Appendix A – Firms potentially subject to an Australian G4-IRD central clearing mandate

As noted in the Proposals Paper, the recommendation made by the regulators in the Report is that the Government should consider a central clearing mandate for G4-IRD, with an initial focus on dealers with significant cross-border activity in these products. The Proposals Paper further suggests that a threshold be used to limit the scope of the clearing mandate to such entities, and mentions some possible methodologies for calculating the threshold.

One possibility is to use gross notional OTC derivatives positions outstanding to determine which entities will be included in ASIC rule making. This is the measure used in the trade reporting DTRs, where a financial entity1 will be included in the Phase 2 reporting obligation if it holds $50 billion or more notional OTC derivatives outstanding as at 31 December 2013. It is also a measure used in other jurisdictions (though with differing thresholds) such as the EU and the US for similar purposes.

An alternative approach would be to calculate the threshold based on notional outstanding IRD. The threshold may then need to be adjusted down given that notional IRD is only a subset of all OTC derivatives outstanding.

It is proposed that only Australian financial entities and Australian branches of foreign financial entities at or above the threshold would be within scope. Financial entities would be defined in the same way as under the reporting DTRs, and would include ADIs, AFSLs and wholesale foreign exempt financial services providers. Where a foreign entity is included through its Australian branch coming within one of these categories, the threshold would only include transactions entered into in Australia or booked to the profit and loss account of the branch in Australia. Where a G4 Dealer falls below the threshold in the future, the central clearing obligation would no longer apply.

Table 1 provides an indicative list of entities that are primarily being considered for inclusion in ASIC rule making. The table also provides information on those firms that are already registered as Swap Dealers with the CFTC and whether they may be subject to clearing obligations under EMIR (noting that the detailed rules on the application of this obligation are yet to be finalised).

Table 1: Indicative list2 of firms subject to future central clearing requirements under the proposals in this paper
to be included in the Australian G4 Dealer definition Registered as a Swap Dealer with the CFTC Subject to clearing requirements under EMIR3
Australia and New Zealand Banking Group Limited Yes Yes
Bank of America N.A. Yes Yes
Commonwealth Bank of Australia Yes Yes
Citibank N.A Yes Yes
Deutsche Bank AG Yes Yes
JPMorgan Chase Bank — London Yes Yes
Lloyds Bank PLC Australia Yes Yes
Macquarie Bank Ltd Yes Yes
National Australia Bank Limited Yes Yes
Royal Bank of Scotland PLC Yes Yes
Westpac Banking Corporation Yes Yes
  1. In the trade reporting DTRs, a financial entity was relevantly considered to include Australian and Foreign ADIs, AFSLs and Exempt Foreign Licensees (foreign firms providing services to wholesale clients and acting under an exemption from the requirements to hold an AFSL).
  2. Please note — not all firms identified are included, the total number of firms identified is 13.
  3. Indicative answers based on information currently available, noting that important technical rules on how the clearing obligation under EMIR will apply have not been finalised yet.