Update on regulatory reforms in Asia Pacific and the US
On 28 January 2015, Baker & McKenzie held the first session of the Global Derivatives Webinar Series, with Astrid Raetze and Matt Kluchenek providing an overview of the 2014 derivatives landscape, and the regulatory change expected in 2015 across Asia Pacific and the US. This alert provides a brief summary of the background to the reforms discussed in the webinar, together with a summary table setting out:
the current status of derivatives transaction reporting, clearing, trading and margin requirements for uncleared derivatives in Australia, China, Hong Kong, Japan and Singapore; and
an overview of the US regulatory reforms.
Background to the reforms
With the world reeling from the effects of the global financial crisis, the G20 met in 2009 at Pittsburgh to discuss global reform to the OTC derivatives market.
These reforms were aimed at enhancing the transparency of information relating to OTC derivatives, promoting financial stability and supporting the detection and prevention of market abuse. To achieve this end, the reforms focused on three main areas:
- reporting of all OTC derivatives trades to trade repositories;
- clearing of all standardised OTC derivatives trades through central counterparties; and
- execution of all standardised OTC derivatives on exchanges or electronic trading platforms where appropriate.
Within a year of the Pittsburgh Summit, the Basel Committee on Banking Supervision weighed into the action by releasing the Basel III Capital Accords establishing more stringent capital requirements for banking entities, including holding capital against certain uncleared OTC derivatives trades.
These reforms have continued apace in the Asia Pacific and the United States, with some jurisdictions taking a more proactive approach than others. To date, most jurisdictions around the Asia Pacific region have already commenced mandatory trade reporting of certain OTC derivatives, particularly for credit and interest rate derivatives. Movement has been made towards mandated central clearing, with the focus once again on credit and interest rate derivatives.
In the US, through the passage of the Dodd-Frank Act, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have jurisdiction over OTC derivatives and these agencies have been implementing reporting, clearing and execution requirements on an ongoing basis.
On the Basel III front, banking regulators across the region have begun implementing capital regulatory or margin requirements for uncleared OTC derivatives trades to minimise the counterparty credit exposure that entities take under those trades.
In order to assist our clients keep abreast of these changes, Baker & McKenzie held a webinar session, the first of the Global Derivatives Webinar Series, which discussed some of the regulatory updates in Australia, China, Hong Kong, Japan, Singapore and the United States.
This table summarises the reforms discussed in the webinar and is intended to provide a reference point for the key recent developments relating to global derivatives reform in the Asia Pacific region.