Download Dear - Financial Markets

Mr Daniel Mcauliffe
Manager
Financial Markets Unit
Corporations and Capital Markets Division
The Treasury
Langton Crescent
PARKES ACT 2600
Dear Mr Mcauliffe
Comments on Australian Treasury’s December 2012 Consultation Paper on
Implementation of Australia’s G20 over-the counter derivatives commitments
(“Consultation Paper”)
A
Introduction
Thank you for the opportunity to comment on the Consultation Paper.
This section of our response contains some general observations about Australia’s
implementation of the G20 commitment and co-ordination with other jurisdictions.
Section B contains specific comments on each of the three limbs of the G20
commitments and section C contains our responses to each of the questions in the
Consultation Paper.
We are a group of Australian banks who have significant operations in Australian
derivatives and have an interest in ensuring G20 OTC derivative commitments are
implemented in Australia in an optimal way. We therefore remain supportive of the
measured approach the Australian government and agencies have taken so far to
implement the G20 commitments, which is again outlined in the Consultation Paper.
We have also registered with the CFTC as “Swap Dealers” under the Wall Street Reform
and Consumer Protection Act 2010 (the “Dodd Frank Act”). In so doing, we have each
made significant investments adapting our front and back office systems to comply with
US legal requirements under the Dodd Frank Act, particularly in relation to “real time
reporting” and “SDR reporting”.
Given the scope of our international operations, we may be subject to reporting, clearing
and ultimately trade execution requirements imposed by other jurisdictions, such as the
EU, in order to implement their G20 commitments.
In that context, we believe that one of the key objectives of the Australian government
and agencies in implementing Australia’s G20 commitments should be to ensure
international co-ordination, in order to minimise regulatory duplication and overlapping
regulatory requirements.
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For this reason, we encourage the Australian government to continue to engage and coordinate with other governments (e.g. through the Financial Stability Board), and support
the RBA, ASIC and APRA in engaging with relevant foreign agencies and central banks.
As there is a lack of clarity on how the cross-border application of their OTC derivative
regulatory regimes will be approached by the CFTC, SEC, EU and other foreign
authorities, we believe Australian authorities should remain flexible in setting timetables
for introducing Australian requirements for trade reporting, clearing and trade execution.
ASIC should be empowered to phase obligations in sooner than outlined in the
consultation paper, potentially on an interim basis, but only if offshore regulators indicate
doing so would reduce the overall regulatory burden on industry participants such as
ourselves who have already made significant investments in complying with the Dodd
Frank Act reporting requirements.
At this stage it is too early to say whether it will be necessary or beneficial to industry
participants like ourselves to introduce a reporting regime more quickly than
contemplated in the Consultation Paper. For that reason we encourage the Australian
government not to “hard-wire” an implementation timetable while there is such
uncertainty about cross-border application of other jurisdictions’ reporting regimes.
Extension of foreign regulation of OTC derivatives activities beyond the G20
commitments
In addition to the above comments on the implementation of the G20 commitments on
reporting, clearing and execution, we have some observations on other aspects of the
approach taken by some jurisdictions to implementing the G20 commitments.
Prior to the 2008 financial crisis there was minimal global regulation or supervision of
the OTC derivatives markets and its participants. An exception to this general situation is
that the activities of Australian banks in these product markets have long been regulated
by Australian law and subject to supervision by APRA and ASIC.
For example, Australia has had in place robust and effective requirements in relation to
recordkeeping and risk management in respect of its OTC derivatives activities for many
years. There are many other examples which we would be happy to discuss with APRA
and ASIC, where existing Australian requirements have been proven to achieve the same
types of outcomes as those which the new, differently formulated foreign requirements
are designed to achieve.
In order to overcome existing gaps, and also to fulfil its G20 commitments, the US has
developed new and comprehensive rules dealing with capital, risk management and
internal conduct matters. At present, it is not clear how the rules will ultimately be
applied to foreign banks. The CFTC proposed a concept of “substituted compliance” in
draft guidance last year, which it could theoretically apply both to the risk management
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and internal conduct requirements under the Dodd Frank Act and the G20 commitments
on reporting, clearing and trade execution.
We believe any international agreement on cross-border implementation of the G20
commitments should have regard to the fact that some jurisdictions such as Australia’s
already have in place effective regulatory regimes for OTC derivatives markets, over and
above the new areas specified in the G20 commitments of mandatory trade reporting,
clearing and trade execution.
