Hopefully, by now, the mere mention of derivative trade reporting (DTR) no longer sends you into a cold sweat, and trade reporting is integrated into your business processes.
If, however, you are still dealing with the finer subtleties of DTR, this three-part blog series on DTR may help you navigate the complex maze.
The first blog in this series is a recap of key concepts and dates. The second blog examines the different ways entities can comply with the rules, and the third blog looks at ASIC's new enforcement powers to deal with non-compliance.
Remind me again what DTR is all about?
DTR is the mandatory reporting of Over-The-Counter (OTC) derivative transactions to trade repositories. This was one of the reforms agreed to by the leaders of the G20 (including Australia) in response to the global financial crisis.
Why is it so complex?
If you think the DTR rules are complex, you are not alone. It may have something to do with the way the regime fits together with Australian and international frameworks.
If you are trying to understand the DTR regime, you will need to consider:
- the Corporations Act 2001,
- the Corporations Regulations 2001,
- Ministerial determination on the type of OTC derivatives for which DTR rules can be made,
- ASIC's DTR rules (which includes the common and specific asset classes data-sets to be reported), and
- any class order relief provided by ASIC (for which there are many).
If that wasn't enough, ASIC Regulatory Guide 251: Derivative transaction reporting and its published Frequently Asked Questions should also be considered.
What derivatives are caught?
OTC derivatives that are credit derivatives, equity derivatives, foreign exchange derivatives, interest rate derivatives and commodity derivatives (that are not electricity derivatives) are subject to DTR.
However, derivatives traded on an Australian licensed market and certain other international markets are not OTC derivatives.
Who is caught?
The reach of the DTR rules is broad and the rules about who is caught are not as easy as they seem.
Generally, if you are an Australian financial institution that trades in OTC derivatives, you will be caught wherever the trade is made. For example, trading desks of a bank, liquidity providers, fund managers, CFD issuers, and FX dealers/remitters who issue forwards and FX options are generally caught. However, recent amendments do exclude certain AFSL holders from reporting OTC derivatives.
DTR rules can also apply to foreign financial service entities trading in Australia or foreign subsidiaries of Australian financial institutions trading overseas. The test is not straightforward so it pays to understand the exact reach of the regime.
How often must I report?
Generally, OTC derivative trades must be reported by the end of the following business day the transaction occurs, i.e. T + 1.
Who do I report to?
Reporting must be to a licensed trade repository. ASIC has licensed two trade repositories:
- DTCC Data Repository (Singapore) Pte Ltd; and
- Chicago Mercantile Exchange Inc.
Our next blog will look at alternative ways an entity can comply with its DTR requirements.
Remind me again what were the key dates?
This, generally, depended on the size of the entity's total gross notional outstanding positions at a particular date, which was, essentially, the total value of (including leveraged) positions taken out with that entity at a point in time.
If this was between AUD $5 billion and $50 billion, the Phase 3A reporting dates applied to you. If this was less than AUD $5 billion, the Phase 3B reporting dates applied.
ASIC Frequently Asked Question 14. What are the commencement
dates for reporting certain information under the derivative
transaction rules (reporting)?
Have all reporting requirements commenced?
No. Reporting entities need to report certain internationally recognised entity identifiers for their counterparties.
ASIC has given reporting entities until 30 September 2018 to comply with this requirement if a prescribed entity identifier is not available for the relevant entity. Instead, the internal entity identifier used by the reporting entity must be reported.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
