5.5 Implementation and Review

Timetable for implementation

Stakeholders have expressed concern that they will need sufficient time to conduct due diligence on any new CCPs and put in place the necessary operational systems, processes and legal documentation in order to connect to CCPs. Accordingly, it is proposed that there would be a period of time after the determination is made in respect to G4‑IRD before central clearing would become mandatory through ASIC rule making.

Consultation would also be expected to take place with regulatory authorities outside Australia regarding the mandatory central clearing rules proposed to be adopted in accordance with international agreements and to ensure appropriate harmonisation in the process of implementing mandatory central clearing requirements.

This period would provide market participants the opportunity to prepare to centrally clear transactions without disruption to their use of derivatives for hedging or the risk of noncompliance with the law.

Taking these matters into account, the proposed timetable for giving legal effect to the above proposals is as follows:

  • Second Quarter 2014 — The Government would expose for comment a draft Ministerial determination relating to G4‑IRD, with relevant accompanying regulations restricting ASIC rule‑making.
  • Second Quarter 2014 — it is currently expected that, in parallel, ASIC would consult on rules relating to the details of the central clearing obligations.
  • Late 2014 — central clearing rules completed.
  • Early 2015 — central clearing obligations would commence.

2 thoughts on “5.5 Implementation and Review

  1. GreySpark Partners

    Response to question 5: The present timetable for clearing set out by the regulators for the Australian mandate has been far less aggressive than the timeframes set out by the US mandate under the Dodd-Frank Act. Although EMIR in the EU has also been slowly defined by comparison to Dodd-Frank, there seems to be much more clarity under the EMIR proposed mandate for which counterparties will be impacted, and how.
    From GreySpark’s extensive discussions with Australian industry participants, a reasonable deadline for mandatory clearing for the G4 dealers for AUD-IRD would be in late 2015, following the proposed G4-IRD mandatory clearing commencement in early 2015, which impacts the 13 firms identified as G4 dealers in the Treasury proposals paper. In order to ensure that Australia does not fall too far behind the global timelines for clearing and not be seen as lagging behind in their G20 commitments, it would be judicious to not leave the buyside clearing mandate until 2016 and instead implement this in late 2015 alongside, or shortly after, the AUD-IRD mandate. In the interest of only mandating systemically important counterparties to clear, it would be prudent for the regulators to impose a clearing threshold for ADIs and AFSL holders, to whom this mandate should be made applicable should their OTC derivative activity exceed a pre-set threshold per asset class. This approach would be in line with the phased rollout method adopted by the U.S. regulator, the CFTC, in implementing mandatory clearing and would certainly give buyside firms in Australia enough time to prepare. Buyside firms who are currently holding off moving forward with clearing arrangements would also then be able to firmly commit to kicking off their preparations for entering the clearing arena. Providing the buyside with at least a tentative timeline would eliminate much of the uncertainty and confusion that such firms are facing today in relation to future Australian clearing timelines.
    There are several benefits to onboarding buyside firms onto mandatory clearing sooner rather than later. The key benefit is that it would allow Australian buyside firms to access the increasingly growing pool of cleared liquidity in the U.S. and EU regions. It would also allow them the time to complete full cost/benefit analyses on their clearing models, allow sufficient time for them to do clearing broker selection and enable them to make the best choice of clearing technology, clearing brokers and clearinghouses that are on offer rather than be pushed into a last minute choice after having left their decision to clear too late in the game. In the present state of the market, buyside firms are largely unwilling to commit to clearing. However, once margin requirements are imposed on bilateral uncleared trades, they will find increased incentive to clear – but not many buyside firms seem aware of the fact that this change is coming. Australian buyside firms who are unprepared for this change may lose access to liquidity if they have not already secured access to clearing via a clearing broker – this scenario is plausible due to the fact that the clearing brokers who are currently operating in the Australian market cannot guarantee that they will on-board every client who wishes to clear with them and will certainly pick and choose which clients they will take on. Therefore, GreySpark’s view is that it would be prudent on the part of Treasury and the Australian regulators to provide buyside firms with an indicative timeline of when an OTC derivatives clearing mandate is expected to impact them, in order to ensure that the market is best prepared in a timely manner for this change. The lack of clear direction for buyside firms from Australian regulators and the Treasury coupled with a cost-conscious, largely nonchalant Australian buyside is creating enormous uncertainty in the market and a clear proposal and timeline on client clearing from the regulators and Treasury would allay some of the uncertainty that is growing in the market.

  2. GreySpark Partners

    Response to question 5: The present timetable for clearing set out by the regulators for the Australian mandate has been far less aggressive than the timeframes set out by the US mandate under the Dodd-Frank Act. Although EMIR in the EU has also been slowly defined by comparison to Dodd-Frank, there seems to be much more clarity under the EMIR proposed mandate for which counterparties will be impacted, and how.
    From GreySpark’s extensive discussions with Australian industry participants, a reasonable deadline for mandatory clearing for the G4 dealers for AUD-IRD would be in late 2015, following the proposed G4-IRD mandatory clearing commencement in early 2015, which impacts the 13 firms identified as G4 dealers in the Treasury proposals paper. In order to ensure that Australia does not fall too far behind the global timelines for clearing and not be seen as lagging behind in their G20 commitments, it would be judicious to not leave the buyside clearing mandate until 2016 and instead implement this in late 2015 alongside, or shortly after, the AUD-IRD mandate. In the interest of only mandating systemically important counterparties to clear, it would be prudent for the regulators to impose a clearing threshold for ADIs and AFSL holders, to whom this mandate should be made applicable should their OTC derivative activity exceed a pre-set threshold per asset class. This approach would be in line with the phased rollout method adopted by the U.S. regulator, the CFTC, in implementing mandatory clearing and would certainly give buyside firms in Australia enough time to prepare. Buyside firms who are currently holding off moving forward with clearing arrangements would also then be able to firmly commit to kicking off their preparations for entering the clearing arena. Providing the buyside with at least a tentative timeline would eliminate much of the uncertainty and confusion that such firms are facing today in relation to future Australian clearing timelines.
    There are several benefits to onboarding buyside firms onto mandatory clearing sooner rather than later. The key benefit is that it would allow Australian buyside firms to access the increasingly growing pool of cleared liquidity in the U.S. and EU regions. It would also allow them the time to complete full cost/benefit analyses on their clearing models, allow sufficient time for them to do clearing broker selection and enable them to make the best choice of clearing technology, clearing brokers and clearinghouses that are on offer rather than be pushed into a last minute choice after having left their decision to clear too late in the game. In the present state of the market, buyside firms are largely unwilling to commit to clearing. However, once margin requirements are imposed on bilateral uncleared trades, they will find increased incentive to clear – but not many buyside firms seem aware of the fact that this change is coming. Australian buyside firms who are unprepared for this change may lose access to liquidity if they have not already secured access to clearing via a clearing broker – this scenario is plausible due to the fact that the clearing brokers who are currently operating in the Australian market cannot guarantee that they will on-board every client who wishes to clear with them and will certainly pick and choose which clients they will take on. Therefore, GreySpark’s view is that it would be prudent on the part of Treasury and the Australian regulators to provide buyside firms with an indicative timeline of when an OTC derivatives clearing mandate is expected to impact them, in order to ensure that the market is best prepared in a timely manner for this change. The lack of clear direction for buyside firms from Australian regulators and the Treasury coupled with a cost-conscious, largely uninformed and nonchalant Australian buyside is creating enormous uncertainty in the market and a clear proposal and timeline on client clearing from the regulators and Treasury would allay some of the uncertainty that is growing in the market.

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