ASIC Regulatory Guide 251: Derivative Transaction Reporting

The Australian Securities & Investments Commission (ASIC) released Regulatory Guide 251(RG 251) in August 2013. RG 251 provides guidance to Reporting Entities in relation to their reporting obligations for over-the-counter (OTC) derivatives that relate to the following asset classes:

• commodity derivatives other than electricity derivatives;
• credit derivatives;
• equity derivatives;
• foreign exchange derivatives; and
• interest rate derivatives.

The reporting obligations came into effect with the introduction of the ASIC Derivative Transactions Rules (Reporting) 2013 (Rules) which were released in July 2013. The Rules impose obligations on Reporting Entities to report information about their transactions and positions in OTC derivatives to a licensed or prescribed trade repository. This applies to both cleared and uncleared derivative transactions.

Who has to report?

The reporting obligations are imposed on "Reporting Entities", which are each of the following:

• an Australian entity must report information about all derivative transactions to which it is a counterparty;
• a foreign subsidiary of an Australian entity, where the Australian entity is an authorised deposit-taking institution (ADI) or an Australian financial services licensee, must report information about all derivative transactions to which it is a counterparty;
• a foreign ADI that has a branch located in this jurisdiction must report information about all derivative transactions booked to the profit and loss account of the foreign ADI; and
• a foreign company that is required to be registered in Australia as a foreign company must report information about all derivative transactions booked to the profit and loss account of the foreign company.

Reporting Entity

It is not entirely clear whether an agent of a counterparty (such as an investment manager that has entered into an ISDA on behalf of several clients) is also a "Reporting Entity". This was an issue that the Financial Services Council raised in its submission to ASIC in response to Consultation Paper 205, however, neither the Rules nor RG 251 address this issue.

The better view, in our opinion, is that an investment manager that acts as an agent is not a Reporting Entity. As a practical matter, however, it will be the investment manager that will enter into the derivative and will most likely report on behalf of their client, the Reporting Entity. This is consistent with the part of the Rules that permit a Reporting Entity to appoint another person to report on its behalf. The Rules contemplate that the other person that lodges or files the report on behalf of the Reporting Entity may be a counterparty, a central counterparty, a trading platform, a service provider, a broker or any other person.

The reporting obligations could also possibly be delegated to a custodian who actually holds the assets.

Given that the Rules are implemented in stages depending on, among other things, the extent of a Reporting Entity's derivative exposure, it will be the custodian or the Reporting Entity itself (as opposed to an investment manager who may not manage all of the assets of the Reporting Entity) that will be in a position to know when the Rules begin to apply to them. For example, where a client - Party B under an ISDA - has engaged several investment managers and authorised them to enter into derivatives, it will only be that Party B counterparty (or their custodian (assuming there is only one custodian) that will know the aggregate exposure across all derivatives entered into by all investment managers on behalf of the Party B counterparty in order to determine when the Rules begin to apply to it (see below under the heading "When do the reporting obligations commence?").

When and where are reports lodged or filed?

The derivative information and any changes must be reported to the repository no later than the end of the next business day after the requirement to report arises.

Reporting Entities that are Australian entities must report to a trade repository that is licensed by ASIC (licensed repository).

Licensed repositories will be listed on the ASIC website. Currently, there are no licensed repositories, however, Australian entities can report to the following prescribed foreign entities:

• DTCC Data Repository (U.S.) LLC;
• DTCC Derivatives Repository Ltd.;
• DTCC Data Repository (Japan) KK;
• DTCC Data Repository (Singapore) Pte Ltd;
• Chicago Mercantile Exchange Inc.;
• INFX SDR, Inc.;
• ICE Trade Vault, LLC;
• the Monetary Authority appointed under section 5A of the Exchange Fund Ordinance of Hong Kong.

Non-Australian Reporting Entities can report to a licensed or prescribed trade repository.

What type of derivative information must be reported?

A Reporting Entity must report details about their transactions and positions when it relates to the following asset classes:

• commodity derivatives that are not electricity derivatives;
• credit;
• equities;
• foreign exchange (FX); and
• interest rates.

A common set of data must be reported for each transaction, along with an additional set of data that are specific to each asset class. This includes:

• the economic terms of the transaction;
• product, transaction and entity identifiers;
• information on whether the transaction is centrally cleared; and
• valuation and collateral information.

When do the reporting obligations commence?

The reporting obligations are being implemented in three phases between 1 October 2013 and 1 October 2015.

Other Issues

Since foreign privacy restrictions may prevent the reporting of derivative trading information, ASIC has the power to grant relief from all or specified provisions. Applications should include an authoritative legal opinion from a local law practitioner giving evidence of how compliance with the Australian reporting obligations would cause a breach of the foreign law.

 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).