As Australian banks, we believe we have a shared interest with the Australian
government and Australian regulatory agencies working in international forums to ensure
that Australian regulatory agencies retain the primary responsibility for supervising and
regulating the OTC derivatives activities of Australian banks such as ourselves.
We strongly support Australian government and agencies (in particular APRA as the
prudential regulator, and ASIC as the corporate, markets and financial services regulator)
emphasising the completeness and comprehensiveness of Australia’s regulatory
environment for banks such as ourselves in relevant international forums, and bilaterally
with relevant regulators.
We note that in its latest report on Australia in November 2012, the IMF did not identify
any significant deficiencies in Australia’s regulatory environment for OTC derivatives
markets and their participants, which supports this view.
In our view IOSCO’s International Standards for Derivatives Market Intermediary
Regulation Report (2012) provides a sound basis upon which international standards can
be applied by local regulators, and is a more appropriate alternative to the global
extension of regulations developed for participants in other jurisdictions.
While we are prepared to assist APRA and ASIC in any way we can to effectively make
these points to relevant foreign regulators, our view is that arguments about the adequacy
and primacy of existing Australian financial regulation are better made by the Australian
government and Australian regulators in the appropriate international forums, and not by
the entities who are themselves subject to such regulation.
We also think it is important that foreign regulators understand the potential implications
of imposing identical risk management and internal conduct requirements on global swap
dealers and on smaller regional dealers, without due consideration being given to issues
of scale confronting smaller regional dealers. In the medium to longer term, there is a
risk that market structure will evolve and result in a greater concentration of swaps
markets activities in a small number of global dealers, if regulatory requirements are
imposed globally without recognition that the relative compliance costs will be much
greater for smaller regional dealers.
The primary stated goal of regulating OTC derivatives markets and their participants is
the reduction of systemic risk. Given the strong performance of the Australian market,
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relevantly guided by APRA, ASIC and supported by Australia’s regulatory framework in
avoiding many of the problems in bank supervision which have occurred elsewhere in the
world in the past decade, we do not believe there is a sound basis for foreign regulators to
seek to impose their rules relating to capital, risk management and internal conduct on
well regulated and supervised Australian banks.
We encourage APRA and ASIC to strongly advocate the primacy of home regulation to
avoid unnecessary and inefficient regulatory duplication.
At the same time, international regulatory co-operation and foreign regulatory
recognition of Australia’s regime is important to ensure the continued ability of
Australian participants to compete on a global basis. Accordingly, we encourage
Treasury to support APRA and ASIC in taking all necessary steps, including entering into
memoranda of understanding with relevant foreign regulatory agencies such as ESMA
and the CFTC, to ensure Australia’s regime is recognised as satisfying best international
practice.
Other impending US regulatory requirements
In addition to the potential application of capital, risk management and internal conduct
requirements under the Dodd Frank Act to Australian Swap Dealers, a rule known as the
“Lincoln push out” rule is scheduled to commence operation in July 2013. While US
banks will not need to comply with this rule, at this stage Australian and other foreign
banks with US branch operations will be subject to the rule. Consequently Australian
banks with US branch operations may be at a competitive disadvantage compared to their
US competitors, as a result of the application of this rule. We encourage the Australian
government and regulatory agencies to engage with their US counterparts on this issue.
Please let us know if we can provide additional information to assist you.
Other considerations for the Australian government and regulatory agencies in
implementing the G20 commitments
In addition to the design of rules to implement the mandatory G20 commitments, we
believe there are a number of other important steps which the government (with support
from the Australian regulatory agencies as appropriate) can take to advance the G20’s
objectives. We consider that if these steps are not taken they may become obstacles to
satisfaction of the G20 commitments:




Law reform on portability, and other areas necessary or desirable to support OTC
clearing
Law reform on interest withholding tax in relation to OTC clearing
Efficient licensing of new central counterparties (“CCPs”) and non disallowance
of operating rule changes from existing CCPs
Law reform to facilitate reporting under foreign regulatory regimes.
4
We have not included a lot of detail on these subjects in this letter but are very happy to
provide more detail if that would be of assistance.
B
Specific comments on three key topics discussed in the Consultation Paper
1
Trade Reporting
The overarching concern we have relates to the interaction of the Australian reporting
regime with foreign reporting regimes. At this stage the most important of these is the
reporting regime under the Dodd Frank Act.
