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Friday 22 May 2009

09-91MR Report released : Survey of the OTC Derivatives Market in Australia

Today the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and the Reserve Bank of Australia released the Survey of the OTC Derivatives Market in Australia report. Summarising key findings of a survey conducted by the authorities over recent months, it identifies areas in which operational and risk-management practices could be enhanced.

In response to the turbulence in financial markets, the international regulatory community has paid increasing attention to developments in this area. In April 2008, the Financial Stability Forum (now the Financial Stability Board) recommended that regulators take action to ensure a sound legal and operational infrastructure for the OTC derivatives market. In response, Australia’s financial authorities formed a working group last year to assess market practices against this recommendation. One of the first tasks of this group was to carry out a survey of Australia’s OTC derivatives landscape.

More than 30 firms including key participants in the Australian OTC derivatives market responded to the survey, providing information in three areas: institutional details; risk management and infrastructure; and products and counterparties. The written survey responses were followed up with face-to-face meetings with a number of respondents. The survey data provided a useful insight into the scope of market activity and key legal and operational practices, and allowed a number of conclusions to be drawn.

The report identifies a number of positive developments in recent years, including an increasing focus on risk-management issues, greater awareness of the importance of timely completion of industry-standard documentation, the more comprehensive use of collateral, and a gradual shift towards automation of post-trade processes.

Notwithstanding progress in these areas, however, Australia’s financial authorities have concluded that there remains scope for further improvements to operational and risk-management practices. Industry participants are therefore encouraged to consolidate and build on recent enhancements, particularly in the areas of market transparency, legal documentation, collateralisation, and the use of infrastructure.

The Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and the Reserve Bank of Australia will jointly open a dialogue with industry over the next several weeks to discuss possibilities for further enhancement in these areas.

Download a copy of the Survey of the OTC Derivatives Market in Australia.

Last updated: 22/05/2009 12:00