Regulators echo calls for central clearing
Australia’s financial regulators have joined forces to back central clearing on dealer-traded derivatives.
The recommendation, made by the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA), follows long discussions about how to mitigate risk in over-the-counter (OTC) derivative markets while keeping the regulation cost low.
In a submission to Treasury, the regulators called for the central clearing mandate on trades between internationally-active dealers, with the exclusion of North American, European and Japanese-referenced credit index derivatives.
They said the cost of the process, which would see OTC derivative transactions approved through a central registry, would be “very low”.
The regulators said they did not see the need to implement a central clearing function on non-dealers at this time, particularly those with high liquidity.
The matter was raised by the regulators mid-last year and followed concerns about transparency and derivative market efficiency in a post-global financial crisis environment.
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