Global Consensus Forms on OTC Reforms

Terry Flanagan

With OTC reforms well underway in the U.S. and Europe, other regions of the world are preparing to conform to the mandatory execution, clearing and trade reporting established by the Dodd-Frank Act and Emir.

In Australia, final rules around OTC derivatives trade reporting obligations and the regulation of derivative trade repositories have been released.

The Australian reforms have been designed to ensure, as far as possible, consistency with international requirements as well as to maximize the prospects of substituted compliance or sufficient equivalence judgments being reached by foreign regulators. This would help ensure that global markets remain open to Australian participants and infrastructures.

“This is a major step for Australia in its implementation of reforms to the OTC derivatives market,” said Commissioner Cathie Armour of the Australian Securities and Investment Commission (ASIC). “This regime is designed to better enable regulators to identify systemic risk concerns and potential market abuse, by enhancing the transparency of information to regulators and the market.”

The reporting rules establish which entities will need to report to trade repositories, what information will need to be reported, and when the reporting obligation will start for different classes of reporting entities and different instrument types.

Derivative trade repositories, or data warehouses, maintain electronic databases of records of derivative transactions. The rules for these repositories cover issues such as application requirements and conditions, the manner in which they must provide their services, and ASIC’s approach to regulation of overseas-based repositories.

In response to G-20 mandated OTC derivatives reforms and standardization, a group of Chilean banks is building new OTC derivatives CCP. The new CCP will begin clearing non-deliverable forwards (NDFs) in the fourth quarter of 2014 and interest rate derivatives (IRD) in the first quarter of 2015.

The CCP will be powered by software from Calypso Technology for novation, affirmation, registration, limits, initial and variation margins, collateral management, default management and trade repository.

“We see Calypso as a strategic partner for one of the most important projects in the Chilean banking industry,” said Felipe Ledermann, CEO of Comder. “This initiative allows us to build a best-in-class CCP with the highest standards and align with BIS-IOSCO principles for market infrastructures.”

Calypso provides vital OTC derivatives clearing and processing infrastructure to the world’s top clearing houses, including CME, Eurex, BM&FBovespa, TSE, SGX, HKEX and ASX. The Calypso Clearing Solution provides cross-asset coverage, manages the clearing process and provides visibility into risk for cash and OTC derivatives products.

In a report on the Australian OTC derivatives market, regulators recommended that the government consider a central clearing mandate for U.S. dollar, euro-, British pound, and yen-denominated interest rate derivatives involving Australian counterparties, primarily on the grounds of international consistency. The initial focus of such a mandate would be dealers with significant cross-border activity in these products.

Most of these products are already subject to mandatory central clearing mandates under Dodd-Frank and Emir, the report noted. By issuing its own mandate, the Australian government would eliminate the possibility of regulatory arbitrage, the report noted.

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