27 February 2014

Consultation on central clearing of OTC derivatives - next step for G20 reforms

The Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, today released a proposals paper canvassing the introduction of a limited obligation for central clearing of certain over‑the‑counter (OTC) derivatives for public consultation.

The Government is also seeking feedback on making the end-user exemption from trade reporting permanent.

The changes are expected to significantly reduce the regulatory burden and contribute to improving business opportunities in Australia.

“This is an important next step in implementing the Australian Government’s commitments with respect to the reforms agreed by the G20 to improve the transparency and resilience of global OTC derivatives markets,” said Senator Sinodinos.

G20 Finance Ministers recently committed to renew their focus on the timely and consistent implementation of OTC derivatives reform at their meeting in Sydney.

Central clearing is one of the three key reforms agreed by the G20 in respect of OTC derivatives, along with trade reporting and trading on platforms.  Central clearing requires the risks inherent in OTC transactions to be managed by specialised entities known as central counterparties.

“The limited clearing obligation proposed in the paper follows similar moves in key overseas markets such as the United States and the European Union.  It is expected to assist in gaining further concessions from overseas regulators for Australian banks raising funds and hedging risks in these markets,” said Senator Sinodinos.

The clearing obligation proposed in the paper is intended to apply to large financial institutions with significant cross-border activities in interest rate derivatives denominated in certain international currencies, most of which are already clearing these types of OTC derivatives.  

The proposals paper is available on the Treasury website.

Submissions close on 10 April 2014.