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20 Aug 13
OTC derivative reporting requirements

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The Australian Securities and Investments Commission (ASIC) released the Derivative Transaction Rules (Reporting) 2013 (Rules) on 11 July 2013.

The Rules impose requirements on counterparties to certain OTC derivatives to report trading data to licensed trade repositories.  The trade repositories will act as a centralised registry that maintains an electronic database of transaction records.  The Rules require trade information to be reported, such as transaction maturity, notional investment amounts and counterparty details.

Senior Associate, Brendan Leighton, summarises the reporting requirements and the obligations imposed on OTC derivative counterparties.

What derivatives are caught?
The types of OTC derivatives currently subject to the Rules include:

  • interest rate derivatives
  • credit derivatives
  • equity derivatives
  • foreign exchange contracts, and
  • commodity derivatives (excluding electricity derivatives).

The Rules do not apply to derivatives able to be traded on Australian markets, supervised by ASIC, or on foreign financial markets, which are subject to equivalent requirements as markets supervised by ASIC.  For example, futures and options traded on the ASX Trade24 are not required to comply with derivative reporting requirements.  However, a privatively negotiated ISDA derivative contract may need to be reported, depending on the counterparties to the instrument.

Who is required to lodge reports?
Any Authorised Deposit-taking Institution (ADI), Australian financial services licensee (AFSL holder), clearing and settlement facility licensee (CS Facility), foreign exempt financial service provider (Exempt Foreign Licensee) and Foreign Authorised Deposit-taking Institution (Foreign ADI) who is a counterparty to an OTC derivative (collectively Reporting Entities) must comply with the Rules.  For example, a responsible entity entering into an OTC interest rate swap for the purposes of hedging a managed investment scheme’s loan facility will be required to provide trading data to a trade repository under the Rules.

The Rules temporarily prevent ASIC from imposing derivative reporting requirements on ‘end users’, defined as a counterparty to an OTC derivative who is not a Reporting Entity, until after 31 December 2014. ASIC proposes to consult on reporting requirements for ‘end users’ in late 2013.  

For Australian Reporting Entities, all OTC derivatives must be reported, regardless of where the OTC derivative is entered into.  Accordingly, OTC derivatives entered into in a foreign jurisdiction will need to be domestically reported.

Currently, there are no licensed trade repositories in Australia; however, the Rules allow Reporting Entities to report to certain prescribed foreign repositories until 1 October 2014.

When reports must be lodged
Reporting Entities must report to a trade repository when they enter into, modify, terminate or assign reportable transactions. Reports must be lodged within one business day of execution, modification, termination or assignment of the transaction.  For example, a Reporting Entity who enters into an OTC derivative must report details of that transaction to a trade repository by the end of the next business day.

Information which must be reported
The Rules prescribe the information which must be reported to the trade repository.  Reporting Entities must report outstanding OTC derivative positions for all reportable transactions.

For most reportable transactions, the common data that must be reported includes:

  • unique transaction and product identifier
  • contract type (e.g. swap, forward or option)
  • underlying asset
  • the identity of the counterparties and any beneficiaries
  • the identity of the broker (if any)
  • whether the derivative has been centrally cleared
  • execution and reporting timestamps
  • derivative start and maturity date
  • master agreement type (e.g. ISDA Master Agreement or European Master Agreement)currency used
  • the value of the derivative and valuation basis (e.g. mark-to-market or mark-to-model), and
  • details of collateral offered (if any).

For certain types of derivatives additional information must be reported.  For example, for options the further details which must be reported include: option type; expiration date; option premium; option style (e.g. European, Asian, Bermudan or American); and strike price.

A Reporting Entity may appoint another person to report on its behalf (e.g. a counterparty, a central counterparty, a trading platform, service provider, broker or any other third party).  However, under the Rules, the Reporting Entity will remain responsible for compliance with the Rules.

Reporting Entities are also required to report information about their outstanding positions in OTC derivatives as at a reporting date specified by the Rules.  See the table below for a summary of the nominated position reporting dates.

Commencement of reporting obligations
The Rules provide that implementation of the reporting obligations will be staggered, as shown in the table below.

  Transaction Reporting (T+1) Position Reporting
Early opt-in

From 11 July 2013, Reporting Entities may elect to comply with the reporting requirements by lodging an opt-in notice.

All outstanding reportable OTC derivative positions as at the effective date nominated in the opt-in notice, being no later than 30 September 2014.

Phase 1 –  Registered US commodity swap dealers

From 1 October 2014, Australian Reporting Entities which are registered US commodity swap dealers will need to report all reportable transactions.

All outstanding reportable OTC derivative positions as at 1 October 2013 must be reported by 1 October 2014.

Phase 2 – Reporting Entities with AUD$50 billion in OTC derivative positions

Phase 2 applies only to ADIs, AFSL holders, CS Facilities, Exempt Foreign Licensees and Foreign ADIs  with AUD$50 billion of total gross notional outstanding OTC derivative positions as at 31 December 2013, who are not caught by Phase 1.

These Reporting Entities will be required to report:

  • credit and interest rate derivatives from 1 April 2013 to 30 September 2014, and
  • all reportable transactions from 1 October 2014.

All outstanding reportable credit and interest rate OTC derivative positions as at 1 April 2014, must be reported by 1 October 2014.

All other outstanding reportable OTC derivative positions as at 1 October 2014 must be reported by 1 April 2015.

Phase 3 – All other Reporting Entities not required to report under Phase 1 or 2

Phase 3 applies to all ADIs, AFSL holders, CS Facilities, Exempt Foreign Licensees and Foreign ADIs not otherwise caught by Phases 1 or 2.

These Reporting Entities will be required to report:

  • credit and interest rate derivatives from 1 October 2014 to 31 March 2015, and
  • all reportable transactions from 1 April 2015.

All outstanding reportable credit and interest rate OTC derivative positions as at 1 October 2014 must be reported by 1 April 2015.

All other outstanding reportable OTC derivative positions as at 1 April 2015 must be reported by 1 October 2015.

Where can I get more information?
To download a complete copy of the Rules please click here.  To access further information on the Rules, please click here to view the ASIC’s Regulatory Guide 249.  ASIC have also released a summary of frequently asked questions on the Rules, please click here to view.

 


Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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