Background to the OTC derivatives reform
At the 2009 Group of Twenty (G20) Pittsburgh Summit, the Australian Government joined other jurisdictions in committing to substantial reforms to practices in over-the-counter (OTC) derivative markets. Three of the key G20 commitments for OTC derivatives were the:
- reporting of all OTC derivatives transactions to trade repositories
- clearing of all standardised OTC derivatives through central counterparties, and
- execution of all standardised OTC derivatives on exchanges or electronic trading platforms, where appropriate.
The overarching objectives of the OTC derivatives reforms are to:
- enhance the transparency of transaction information available to relevant authorities and the public
- promote financial stability, and
- support the detection and prevention of market abuse.
These commitments aim to bring transparency to these markets and improve risk management practices. These changes provide a framework for the regulation of OTC derivatives reporting, clearing and trade execution.
Australia's response to the G20 commitments
- The Australian legislative framework to implement these reforms commenced in January 2013, when the new Part 7.5A of the Corporations Act 2001 became effective. Under Part 7.5A, the Minister has the power to prescribe certain classes of derivatives as being subject to an ASIC rule-making power for mandatory transaction reporting to a derivative trade repository, mandatory clearing by a central counterparty or mandatory execution on a trading platform.
- A decision by the Minister prescribing a class of derivatives under the framework will be based on advice from the Council of Financial Regulators (CFR). The CFR is comprised of ASIC, the Reserve Bank of Australia and the Australian Prudential Regulation Authority.
ASIC has responsibility for implementing derivative transaction rules and derivative trade repository rules in Australia as part of Australia's G20 OTC derivatives commitments.