On 8 July 2014 the Australian Government issued a paper seeking
industry views on its proposal to require central clearing of
certain AUD-denominated interest rate derivatives ("AUD
IRDs"). The proposals paper follows recommendations made by
the Council of Financial Regulators in April 2014 that the
Government consider a central clearing mandate for trades between
internationally active dealers in AUD IRDs. These proposals are in
addition to those made by the Government in February 2014 to
require central clearing of interest rate derivatives in G4
currencies ("G4 IRDs").
The move to require central clearing of AUD IRDs represents a
departure from the approach initially adopted by the Government in
2013. At that time, it was observed that the domestic dealers were
"voluntarily" moving to a central clearing model for
trading in AUD IRDs and that it was only necessary to require
clearing in G4 IRDs. Since then, the Government believes that good
progress has been made by market participants in preparing for
central clearing of over-the-counter (OTC) derivatives in Australia
and that the incremental cost of requiring central clearing of AUD
IRDs would be minimal. Extending the central clearing mandate to
AUD IRDs would also be consistent with the approach of overseas
regulators, which are requiring central clearing across a wide
range of OTC derivatives, and would assist with the Australian
regulatory regime achieving "substituted compliance"
status with overseas regulators, the Australian Government
These proposals, if implemented, would see a Ministerial
determination made in the second half of 2014 that will allow the
Australian Securities and Investments Commission to make rules
regarding central clearing of AUD IRDs and G4 IRDs. It is proposed
that the central clearing mandate would be limited to large
financial institutions with significant levels of cross-border
activity. The key issue of concern to industry participants will be
how this is defined. The proposals paper refers to a $100 billion
notional amount of outstanding derivatives booked or entered into
The proposals paper also specifically states that there is no
current intention to require central clearing of OTC derivatives
for corporate end users and proposes to exclude public entities
(such as central banks) and intra-group trades from the
Submissions on the proposals close on 1 August 2014.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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