest rate derivatives), and in US dollars, euros, British pounds and Japanese yen (G4 interest rate derivatives) between OTC derivatives dealers.
In line with overseas mandatory clearing requirements, the regime also provides the basis for substituted compliance or sufficient equivalence determinations by foreign regulators. This will help to achieve substantial cost savings for Australian participants and facilitate access to global markets by Australian participants and infrastructures.
ASIC Commissioner Cathie Armour said, ‘This is another major milestone for Australia in its implementation of reforms to the OTC derivatives market.
‘This regime will help to reduce systemic risk in Australia by requiring key interest rate derivatives traded between the largest derivatives dealers to be centrally cleared. The rules have been designed taking into account the mandatory clearing requirements in other jurisdictions in which Australian financial institutions operate. We will work with overseas regulators to determine whether or not equivalence or substituted compliance treatment is available as this will assist Australian financial institutions manage implementation of the regime', Ms Armour said.
The final derivative transaction rules (clearing) follow ASIC's consultation earlier this year (refer 15-132MR). In May 2015, ASIC released Consultation Paper 231 Mandatory central clearing of OTC interest rate derivative transactions (CP 231) and the proposed draft derivative transaction rules (clearing).
The final derivative transaction rules (clearing) follow a Ministerial determination issued in August 2015 that imposed a clearing mandate on AUD and G4 interest rate derivatives, and regulations made in September 2015 that set high-level parameters for the mandatory clearing regime.
The derivative transaction rules (clearing) set out which entities and derivative contracts are covered by the clearing mandate, the eligible central counterparties that may be used, alternative clearing (allowing entities to comply with certain overseas clearing requirements) and certain exemptions from the clearing mandate. The clearing obligations will commence in April 2016.
This marks Australia's implementation of the second Group of 20 (G20) mandate in relation to OTC derivatives reform. The phased implementation of the first mandate on trade reporting of OTC derivatives began in Australia in July 2013, and was completed with the commencement of reporting obligations for Phase 3B firms on 4 December 2015.