3. Legislative Basis

3.1 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 will be subject to ASIC rule-making; this would also specify whether the rules relate to 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 determinations, the Minister must consider certain matters (such as the impact on the stability, integrity and efficiency of the Australian financial system) and consult certain bodies (such as APRA, ASIC and Reserve Bank).  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 Resources, Energy and Tourism in relation to any decision mandating electricity derivatives.

3.2 Regulation 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 which can be imposed 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.

The regulations (in conjunction with the ability to prescribe non licensed trade repositories) also provide the means by which the regulator may be given constrained derivative transaction rule making powers, for example, in connection with compliance with foreign trade reporting, clearing or execution requirements.

The scope of these obligations could also be limited by ASIC as it phases in the application of the rules, as discussed in section 4 of this paper.

3.3 Regulation requiring additional consultation in certain circumstances

Under section 901J of the Act regulations may require that ASIC consult with particular bodies prior to making rules.