Australia's new over-the-counter (OTC) derivatives reporting regime came into force yesterday.
New Derivative Transaction Rules (DTRs) impose mandatory trade reporting obligations on financial institutions and intermediaries and rules for the regulation and licensing of trade repositories. End-users of OTC derivatives will not be covered by the OTC reporting regime. ASIC proposes to consult on their reporting obligations later this year.
The DTRs establish who will need to report to trade repositories, what information will need to be reported and when the reporting obligations will commence for each class of reporting entity and asset type.
This Alert outlines the structure of the new regime and links to a detailed explanation of the reporting requirements it imposes.
Mandatory OTC derivative trade reporting obligations and trade repository licensing regime
The trade reporting of OTC derivatives is the first aspect of the G20 commitment to be addressed both in Australia and internationally. In Australia, this has been effected through the introduction of mandatory trade reporting and trade repository licensing DTRs.
Importantly, the new reporting obligations are confined to information in relation to the following classes of OTC derivatives:
interest rate derivatives;
foreign exchange derivatives;
equity derivatives, and;
commodity derivatives (other than electricity derivatives).
Electricity derivatives may be added to this list, depending on the outcome the Australian Energy Market Commission's financial resilience review, due to report later this year.
The DTRs are also subject to the Corporation Amendment (Derivative Trade Repositories) Regulation 2013 (Trade Repository Regulation) This allows the interim reporting of derivative transactions to certain recognised overseas trade repositories in the absence of licensed trade repositories in Australia.
In addition, a proposed Trade Reporting Regulation will temporarily restrict ASIC’s rule-making power from imposing derivative reporting requirements on end users until after 31 December 2014. An end user is defined for this purpose as a person who is not an authorised deposit-taking institution (ADI), an Australian financial services licensee (AFS licensee) (or certain foreign person exempted from requiring a license) or a clearing and settlement facility licensee. The DTRs already limit the scope of the reporting obligations in a manner which is consistent with the proposed restrictions in the Trade Reporting Regulation.
The Trade Reporting Regulation will also impose operational measures to ensure the OTC derivatives trade reporting regime has appropriate regulations governing the enforcement of trade reporting rules and regulations for confidential information. These measures will include:
the establishment of enforceable undertakings and infringement notices regimes (modelled on Division 7.2A.1 and 7.2A.02 of the Corporations Regulations 2001) in respect of DTR contraventions; and
provisions addressing how information provided to ASIC under the trade reporting requirements will be treated under the confidentiality provisions in section 127 of the Australian Securities and Investment Commission Act 2001.
Australia's mandatory OTC derivatives reporting and trade repository licensing regime represents an important first step in Australia's implementation of its G20 commitment. As observed in our earlier articles, it is not clear at this stage when or if the Australian government will subsequently move to mandate central clearing and trade execution of OTC derivatives (being the two remaining G20 commitments in respect of OTC derivatives) or whether it will rely on industry-led forces to achieve this result.
For more details in relation to the mandatory reporting regime, click here.
For more details in relation to the trade repository licensing regime, click here.