However, as major financial institutions with a range of international activities, we are
likely to be subject to other foreign reporting regimes too, including the EU regime,
emphasising the desirability of close international co-ordination. Our primary focus is
currently on the Dodd Frank Act because of the extensiveness of the requirements and the
fact that we have all already designed reporting systems to comply with those obligations.
We support the Australian government and ASIC taking all necessary steps to ensure that
Australian Swap Dealers are not required to extend their current reporting obligations
under the Dodd Frank Act (which require them to report new, existing and historical
swap transactions with “US person” counterparts) from July 2013 to report transactions
with all counterparties (including non-US persons), then subsequently comply with a
similar but not identical requirements under Australian law.
To facilitate this outcome, we encourage the Australian government to empower ASIC,
both from a regulatory and resourcing perspective, to move quickly to introduce reporting
rules, and potentially an interim reporting regime, if it is necessary to achieve that
outcome. Whether or not it is necessary will become clearer as ASIC continues to
engage with the CFTC and other international regulators.
In addition, the regulatory cost of complying with the Australian reporting regime will be
significantly reduced to the extent that Australian Swap Dealers can meet their
obligations by reporting substantially the same information required by foreign reporting
regimes, using the same systems and formats as have been developed to comply with the
Dodd Frank Act, to the same trade repositories.
The effective implementation cost for Australian Swap Dealers will also be reduced to
the extent that the Australian reporting regime clearly addresses situations where there
are overlapping or inconsistent obligations under foreign laws (e.g. laws relating to
privacy or banking secrecy). In our view it is appropriate that these types of issues are
dealt with at a government and/ or regulatory level (particularly given that the driver for
introduction of these reporting obligations is the G20 commitment), rather than requiring
entities subject to the Australian reporting regime to risk exposure to civil or criminal
liability in order to comply with the Australian or international reporting regimes.
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Finally, the cost of implementing a reporting regime may be mitigated if ASIC is able to
learn lessons from the experience that the CFTC, entities registered as “SDRs” under the
Dodd Frank Act and industry participants have had in implementing the Dodd Frank Act
reporting requirements. We would be happy to discuss particular issues which have
emerged with the Dodd Frank Act reporting regime which we would hope could be
avoided at the Australian rule design stage. Some areas where lessons could be learned
include:




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The best way to prescribe which of the counterparties reports a particular
transaction
How to treat prime broker transactions
How to characterise “exotic” derivatives for reporting purposes
Setting reporting time frames which are technologically achievable.
Clearing
We broadly support the approach proposed by the Council of Financial Regulators
(“CFR”).
However, we believe there are some regulatory and legislative tasks which could be
usefully undertaken in the meantime to create a better environment in which to introduce
mandatory clearing. These tasks include CCP licensing, law reform to facilitate
portability, amendments to other laws where necessary or desirable to support OTC
clearing and revisions to withholding tax provisions where payments are made to or by
CCPs or clearing intermediaries. We discuss these issues further in our responses to
question 10 below.
3
Trade Execution
We are supportive of the approach outlined in the Consultation Paper, including the
review of the existing market licensing regime.
We believe that it would be helpful for Treasury and/ or ASIC to clarify for the benefit of
trading platform operators who may register as “Swap Execution Facilities” with the
CFTC and wish to offer services to Australian participants, as a matter of urgency, the
Australian regulatory expectations (if any) on such providers.
C
Specific responses to questions in Consultation Paper
1
Do you have comments on the costs and benefits of complying with the
trade reporting obligation, as outlined in this document, from the point of
view of your business and/or that of your customers?
It is difficult to assess the likely costs of complying with an Australian trade reporting
obligation based on the information contained in the consultation paper.
6
As Australian “Swap Dealers” registered with the CFTC, we have all made extensive
investments in our trading and back office systems to facilitate compliance with reporting
requirements under the Dodd Frank Act. Currently, our reporting obligation only
requires us to report trades with “US persons” to a “Swap Data Repository”. This is
because the CFTC has provided relief from a requirement to report transactions with all
counterparties until July 2013.
