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This instrument provides class order exemption from the Reporting Requirements under the ASIC Derivative Rules (Reporting) 2013 to OTC Participants of ASX Clear (Futures) Pty Ltd, where an OTC Participant submits a transaction for clearing on behalf of an OTC Affiliate or Client, and the transaction is accepted for clearing by ASX Clear (Futures) Pty Ltd.
Administered by: Treasury
Registered 12 Aug 2016
Tabling HistoryDate
Tabled HR30-Aug-2016
Tabled Senate30-Aug-2016

ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2016/0688

EXPLANATORY STATEMENT

 

Prepared by the Australian Securities and Investments Commission

 

Corporations Act 2001

 

The Australian Securities and Investments Commission (ASIC) makes the ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2016/0688 (the Legislative Instrument) under paragraph 907D(2)(a) of the Corporations Act 2001 (Act).

 

Under paragraph 907D(2)(a) of the Act, ASIC may exempt a person or class of persons from all or specified provisions of the ASIC Derivative Transaction Rules (Reporting) 2013 (Rules).

 

An exemption may apply unconditionally or subject to specified conditions, and a person to whom a condition specified in an exemption applies must comply with the condition.

 

1.      Background

 

In July 2013, ASIC, acting with the consent of the Minister under section 901K of the Act, made the Rules. Unless explained otherwise, capitalised terms used in this Explanatory Statement have the meaning given by the Rules.

 

The Rules impose reporting requirements in relation to OTC Derivatives on ‘Reporting Entities’.

 

Under Rule 2.2.1 of the Rules, ‘Reporting Entities’ are required to report information about their Derivative Transactions in ‘OTC Derivatives’ (referred to in the Rules as ‘Reportable Transactions’), and positions (referred to in the Rules as ‘Reportable Positions’) in relation to OTC Derivatives, to a Licensed Repository or a Prescribed Repository. These requirements are referred to in the Rules as the ‘Reporting Requirements’.

 

Where an entity that is a direct clearing participant of a central counterparty (OTC Participant) clears a transaction on behalf of another entity, whether the other entity is an affiliate (OTC Affiliate) or a client (Client), the Reporting Requirements would apply to each entity that is taken to be a counterparty to the centrally cleared transaction, unless an exemption applies. In general, trade reporting systems are configured so that only two entities would be able to report each transaction: the central counterparty and the OTC Participant, or the central counterparty and the OTC Affiliate or Client.

 

Central counterparties that operate in Australia may be licensed as a CS facility under Part 7.2 of the Act and authorised to centrally clear OTC derivatives.

 

On 11 August 2016 ASX Clear (Futures) Pty Ltd (ASX Clear (Futures)), a licensed Clearing and Settlement Facility that is authorised to centrally clear OTC derivatives, amended its operating rules for clearing OTC derivatives (ASX Clear (Futures) OTC Rules) in accordance with section 822D of the Act. Broadly speaking these amendments changed ASX Clear (Futures)'s clearing arrangements for OTC derivatives from a principal arrangement to an agency arrangement. This also affected the application of Reporting Requirements to entities that use ASX Clear (Futures) to centrally clear OTC derivatives.

 

Under the revised ASX Clear (Futures) OTC Rules, where an OTC Participant is clearing a transaction for an OTC Affiliate or Client, both entities may be taken to be a counterparty to each centrally cleared transaction and have an obligation to report. However, the configuration for ASX Clear (Futures)'s trade reporting system would only allow the Client or OTC Affiliate (as applicable) to report as a counterparty to a centrally cleared transaction, and the OTC Participant would not be able to report the transaction as a counterparty.

 

2.      Purpose of the Legislative Instruments

 

The purpose of the Legislative Instrument is to provide exemptions from the Reporting Requirements under the OTC Rules to OTC Participant in the circumstances outlined in section 1. That is, where the OTC Participant submits a transaction for clearing on behalf of an OTC Affiliate or Client, and the transaction is accepted for clearing by ASX Clear (Futures), the OTC Participant would be relieved of its obligations under the Reporting Requirements.

 

It should be noted that this relief does not affect the OTC Affiliate or the Client’s obligation to comply with Rule 2.2.1 of the Reporting Rules in relation to the Affiliate Derivative or Client Derivative (unless another exemption applies).

 

The Legislative Instrument is described in more detail in Attachment A.

 

3.      Commencement of Legislative Instruments

 

Legislative Instrument commences on the day after the instrument is registered under the Legislative Instruments Act 2003.

 

4.      Consultation

 

Consultation on Legislative Instruments

 

ASIC consulted on the Legislative Instrument with ASX Clear (Futures), who applied for relief on behalf of affected OTC Participants.

 

ASX Clear (Futures) in turn consulted with the impacted OTC Participants, a sample of potential OTC Participants and potential Clients on the propose Rule changes and application for relief, with these entities being supportive of the relief sought.

 

5.      Documents incorporated by reference

 

The Legislative Instrument incorporates by reference the ASX Clear (Futures) Operating Rules and the ASX Clear (Futures) OTC Rules, as in force on the day the Legislative Instrument is made. These rules govern the manner in which clearing and settlement services are provided by ASX Clear (Futures), including their OTC derivatives central clearing services, and may be obtained through ASX's website at asx.com.au.

