G20 Reforms
ANZ OTC Reform Program
August 2015
Background to regulatory reform of OTC derivatives
What are the changes and why are they important?

Regulatory reforms were drafted in the aftermath of the Global Financial Crisis (GFC) of 2007-2009.

The reforms focus significantly on the trading of over-the-counter (OTC) derivative products.

The OTC derivatives market has historically been considered high risk and lacking in transparency. Many
participants have previously entered into complex transactions without fully understanding the market and
credit risk they were assuming.

Banks’ positioning in a range of OTC derivative positions are believed to have been a notable contributor to
the GFC. The crisis saw many OTC derivative positions calling for payments of significant amounts of cash
collateral. A lack of confidence, coupled with a credit crunch in the market, led to a funding deficit and the
collapse of names such as Lehman Brothers, previously considered “too big to fail”.
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Background to regulatory reform of OTC derivatives
What was the regulatory response to the GFC?

The reforms aim to:
– enhance the transparency of transaction information available to relevant authorities and the public.
– promote financial stability.
– support the detection and prevention of market abuse.

G20 nations’ commitments to the reforms included:
– reporting of all OTC derivatives transactions to trade repositories.
– clearing of all standardised OTC derivatives through central counterparties.
– execution of all standardised OTC derivatives on exchanges or electronic trading platforms, where
appropriate.
– risk mitigation processes for any trades that are not cleared.
– margining on uncleared swaps.

The changes provide a framework for the regulation of OTC derivatives reporting, clearing and trade execution.
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Background to regulatory reform of OTC derivatives
How has the reform been implemented?

Regulators have been appointed by governments to oversee the OTC trading legislation and ensure compliance.

Regulatory change has typically been phased in, beginning with the US in 2012.

Regulations will continue to be rolled out across
jurisdictions in coming years.

Regulators are working together through groups such as
the International Organization of Securities Commission
(IOSCO) to achieve cross-border harmonisation on all
regulations.

Regulators are also considering substitute compliance
(agreement between regulators that meeting local
regulations is sufficient for the other regional jurisdictions).
Substitute Compliance has been agreed between CFTC
and ASIC for Entity level requirements, but is still being
negotiated for transaction-level requirements including
reporting.
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Focus of the Reforms
On which aspects of OTC trading do the reforms focus?
Regulations
Live
Trade Reporting
US, AU,
HK, SG,
EU, JP,
Can
Mandatory Clearing
US
Electronic Trading Platforms
and SEFs
US
Expected
Description
•
•
From real-time to T+2 reporting of trade executions, trade amendments,
confirmations and daily valuations to global repositories
Delegated Reporting offering
AU, HK, SG,
EU, Can
•
Mandatory clearing of OTC products via Clearing Houses
AU, HK, SG,
EU, Can
•
Mandatory trading of OTC products via Electronic Trade Platforms such as SEFs
where possible
•
•
•
•
•
•
Portfolio reconciliation
Timely confirmation
Market valuation
Portfolio compression
Dispute resolution
Disclosure of mid-market rates to non-professional counterparties
Daily distribution of valuations
Distribution of external trade identifiers
Scenario Analysis offering
Risk Mitigation
US, EU
AU, HK, SG,
Can
Large Trade Reporting
US
EU
Daily reporting of open commodities contracts to the CFTC when upper threshold
is exceeded
External Business Conduct
US
•
•
•
•
Record Keeping
US, AU,
HK, SG,
EU, Can
•
•
Mandated retention of key trade data for fixed period of time
Key trade data to be provided to regulator on request within 72 hours
•
To further reduce the risk of swaps, regulators globally are legislating to apply margin to any
swaps that have not been cleared to be subject to margin with certain counterparties (FI’s)
•
•
Commercial bank proprietary trading and other risky trading activities prohibited
Limited exemptions apply for Markets trading desks which must demonstrate
Volcker conformance by generating and reporting financial metrics
Margining for Uncleared
Swaps
US, AU, HK,
SG, EU, Can
Volcker Rules
US, EU
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Reporting

All applicable new OTC trades executed, and any amendments or cancellations, are reported on the day
they occur.

Reports include Material Economic Terms (MET) of the trades, Counterparty static data, as well as
valuations and collateral information.

Required reporting information can vary across jurisdiction, although there is a push for cross-border
harmonisation.
Commodity
Equity
Credit
FX
Interest Rate
Option
Option
Index Tranched
Exotic
Basis
Swap
Swap
Index Untranched
Forward
CapFloor
Forward
Single Name
NDF
CPI/RPI
NDO
Cross Currency
Swap
Exotic Vanilla
Vanilla Option
Exotic Complex
Forward
. Notes


US: Single name (credit and equities) is being regulated by the SEC under
future regulations.
European Union (ESMA): Includes Exchange Traded Derivatives (eg,
futures and ETOs).

Australia (ASIC): Includes Exchange Traded Derivatives (eg, futures and
ETOs), but relief currently applies.

FX spot and FX security-based swaps: The definition of these products can
vary dependent on jurisdiction.