We believe it is likely to be inefficient and costly if Australian Swap Dealers are required
to comply with the Dodd Frank Act reporting requirements in respect of all
counterparties (i.e. US persons and non-US persons) for a period, before subsequently
being required to comply with an Australian reporting regime. This inefficiency will
arise, in large part, because Australian banks will need to obtain counterparty consent to
report non-US person trades to the US regulators. The time and effort that this would
entail should not be underestimated. In addition, it is not clear that consent will be able to
be gained in all cases (particularly with respect to historical swap transactions),
potentially giving rise to a risk of civil or criminal liability in order to comply with the
Dodd Frank Act reporting requirements (see further commentary below).
Accordingly, the nature of the Australian trade reporting regime, and how the CFTC
approaches cross-border application of the Dodd Frank Act from July 2013, will be a
significant relevant factor to the additional costs we face in complying with Australia’s
regime.
The marginal cost to Australian Swap Dealers of complying with the Australian reporting
regime will be minimised if the regime is designed and implemented in a way which
enables the systems developed to comply with Dodd Frank Act requirements to be
leveraged.
Another significant factor relevant to the costs of compliance is whether Australian Swap
Dealers will be able to comply with the Australian regime by reporting to the same
“Swap Data Repository” (the term for a “trade repository” under the Dodd Frank Act), or
one which is operated by the same corporate group using the same connectivity and
systems, who Australian Swap Dealers currently report to. Systems changes to connect
to multiple trade repositories with different connection types increases both the cost and
complexity of implementation.
In designing the Australian licensing regime for trade repositories, Treasury and ASIC
should consider that the consistent application of technical standards across trade
repositories will likely reduce the costs for industry participants in reporting to multiple
repositories, and potentially also the costs to regulators in retrieving and interrogating
data from trade repositories.
Another factor relevant to the costs of compliance is whether entities required to report
under Australia’s regime can do so without risk of civil or criminal liability, in Australia
or elsewhere. In some jurisdictions there are legal or regulatory restrictions on provision
of information to foreign regulators (or to TRs) which cannot be overcome by obtaining
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customer consent. In other jurisdictions, the need to obtain customer consent in order to
disclose information may be difficult to achieve in all cases. We think it is important that
Australia’s reporting regime is designed in a way which permits compliance without
exposing reporting entities to the risk of civil or criminal liability in other jurisdictions.
Ideally, relevant Australian laws will also be amended to protect Australian participants
from Australian criminal or civil liability when Australian participants are subject to
foreign reporting obligations. In our view, conflicts between reporting laws and privacy
or banking secrecy law are most efficiently dealt with at a governmental or regulator
level. Given that the reporting requirements are being introduced in response to the G20
commitment, we believe there is an important role for the Australian government in
liaising with other governments to ensure there are no foreign legal obstacles to
Australia’s implementation of the G20 commitments.
The consultation paper does not contain significant details of a possible reporting regime
which would be relevant to our assessment of the likely costs of compliance, such as:
(a)
(b)
(c)
(d)
(e)
(f)
will the information required to be reported be the same as that required under
other regimes, or if not the same, how different will it be?
will all TRs who are licensed be required to use similar technical language to
existing Swap Data Repositories to whom Australian Swap Dealers report
trades?
will the product scope be the same as that in the US, or elsewhere? If so, will
there be phasing by asset class?
will the implementation period overlap with the introduction of reporting
regimes in other jurisdictions for which Swap Dealers will need to develop
reporting systems for?
will the scope of trade reporting requirements facilitate compliance with
foreign recordkeeping requirements (if “substituted compliance” is not
available)?
will end- users and smaller participants not subject to foreign reporting
regimes be required to report trades? (If so, they are likely to face substantial
implementation costs which major industry participants such as ourselves
have in part already borne in developing systems to comply with foreign
regimes).
How these factors are addressed will also contribute to the overall cost burden borne by
Australian market participants.
We think one relevant consideration in assessing the benefits of an Australian reporting
regime is to what extent Australian regulatory agencies will be able to access the same, or
similar, transaction data from TRs (or SDRs) reported under foreign regulatory regimes.
We do not suggest that access to relevant transaction data in TRs by Australian regulatory
agencies is the only consideration, but given that one of the objectives of the reporting
regime is facilitating regulatory access to transaction data required to support their
regulatory activities, we do think it is relevant.
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2
Do you have comments on the proposal to mandate a broad range of
derivatives subject to the phase-in and exceptions outlined in the
document? Or is there another option you prefer? If so why?