 

6.      Regulation Impact Statement

 

The Office of Best Practice Regulation (OBPR) have advised that no Regulatory Impact Statement is required for the Legislative Instrument because it assessed the proposal as having a minor impact on business.

 

The Legislative Instrument substantially reduces the short-term regulatory impact of the Rules on the OTC Participants. The impact on ASIC’s regulatory objectives is considered to be minimal.

 

7.      Statement of Compatibility with Human Rights

 

A Statement of Compatibility with Human Rights is included in this Explanatory Statement at Attachment B.

 


ATTACHMENT A – Provision-by-provision description of the legislative instruments

Capitalised terms used in this Attachment have the same meaning as in the Rules or as defined in the Legislative Instrument or as indicated below.

 

Legislative Instrument

 

Section 1 – Name of legislative instrument

This section provides that the title of the instrument is the ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2016/0688.

 

Section 2 – Commencement

This section provides that the instrument commences on the day after it is registered on the Federal Register of Legislation.

 

Section 3 - Authority

This section provides that ASIC makes the instrument under paragraph 907D(2)(a) of the Act.

 

Section 4 Definitions

Section 4 of the instrument provides for definitions of terms used in the instrument.

 

Sections 5 to 6 – Exemptions

Sections 5 to 6 set out the exemptions from the Rules that apply to OTC Participants.

 

Exemption 1 (OTC Affiliates)

Subsection 5(1) of the instrument provides that an OTC Participant does not have to comply with Rule 2.2.1 of the Rules in relation to a Derivative (Affiliate Derivative) that it entered into as a result of:

(a)     an OTC Affiliate of the OTC Participant entering into a Derivative (First Derivative); and

(b)     the First Derivative being submitted or taken to have been submitted by the OTC Participant for registration in accordance with Rules 4.2A and 4.3 of the ASX Clear (Futures) OTC Rules; and

(c)     ASX Clear (Futures) accepting the First Derivative for registration in accordance with Rule 4.5 of the ASX Clear (Futures) OTC Rules.

 

The subsection notes that Rule 4.6 of the ASX Clear (Futures) OTC Rules provides for the creation of a Derivative to which the OTC Participant, the OTC Affiliate and ASX Clear (Futures) are parties in such circumstances. The subsection also notes that the relief does not affect the OTC Affiliate’s obligation to comply with Rule 2.2.1 of the Reporting Rules in relation to the Affiliate Derivative.

 

Exemption 2 (Clients)

 

Subsection 6(1) of the instrument provides that an OTC Participant does not have to comply with Rule 2.2.1 of the Rules in relation to a Derivative (Client Derivative):

(a)     that the OTC Participant entered into as a result of:

(i)      a Client of the OTC Participant entering into a Derivative (First Derivative); and

(ii)     the First Derivative being submitted or taken to have been submitted by the OTC Participant for registration in accordance with Rule 4.3 of the ASX Clear (Futures) OTC Rules; and

(iii)    ASX Clear (Futures) accepting the First Derivative for registration in accordance with Rule 4.5 of the ASX Clear (Futures) OTC Rules; and

(b)     in respect of which the Client Protection Model Provisions apply.

 

The subsection notes that Rule 4.6 of the ASX Clear (Futures) OTC Rules provides for the creation of a Derivative to which the OTC Participant, the Client and ASX Clear (Futures) are parties in such circumstances. The subsection also notes that the relief does not affect the Client's obligation to comply with Rule 2.2.1 of the Reporting Rules in relation to the Affiliate Derivative.

 

 


 

 

ATTACHMENT B – Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2016/0688

The above legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

1.      Overview of the Legislative Instruments

The ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2016/0688 (the Legislative Instrument), made by ASIC under paragraph 907D(2)(a) of the Corporations Act 2001 (the Act), provides a number of exemptions from the reporting requirements under the ASIC Derivative Transaction Rules (Reporting) 2013 (the Rules).

The Rules impose requirements (referred to in the Rules as 'Reporting Requirements') on ‘Reporting Entities’ to report their ‘Reportable Transactions’ and ‘Reportable Positions’ in relation to OTC Derivatives to Licensed Repositories or Prescribed Repositories.

 

ASX Clear (Futures) Pty Ltd (ASX Clear (Futures)) is a licensed clearing and settlement facility that is authorised to centrally clear OTC derivatives. The purpose of the Legislative Instrument is to provide exemptions from the Reporting Requirements under the Rules to direct clearing participants (OTC Participants) of ASX Clear (Futures). The exemptions apply to an OTC Participant where the OTC Participant submits a transaction for clearing on behalf of an affiliate or client, and the transaction is accepted for clearing by ASX Clear (Futures). In these circumstances, the OTC Participant is relieved of its obligations under the Reporting Requirements.  This relief does not affect the requirement for the affiliate or client to comply with the Reporting Requirements (unless another exemption applies).

 

2.      Human rights implications

 

The Legislative Instrument does not engage any of the applicable rights or freedoms.

The Legislative Instrument is compatible with human rights as it does not raise any human rights issues.