OTC Derivatives Regulatory Framework

Since the global financial crisis, international policymakers have also sought to strengthen practices in over-the-counter (OTC) derivatives markets. To this end, in 2009, the G20 leaders committed that all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through CCPs. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements. The G20 leaders later added to these commitments, agreeing that international standards on margining of non-centrally cleared OTC derivatives should be developed. To complement these margin requirements, in January 2015 the International Organization of Securities Commissions (IOSCO) finalised international standards on risk mitigation techniques for non-centrally cleared derivatives.

Consistent with these commitments, in January 2013 amendments to the Corporations Act 2001 took effect that provide for the imposition of mandatory requirements in respect of trade reporting, central clearing and platform trading of OTC derivatives. Under the framework set out in the Corporations Act, the responsible Minister, after considering the advice of the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Bank (jointly ‘the Regulators’), may issue a determination that mandatory obligations should apply to a specified class of derivatives. A determination gives ASIC the power to set Derivative Transaction Rules (DTRs). These set out the details of any requirements. In writing DTRs, ASIC must consult with APRA and the Bank. While providing advice on OTC derivatives reform is a broader responsibility of the Bank, the Payment System Board's views have been sought, particularly with respect to mandatory clearing, given the potential implications for the Bank's role in the oversight and supervision of financial market infrastructure.