Our primary concern is that the range of derivatives captured by the Australian regime is
sufficiently broad, and the exemptions sufficiently narrow, so that foreign regulators such
as the CFTC and ESMA will be satisfied that Australian industry participants can be
primarily subject the Australia regime rather than the foreign regime.
We encourage Treasury to support ASIC as necessary in order for it to continue to
effectively engage with international regulators so that to the maximum extent possible
Australian banks may be subject to the Australian regime rather than foreign regimes,
including those of the US, EU, Hong Kong and Singapore.
3
Do you have a preference for the timetable being prescribed in regulation
or implemented by a phased approach to ASIC rule-making?
Our strong preference is for the government to provide ASIC with the timetable
flexibility and sufficient resources to introduce a reporting regime as expeditiously as is
necessary to respond quickly to international regulatory developments. That is, we
believe it is important that ASIC is able to introduce reporting in a phased manner,
potentially on a timetable different to that contemplated in the Consultation Paper, if it
becomes clear as a result of the international regulatory discussions on cross border
application of trade reporting regimes that doing so will result in a minimisation of the
cost burden to Australian participants.
We are keen to continue a dialogue with Treasury and ASIC as an international
consensus on the appropriate cross-border application of trade reporting regimes
develops, to assist in developing an appropriate implementation timetable.
We are supportive of the regime being introduced in phases which initially only capture
Australian Swap Dealers and, if considered appropriate by ASIC based on international
developments, Australian branches of foreign Swap Dealers.
A highly undesirable outcome for Australian Swap Dealers would be to have to comply
with the CFTC reporting regime and report transactions with all counterparties (i.e. not
just “US person” counterparties as is the requirement until July 2013), and then at a later
date be required to make systems changes to comply with a similar but not identical
Australian regime.
As noted above, we believe the Australian regime should be designed in a way which
ensures that reporting entities are not exposed to civil or criminal liability in other
jurisdictions which may have in place conflicting privacy or banking secrecy laws. To
achieve this, the Australian regime may need to phase-in the obligation to report
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counterparty information, where reporting could result in criminal or civil liability under
a foreign law.
4
Do you have comments on the proposal timetable for implementing the
trade reporting obligation? Or is there another option you prefer? If so,
why?
As noted in question 3, our primary concern is that ASIC have flexibility, both from the
perspective of regulatory power and resourcing, to implement a reporting regime more
quickly than contemplated in the Consultation Paper, if that would be beneficial in
reducing the global regulatory burden on industry participants.
As implementation involves both detailed rule development and licensing a TR, we
encourage Treasury to support ASIC in any way it is able to in order to quickly consult
on the detailed rules for both TR licensing and trade reporting. Collectively, Australian
Swap Dealers have and are continuing to spend significant amounts developing systems
to enable compliance with their reporting obligations under the Dodd Frank Act.
We are keen to discuss the implementation timetable further as an international
regulatory consensus on cross-border application of trade reporting develops.
We note that the timetable in the consultation paper contemplates a “go live” at the end of
2013. Aside from our belief that retaining timetable flexibility at this point is highly
desirable, we would suggest that the experience of many Swap Dealers leading up to the
initial end of 2012 Dodd Frank implementation date for reporting was challenging, due to
year end IT freezes. We would encourage Treasury and ASIC to strongly consider
avoiding “go live” dates in December or January, when developing their timetables.
Another factor to consider in developing the timetable is the desirability for there to be
final rules in place well before implementation begins. The timetable in the consultation
paper envisages the rules will be finalised in July 2013 and “go live” in December. We
believe that 6 months from rule finalisation to “go live” is desirable. However, we
reiterate the need to be sufficiently flexible to adapt the timetable to international
developments in the approach to cross border regulation. If the cross-border position
becomes clear that non-US Swap Dealers will be subject to mandatory reporting
obligations in respect of non-US counterparts from July 2013, then the flexibility to bring
forward the timetable sufficiently to allow for a determination of ‘substituted
compliance’ to be made well before the July mandate, is essential.
Further, we believe that phasing in of the reporting obligations by asset class, as the
CFTC has done in its implementation of reporting requirements, is desirable.
We note that in addition to the phased implementation adopted by the CFTC, the SEC has
yet to introduce Dodd Frank reporting requirements for “security based swaps”. We
would encourage Australian authorities to carefully assess the benefit in introducing
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reporting for these types of instruments before the Dodd Frank and EMIR requirements
are finalised.
