2. Legislative Basis

MINISTERIAL DETERMINATIONS IDENTIFYING PARTICULAR DERIVATIVES FOR ONE OR MORE OF THE MANDATES

Under section 901B of the Act the Minister may determine the classes of derivatives that may be subject to ASIC rule making; specifying whether any rules may relate to requiring either trade reporting, central clearing or use of trading platforms. Determinations are legislative instruments and are therefore subject to review by Parliament and, potentially, disallowance. Classes of derivatives may be defined with reference to any matter, including the underlying asset, or the time when the derivatives were issued.

In making a determination, the Minister must consider certain matters (such as the impact on the stability, integrity and efficiency of the Australian financial system) and consult the regulators. The Minister may amend or revoke a determination.

Prior to making a determination mandating any obligations with respect to a commodity derivative the Minister is required in subparagraph 901B(3)(a)(iii) of the Act to consider the likely impact on any Australian market or markets on which the commodities concerned may be traded. As part of the process of fulfilling the requirement, the Minister will seek the written agreement of the Minister for Industry in relation to any decision to impose a mandate in relation to electricity derivatives.

Under section 901A of the Act, ASIC may, by legislative instrument, make rules imposing requirements for trade reporting, central clearing or use of trading platforms. Central clearing requirements are requirements for derivative transactions to be cleared through a licensed clearing and settlement (CS) facility or a CS facility that has been prescribed in the regulations. ASIC is subject to legislative requirements to consult on any rules; and rules will only come into force upon receiving the consent of the Minister.

REGULATIONS LIMITING ASIC’S RULEMAKING

Under section 901C of the Act regulations can be made that limit the scope of ASIC rulemaking with respect to certain classes of derivative transactions. Regulations may also provide that requirements may only be imposed on certain classes of derivative transactions in certain circumstances.

There is an additional provision in section 901D that allows for regulations to be made limiting requirements that can be imposed by ASIC on certain classes of persons. Regulations may also provide that requirements may only be imposed on certain classes of persons in certain circumstances.

These regulations provide a mechanism by which certain persons and transactions can be carved out of the potential reach of the derivative transaction rules. For example, they may specify thresholds of activity that must be met before a person might become subject to one or other requirements. Likewise, they may provide that certain transactions for certain purposes cannot be made subject to a certain requirement.

ASIC is not obligated to make rules relating to all entities and derivatives covered in the Minister’s determination and regulations. The scope of these obligations can be further limited by the terms of any ASIC made rules. For example, ASIC trade reporting obligations are being phased in under the rules.