REP 158 Survey of the OTC derivatives market in Australia
A joint report by the Australian Prudential Regulation Authority, ASIC and the Reserve Bank of Australia.
In April 2008, the Financial Stability Forum (FSF) released its Report on Enhancing Market and Institutional Resilience, analysing the sources of emerging turbulence in financial markets and making recommendations to increase the resilience of the financial system. One of the recommendations was to ensure a sound legal and operational infrastructure for the OTC (over-the-counter) derivatives market, in part drawing on the conclusions of an earlier report of the President’s Working Group.
A number of initiatives are already underway internationally in this area. Building on enhancements to the infrastructure supporting the credit derivatives market in recent years, major market participants have committed to further streamlining operational practices across OTC derivatives products, with a particular focus on increasing use of electronic systems to automate trade and post-trade processes, and expanding central counterparty clearing where feasible. Other live regulatory initiatives are considering issues around transparency, disclosure, leverage and investor suitability in these markets.
Further to the publication of the FSF report, the three Australian financial authorities – the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), and the Reserve Bank of Australia – formed a working group to monitor international industry developments and assess the conduct of business in the Australian OTC derivatives market in the context of the FSF recommendations. In developing policy in this area, a first step for the working group has been to carry out a survey of OTC derivatives market participants in Australia (the Survey), focusing particularly on risk management and post-trade processing practices.
This report summarises the key findings of the Survey and identifies a number of areas in which practices in the Australian OTC derivatives market might be enhanced.