Finally, consideration should be given to providing a longer phase in period for reporting
requirements for more complex derivatives (e.g. exotic/ multi-leg derivatives).
5
For Phase 1, do you have a preference for referencing legal status,
thresholds of activity, or size proxies? For Phases 2 and 3, do you prefer
activity thresholds or size proxies?
The simplest approach for Phase 1 may be to focus on whether the entity is subject to
reporting obligations in other jurisdictions.
For Phase 2 and 3, we believe activity thresholds to be the most pertinent measure.
6
Do you have comments on the proposed regulations at Attachment A? Or
is there another option you prefer? If so why?
No comment.
7
Do you have comments on the proposal to wait until after review
processes before making a decision on mandating trade reporting of
electricity derivatives? Or is there another option you prefer? If so, why?
We encourage Treasury and ASIC to consider whether determinations in relation to
electricity derivatives are relevant to the approach which foreign regulators take to
assessing Australia’s trade reporting regime. If it becomes clear that the cross-border
extension of foreign reporting regimes will be affected by whether and when Australia
proposes to impose reporting requirements for electricity derivatives we would strongly
encourage Treasury to re-assess its approach.
8
Are there other bodies with responsibility for underlying assets upon
which a derivative is based that should be also be specified under section
901J?
No comment.
9
Do you have comments on the proposal to implement the trade reporting
and trade repository licensing regime expeditiously, but not to impose
interim reporting obligations ahead of this? Or is there another option
you prefer? If so, why?
We support the expeditious implementation of a trade repository licensing regime.
11
As stated in earlier answers, we support ASIC having the flexibility to make rules on
trade reporting to enable industry participants to comply with an Australian reporting
regime, rather than needing to comply with a foreign reporting regime for all
transactions.
It may be that it is desirable, in the interest of reducing the global regulatory burden, for
Australia to introduce an interim reporting regime very similar to US or EU regimes, to
apply to Australian participants subject to those foreign regimes.
We would see this as a temporary measure until Australia’s regime was fully developed
and Australian entities subject to foreign reporting requirements were allowed by the
foreign regulators to comply with the Australian reporting regime instead of directly
complying with the foreign regime.
In the absence of a measure of this type, if Australian Swap Dealers are required to
comply with the Dodd Frank Act reporting requirements from July 2013 for transactions
with all counterparties, they will need to have obtained consent from all counterparties
(many of whom will be Australian, given the nature of the Australian Swap Dealers’
businesses) to transactions being reported under the Dodd Frank Act (including in
relation to historical swap transactions).
In practice, as has been seen with efforts of Swap Dealers to amend their ISDA
agreements in the lead up to the implementation of the Dodd Frank Act, the process of
obtaining consent from all counterparties is likely to take considerable time, involve
significant costs to Australian Swap Dealers, and potentially disrupt the ability of some
Australian participants to continue trading. There is also a high probability that a material
number of counterparties will refuse to provide their consent, giving rise to civil or
criminal liability under Australian law if the international reporting obligation is adhered
to.
If such reporting will in practice be made to a Swap Data Repository which ASIC has
licensed, or is in the process of licensing, it is difficult to see the practical disadvantage to
clients in having their trades reported. In addition, foreign reporting regimes all contain
safeguards designed to protect client information.
One option for the government would be to provide ASIC with this power, but require it
to consider whether the particular foreign reporting regime and trade repository has
sufficient safeguards in place to effectively protect client information.
We agree that a better outcome would be for Australia’s regime to be in place within a
time frame which did not require ASIC to introduce these types of rules, but which
allowed Australian Swap Dealers to rely on “substituted compliance”, noting that a
“substituted compliance” or equivalent determination would need to be made well before
the relevant international compliance date for mandatory reporting.
12
10
Do you have comments on the proposal to not impose central clearing
obligations at this stage? Or is there another option you prefer? If so,
why?
We are supportive of the approach taken by Treasury and more broadly the CFR on the
introduction of mandatory central clearing. We believe by taking this measured approach
Australian authorities can learn from some of the implementation challenges confronted
by others.
