Most Read Contributor in South Africa, September 2016
The draft regulations for OTC derivatives have been released,
which means that change is in the air. The government is stepping
forward into unchartered territory and is set to regulate
an area which has never been regulated before.
Following our recent breaking news on the draft regulations,
ENSafrica will, over the coming weeks and months, unpack the
regulations for you, highlighting all the essentials. What follows
is a sneak peak at affected areas and a snapshot of the bigger
Why should you care?
The bottom line is that the "Draft Regulations of the OTC
Derivative Market" could fundamentally impact your
business and anyone dealing within the OTC derivatives
market may be affected. Particularly, OTC Derivatives Providers
will be affected if the Regulations come into force. The draft
Regulations are far reaching, and have significant
implications, so it is best to take a look.
Are you a Provider?
An OTC Derivatives Provider is most likely a
bank, a financial institution, or
any other derivatives market participant who
regularly trades in derivatives. Providers will need
authorisation to continue with business, will be
obliged to report all trade data to a licenced trade
repository, and may have to clear all
transactions through a central counterparty.
Not sure if this applies to you? The draft Regulations are
widely worded, and apply vaguely to all OTC Derivative Providers.
However, no definition of an OTC Derivative Provider has been
included. Nevertheless, the draft Regulations hint at a range of
penalties from the Financial Markets Act if one fails to
What about a trade repository?
A trade repository is someone who collects data on OTC
derivative transactions, collates such data and reports it to
regulators, as may be required. Under the draft
Regulations, a trade repository will be required to have clear
rules, procedures and contracts – enforceable in all relevant
jurisdictions – which balance the competing interests of
access and disclosure to users and confidentiality. The draft
Regulations impose fairly onerous obligations on trade
repositories, and ensure that they remain deferential to the powers
of the registrar.
What is the aim?
The draft Regulations aim to get a handle on the OTC
derivatives market, and limit the possible repercussions
of unforeseen events. The Regulations deal extensively with the
establishment of a central counterparty, including
significant liquidity requirements. The essence of
this is that it is likely that OTC Derivative Providers will be
called on to provide such liquidity by posting margin and paying
membership fees. If so, this is likely to increase the cost of
So what now?
The reach of the draft Regulations is wide, and so it is
important to take a look if you deal with the derivatives market in
any way. The draft Regulations still need to be developed in many
areas, but it is worth noting that the consequences of
non-compliance will be high. For this reason it is important to
assess where and how your business may be
impacted. There is an opportunity to comment of the
proposed regulations until 3 September 2014, by emailing firstname.lastname@example.org,
with the subject title FMA: Ministerial Regulations.
In the milieu of global financial markets, securities of various types are often classified as either ‘listed’, ‘unlisted’ or ‘quoted’.
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