Australia: Regulators support industry-led move to OTC central clearing for now, and broad mandatory reporting

Last Updated: 11 November 2012
Article by Louise McCoach

Key Points:

The recommendations in the Report on the OTC derivatives market provide some useful guidance on the policy position that is likely to inform the views of the regulators as they engage in the statutory consultation process.

On 30 October 2012, the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia released a Report on the Australian OTC Derivatives Market – October 2012.

The Report develops the issues explored in an earlier May 2009 survey of the OTC Derivatives Market in Australia in the broader context of the Corporations Legislation Amendment (Derivative Transactions) Bill 2012.

Industry-led move to central clearing

The Report considers a number of issues, including whether a move to central clearing of OTC derivatives would lead to strong in-principle benefits to the Australian OTC derivatives market.

After canvassing the merits of central clearing for various OTC asset classes, the Report concludes that central clearing of A$ interest rate derivatives is likely to yield the most immediate and substantial benefits to the Australian financial system. However, the Report stops short of recommending the introduction of a mandatory clearing obligation for this asset class.

Instead, the Report recommends that the Australian Government adopt a "wait and see" approach to allow market participants to voluntarily migrate to central clearing, with a view to reconsidering the need for mandating central clearing, at least for A$ interest rate derivatives, if the migration does not happen soon enough.

Whether or not Australia adopts mandatory clearing will depend on how quickly market and commercial considerations guide banks' decisions to choose central clearing when dealing with counterparties. Lower capital charges on cleared derivatives under Basel III will certainly steer banks towards this result – the question is, will this be fast enough.

In order to facilitate the market's migration to central clearing, the Report acknowledges the responsibility of ASIC and the RBA to deal expeditiously with any licence applications to provide central clearing services in Australia.

A broad-based mandatory trade reporting obligation for OTC derivatives

In contrast to its support for an industry-led solution to central clearing, the Report recommends that the Australian Government consider the introduction of a mandatory trade reporting obligation for a broad range of OTC derivatives and market participants.

The implementation of the mandatory reporting recommendation hinges upon the progress of the Derivative Transactions Bill which is currently before the Senate and likely to be debated in early 2013. If mandatory reporting is introduced after the bill is passed, ASIC will have the role of developing the related licensing and reporting requirements in consultation with industry stakeholders.

Risk management for non-centrally cleared trades

The Report identifies shortcomings in the counterparty credit risk management practices among participants in the OTC electricity derivatives market and notes that further work should be undertaken to explore these issues. The Report also identified the following areas of concern in relation to current market practices generally, which it singled out for ongoing regulatory and market attention:

Credit support arrangements

The Report recommends the maintenance of adequate credit support arrangements for non-centrally cleared OTC derivatives transactions. It also recommends, as a matter of best practice, the daily collateralisation of exposures by larger and more active market participants, recognising the need to balance this against the operational and liquidity impact of doing so.

In considering the adequacy of current OTC collateralisation practices, the Report takes into account draft principles recently issued by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions which call for the mandatory posting of collateral to support the obligations of parties to non-centrally cleared derivatives transactions. The Report states that the regulators will continue to monitor these international developments and provide advice to the Australian Government as appropriate.

Trade compression and portfolio reconciliation services

The Report notes that the use of trade compression services in Australia is sporadic and urges a more co-ordinated market-wide approach to the use of these services. The Report also advocates greater utilisation of portfolio reconciliation services to reduce the likelihood of valuation disputes between parties.

Trade execution

While the Report recognises that greater use of trade execution platforms would be beneficial in principle, it concluded that further analysis was necessary to more precisely identify how the benefits can be appropriately harnessed.

The Report notes that the above recommendations are largely able to be adopted by the market without the need for specific regulatory action. However, the regulators have indicated that they will continue to monitor progress in this area in consultation with relevant industry stakeholders.

What is the significance of the Report?

Post-financial crisis, domestic derivatives reforms have largely focused on the migration of OTC derivatives to central clearing and how this will be regulated and licensed. Interestingly, the Report indicates that collateralisation practices in relation to non-centrally cleared OTC derivatives could potentially be on the regulatory reform agenda as well.

The Report is also significant in the context of the role that Australian regulators will have under Australia's new OTC derivatives framework once the Derivative Transactions Bill comes into force. In particular, the Minister for Finance and Superannuation will be required to consult with the regulators before determining that one or more classes of OTC derivatives should be subject to mandatory central clearing, reporting or trade execution requirements.

The recommendations in the Report provide some useful guidance on the policy position that is likely to inform the position of the regulators in the course of their involvement in any statutory consultation process in relation to central clearing, trade execution and reporting under the new framework. The policy position of the regulators is also likely to inform ASIC's approach to its rule development role under the new framework.

Next steps

The regulators propose to engage further with stakeholders about the findings in the Report with a view to exploring a number of issues, including:

  • stakeholder concerns around impediments to central clearing, such as operational and design elements;
  • the development of mutually acceptable client clearing agreements;
  • how best to manage systemic risks in other markets that are not currently amenable to central clearing, such as cross-currency and FX derivatives; and
  • if and how any further regulatory intervention may be warranted to further enhance the efficiency, integrity and stability of the Australian OTC derivatives market and the broader Australian financial system.

The Report expects that additional market reports will be undertaken in the period ahead.

You might also be interested in ...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.