However, as with the Australian reporting regime, we encourage the CFR to retain a
flexible approach, and be prepared to move quickly if the introduction of mandatory
clearing would reduce the overall global regulatory burden on Australian industry
participants who become subject to foreign mandatory clearing regimes. It is too early to
say if there will be any benefit in Australia implementing mandatory clearing
requirements sooner for industry participants subject to foreign mandatory clearing
requirements. We would like to continue a dialogue with members of CFR as the cross
border principles on the application of mandatory clearing become clearer, and as foreign
mandatory clearing regimes are introduced.
We are strongly supportive of the Australian government and agencies taking steps which
we believe should be pre-requisites to introducing mandatory clearing.
Chief among these are for Treasury, ASIC and the RBA to efficiently and expeditiously
process licence applications and/ or rule changes from existing CCPs, to enable
Australian market participants to join CCPs which offer OTC clearing services. We do
not believe it would be desirable from a systemic risk perspective to mandate clearing
until Australian domestic market participants have the ability to join at least one CCP
which clears that product class.
A second priority which we have previously raised with Treasury is the desirability of
expeditiously addressing an anomaly in the way the withholding tax provisions operate,
where price alignment interest on initial margin is paid or received by a CCP or a clearing
intermediary. These provisions place Australian financial institutions at a competitive
disadvantage, while not generating any material revenue.
Thirdly, we are supportive of government efforts to expeditiously remove legal barriers
to the optimal functioning of central clearing, although we do not consider that these
reforms are necessarily a pre-requisite to mandatory clearing being introduced. We think
reform to facilitate portability and the client moneys regime are two priority areas. In
our view, reform to facilitate portability will almost certainly be a factor relevant to the
approval by foreign regulators (e.g. ESMA) of Australian CCPs.
11
Do you have comments on the proposal to not impose trading obligations
at this stage? Or is there another option you prefer? If so, why?
13
We are supportive of Treasury’s proposal in relation to mandatory trading obligations.
We note the comments that additional work needs to be done and are supportive of
Treasury and ASIC efforts to improve the market licensing regime.
In the meantime, we believe that it may be helpful for the government and/ or ASIC to
confirm, for the benefit of trading platform operators who may register as “Swap
Execution Facilities” with the CFTC and wish to offer services to Australian participants,
the Australian regulatory expectations (if any) on such providers.
Even in the absence of an Australian mandatory trading requirement, Australian market
participants are likely to want to use trading platforms both to access liquidity and for the
purpose of complying with Dodd Frank Act requirements.
While we are not aware of any regulatory impediments to SEFs who are existing
Australian market licensees or who are exempt professional market operators from
offering services to Australian participants, confirmation by the Minister (who grants
market licenses and exemptions) or ASIC (which supervises and administers the market
licensing regime) that this is the case would provide useful certainty to operators and
Australian market participants who are increasingly likely to want to use those types of
platforms in the near future as US mandatory trade execution requirements are
implemented.
Please contact any of the undersigned signatories if you would like to discuss any aspect
of this submission.
For further information please contact:
ANZ Global Markets:
Heidi Gaussen,
Director, OTC Reforms
[email protected]; 02 8669 4089
Damien Scholefield,
Director, OTC Reforms Asia
[email protected]; +65 6681 8724
Commonwealth Bank of Australia Markets:
Deepak Powani
Chief Operating Officer Global Rates
Institutional Banking & Markets
[email protected]; 02 9118 1056
14
David Farr
Chief Operating Officer
Institutional Banking & Markets
[email protected]; 02 9118 1966
Macquarie Bank Limited:
Sacha Vujanovic
Executive Director
Macquarie Asia Pte Ltd
[email protected]; +65 6601 0350
Andrew D Harding
Executive Director, Head of Legal Risk Management, Fixed Income, Currencies and
Commodities
[email protected]; 02 8232 4205
National Australia Bank Ltd Wholesale Banking:
John Feeney
Head of Credit Portfolio Positioning,
Fixed Income, Currencies & Commodities
[email protected]; 02 9237 9513
Lindesay Brine
Head of Business Risk & Regulatory Change, Fixed Income,
Currencies & Commodities
[email protected]; 02 9237 9181
Westpac Institutional Bank Financial Markets:
Andrew Baume
Head of Portfolio Trading
[email protected]; 02 8253 4274
Jim Pollock
Chief Operating Officer Foreign Exchange & Commodities, Carbon, Energy (FX &
CCE)
[email protected]; 02 8254 9463
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