Stakeholder feedback on the "Proposals Paper:
G4-IRD central clearing mandate" must be in by 10 April
It now appears likely that mandatory central clearing of
G4-denominated interest rate derivatives (IRD)
will kick off next year.
announced last week that it wants to give the Australian
Securities and Investments Commission (ASIC) the
necessary authorisation in the second quarter of this year, and
released a consultation paper seeking stakeholder views by 10 April
This is the latest step in the Government's overall
implementation of the G20 derivatives reform program.
Who, what, when?
Subject to any feedback on the proposals, the Government wants
ASIC initially to mandate central clearing for a limited range of
products and participants.
The products are IRD denominated in $US, GBP, Euro and Yen.
The participants (referred to as G4 dealers)
will be large financial institutions with significant cross-border
activity in these products. The precise rules for determining
who's inside the tent have yet to be worked out, but the
Government has issued an "indicative list" in the
proposal paper issued on 27 February: ANZ, Bank of America, CBA,
Citibank, Deutsche Bank, JP Morgan Chase Bank – London,
Lloyds, Macquarie, NAB, RBS and Westpac.
Intragroup trades will be exempt.
Once ASIC is authorised to make the necessary rules, it will
begin a consultation process on the content of those rules. The
final rules will then require sign-off by the Government.
The Government hopes that this process will be completed by
early 2015, which, it believes, will give G4 dealers plenty of time
to prepare for the new rules.
Processes for mandatory clearing
The mandatory clearing will need to be carried out through
central counterparties (CCPs) that are either
licensed by ASIC or prescribed by the Government.
ASIC licensing will be required for CCPs that are judged to be
operating in Australia. However, recognising the large cross-border
element in derivatives trading, the Government is willing to
prescribe overseas CCPs that are used by Australian
The Government proposes to make the current temporary trade
reporting exemption for end-users permanent. The exemption runs out
at the end of this year, but the Government thinks that making it
permanent will give certainty to stakeholders and "focus
trade-reporting implementation on the major market participants in
Australia". The permanent exemption may be narrower than the
current one, largely to ensure that regulators can access relevant
information on systemically important derivatives trading.
Other products and issues
The Government is still in the early consultation stages
regarding mandatory central clearing of other derivatives, such as
AUD-IRDs and North American and European-referenced credit
In general terms, it will wait for recommendations from future
market assessments before considering a clearing mandate for other
derivatives. In particular, electricity derivatives will not be
considered for inclusion in a clearing mandate until the completion
of a review of the electricity sector that is currently
Despite this, the Government has started to sound out
participants. The proposal paper asks for preliminary views on the
costs and benefits of mandatory central clearing of derivatives
The appropriateness of trading platforms for mandatory
derivatives trading is also still up for discussion.
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.
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