12-260MR Report on the Australian OTC Derivatives Market – October 2012
Tuesday 30 October 2012
The Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Reserve Bank of Australia have released a Report on the Australian OTC Derivatives Market – October 2012 (REP 309).
This report reviews the risk management practices of market participants in the domestic over-the-counter (OTC) derivatives market. A particular focus of the report is how market participants are using centralised infrastructure, and the prospects for increased usage.
It reiterates the regulators’ view that there are strong in-principle benefits from participants in the domestic OTC derivatives market making greater use of centralised infrastructure, such as trade repositories, central counterparties and trading platforms. The regulators recognise, however, that the suitability of using centralised infrastructure will not be the same for all products and participants. The main recommendations of the report are that:
the Australian Government consider a broad-based mandatory trade reporting obligation for OTC derivatives
central clearing of Australian dollar-denominated OTC interest rate derivatives should be adopted by larger market participants, and that this should be a mandatory obligation if the existing industry-led migration stalls, and
there is scope for further improvements to operational and risk-management practices in relation to non-centrally cleared transactions.
In preparing the report, a wide-ranging survey of key participants in the Australian OTC derivatives market was undertaken during July 2012. The survey covered large domestic and international banking groups, smaller authorised deposit-taking institutions, fund managers, government borrowing authorities, corporate treasuries and electricity companies.
This work builds on the issues explored in the regulators’ May 2009 Survey of the OTC Derivatives Market in Australia (REP 158). The report has also been written in consideration of the Corporations Legislation Amendment (Derivative Transactions) Bill 2012, which the Australian Government has introduced into Parliament in line with the G-20’s commitments to reform global OTC derivatives markets.