ASIC publishes clearing rules for OTC derivatives

The Australian Securities & Investments Commission (ASIC) today published the rules implementing Australia’s mandatory central clearing regime for over-the-counter (OTC) derivatives of financial institutions – the ASIC Derivative Transaction Rules (Clearing) 2015 and explanatory statement.

The rules are released after a consultation on the matter was opened in May this year.

The key aim of the mandatory central clearing regime is to help reduce systemic risk in OTC derivatives markets.

It applies to transactions in OTC interest rate derivatives denominated in Australian dollars, US dollars, euros, British pounds and Japanese yen between OTC derivatives dealers.

In tune with overseas mandatory clearing requirements, the new rules also provide the basis for substituted compliance or sufficient equivalence determinations by foreign regulators. This is set to assist in achieving significant 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’.

The clearing obligations come into effect in April 2016.

This marks Australia’s implementation of the second Group of 20 (G20) mandate regarding the OTC derivatives reform. The phased implementation of the first mandate on trade reporting of OTC derivatives started in Australia in July 2013, and was completed with the commencement of reporting obligations for Phase 3B firms on December 4, 2015.

You can view the official announcement from the Australian regulator on the new rules by clicking here.

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