Australia’s OTC derivative reforms provide a framework for the regulation of OTC derivatives reporting, central clearing and trade execution and affect almost all participants in the financial services sector who trade in OTC derivatives. Clients who trade in OTCs face significant operational and regulatory challenges arising out of these reforms.
The Derivative Transaction Rules (Reporting) 2013 (DTRs) impose requirements on counterparties to certain over-the-counter (OTC) derivatives to report trading data to licensed trade repositories (TRs).
The DTRs apply to anyone who is a “Reporting Entity” under the DTRs, namely:
- an Australian Entity ie. a corporation, that is incorporated or formed in Australia
- a foreign subsidiary of an Australian Authorised Deposit Taking Institution (ADI) or an Australian AFS Licensee
- a foreign ADI that has a branch located in this jurisdiction
- a foreign company that is required to be registered under Division 2 of Part 5B.2 of the Corporations Act.
Set out below is a general overview of the derivative transaction reporting requirements in Australia.
Who must report and what must they report?
A “Reporting Entity” must report information about:
a) all derivative transactions (“reportable transactions”) entered into by the Reporting Entity: an Australian entity must report all OTC derivatives to which it is a party, regardless of where the OTC derivative is entered into; and a foreign entity must report all OTC derivatives to which it is a party and which it has entered into in this jurisdiction or has booked to a branch in Australia
b) its outstanding positions (“reportable positions”) in derivatives as at the date the requirement to report reportable transactions in the relevant asset class commences.
A Reporting Entity can delegate their reporting obligations to a third party, eg a counterparty, central counterparty, trading platform, service provider, broker or any person. However, a Reporting Entity always remains responsible for complying with the DTRs, even when they have appointed a delegate.
What derivatives are captured?
OTC derivatives are defined broadly under the DTRs as derivatives that are not traded on an Australian or foreign prescribed financial market. A Reporting Entity must report information about the entry into, modification, termination or assignment of, OTC derivatives arrangements for the following asset classes:
a) commodities other than electricity
d) foreign exchange
e) interest rates.