For the first time ever, the world’s financial markets were faced with the necessity of attempting to develop a standardized procedure for operation across multiple jurisdictions two years ago, beginning with the United States’ full overhaul of the method by which OTC derivatives are purchased, sold, reported and processed after trades have taken place.
This overhaul, which played an instrumental part in the Dodd-Frank Act, was completed last year with great emphasis on technology and the creation of trade repositories, central counterparties and swap execution facilities by which all institutional FX firms are now mandated to conduct the processing of trades.
The North American authorities paved the way for this procedure to be implemented in Europe and subsequently Asia, with London, Hong Kong and Singapore being the major regions outside the United States in which institutional FX business is conducted in large volumes.
It is quite clear that the days of financial markets participants conducting trades at venues within their own locality are long gone, and connectivity, liquidity and availability are all global phenomena.
Australian financial markets regulatory authority ASIC has now taken its first step toward following America’s lead by issuing the very first Australian derivative trade repository (ADTR) licence to DTCC Derivatives Repository (Singapore) Pte Ltd (DDRS).
Not only does this signal the impending alignment between Australia, Europe, and North America, but also demonstrates Australia’s trade relationship between itself and Singapore, home to Asia’s largest institutional FX industry.
The onset of Australia’s advancement in this direction is in line with industry expectations, with many industry participants involved in the pre and post trade clearing sector having expressed the likelihood last year that Europe would complete the implementation of its European Market Infrastructure Regulation (EMIR) rulings within 2014, with Asia following suit a year later. With this being the first step for Australia, this appears to be a fair estimate.
The asset classes covered by the Singaporean repository will be FX, equity, commodity derivatives (with the exception of electricity derivatives), interest rate and credit derivatives.
Reporting entities that held between $5 billion and $50 billion gross notional outstanding in reportable OTC positions across all asset classes as of June 30, 2014 will be subject to a commencement date of April 13, 2015 for Interest rate and credit derivatives, and October 12, 2015 for FX, equity and commodity derivatives.
ASIC Commissioner Cathie Armour said the ADTR licence is the first of its kind granted by ASIC and is a key step in ASIC’s implementation of mandatory trade reporting requirements for over-the-counter (OTC) derivatives.
The granting of the ADTR licence follows a process undertaken by ASIC and DDRS in the past few months to ensure that DDRS complies fully with Australian standards for trade repository licensees, including on critical issues such as cybersecurity and governance, while remaining subject to day-to-day oversight by the Monetary Authority of Singapore.
Ms Armour said, “The licensing of DDRS represents a milestone in Australia’s implementation of our Group of Twenty (G20) OTC derivatives commitments and ensures that Australian businesses subject to trade reporting obligations can report to a foreign trade repository which is licensed and supervised by ASIC.”
“The licensing of a trade repository in Australia that is already licensed and operating in Singapore demonstrates ASIC’s commitment to accepting equivalent foreign regulatory regimes where possible. This, together with the alternative reporting arrangements in our trade reporting regime, avoids cross-border duplicate reporting obligations and trade repository supervision where possible” Ms Armour said.
The licensing of DDRS means the start date of trade reporting for so-called ‘Phase 3 reporting entities’ under the ASIC reporting framework has now been finalised. These are all authorised deposit-taking institutions and Australian financial services licensees, as well as some overseas firms, that are not already reporting OTC trades to ASIC.