Products not Reportable:
Commodity
Spot
Fixed Float
FRA
OIS
Swaption
Total Return Swap
FX
Spot
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Clearing

To minimise bilateral counterparty risk, all regulators have indicated that they will implement a clearing mandate to
ensure products are cleared via an authorised Centralised Clearing Party (CCP).

Each jurisdiction has its own process for authorising CCPs. Cross-border recognition of authorised CCPs is taking
place.

CFTC is the only jurisdiction with products currently subject to the clearing mandate.
CFTC Clearing Mandate Summary
CFTC Clearing
Products
Interest Rate Swaps
Forward Rate
Agreements
Overnight Index Swaps
Credit Indices
Currency
USD, GBP, EUR, JPY
USD, GBP, EUR, JPY
USD, GBP, EUR
CDX.NA.IG, CDX.NA.HY
iTraxx Europe, Crossover,
HiVol
Tenor
28 days to 50 Years
JPY 28 days to 30
Years
3 days to 3 years
7 days to 2 years
3, 5, 7, 10 year
Index
LIBOR, EURIBOR
LIBOR, EURIBOR
FedFunds, SONIA,
EONIA
US Person
US Person
US Person
US Person
LCH.Clearnet, CME
LCH.Clearnet, CME
LCH.Clearnet, CME
ICE
Counterparty
Authorised CCP

US Persons can apply for an End User Exemption providing them relief from clearing derivatives. Evidence of
this exemption is to be provided prior to their being allowed to trade products which are subject to the clearing
mandate, and should be renewed annually.
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Risk Mitigation

To further mitigate the risk of trading OTC derivatives which do not clear centrally, a number of additional
obligations are being introduced by regulators. These include:
Obligation
Requirement
Portfolio
Reconciliation
Regular reconciliation of the MET and Mark-to-Market valuation of every OTC
swap with each counterparty.
Timely
Confirmation
Trade confirmation provided to and agreed upon by the counterparty within a
specified time period.
Market Valuation Provision of daily market valuations.
Portfolio
Compression
Regular portfolio compression on a multilateral and bilateral basis.
Dispute
Resolution
Timely resolution of dispute between counterparties on market values or MET.
Escalation to regulators if disputes cannot be resolved.

CFTC and ESMA both have live regulatory obligations on the obligations listed above. Although ANZ has no
direct requirement to ESMA Risk Mitigation obligations, it has an indirect obligation when facing an EU
Person.

IOSCO has recently released a paper outlining standards for Risk Mitigation based on the CFTC and ESMA
implementations. It is expected that this will be rolled out globally by other regulators which are yet to
implement these rules.

APRA is expected to consult on these obligations in Australia in late 2015.
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ANZ OTC Reform Program
54 Key Compliance Milestones
• The OTC Reform Program has delivered 54 major milestones since ANZ
registered as a US Swap Dealer on 1 January 2013.
Improving trade reporting and data quality
• Recently the Australian Banks have been working closely with ASIC and the
GTR to understand and improve the quality of trade reporting data.
OTC Delivered Milestones – to date 54 milestones have been delivered by the Program
Date
Item
Date
Item
Date
Item
Jan 2013
ANZ registered as a non-US swap dealer
Oct 2013
US: SEFs go live
Jul 2014
KRX (Korea) Membership Go Live – KRW
IRS
Jan 2013
US Reporting: Real-time & end-of-day for
rates & credit
Nov 2013
US Reporting: USI on Swift (nonFX)
Jul 2014
SHCH IRS (Clearing) Membership Go Live –
CNY IRS
Feb 2013
US Reporting: Real-time & end-of-day for FX
& commods
Nov 2013
Internal Milestone
Aug 2014
EMIR Phase 2 Reporting (daily pricing
evaluation)
Mar 2013
JFSA Reporting: End-of-day for FX and rates
Dec 2013
US Reporting: PB USI
Aug 2014
JFSA Phase 2 Reporting (branch level
reporting)
Mar 2013
US Clearing: IRS/CDS mandatory clearing
Dec 2013
HKMA Reporting: Phase 1
Aug 2014
US Portfolio Rec (non swap-dealer)
Apr 2013
US Real-time reporting reconciliation
Jan 2014
US Reporting: USI on Swift (FX)
Oct 2014
ASIC Phase 2 Reporting
Apr 2013
Internal compliance (existing rules & new
regs) monitoring
Feb 2014
EMIR Reporting Phase 1
Oct 2014
ASIC Reporting – ANZ NZ Subsidiary
May 2013
US: Introduced mandatory Business Conduct
rules
Feb 2014
Reconciliation: T+1 Trade
Reconciliation
Oct 2014
CANADA Trade Reporting
Jul 2013
Reporting: Remediation 1C
Feb 2014
Rates & Credit SEFs mandatory
trading
Nov 2014
US: Margin Segregation for Uncleared
Swaps facility
Jul 2013
US Reporting: Commodity Large Trader
Ctpys
Mar 2014
SHCH FX (China) Membership Go
Live
Dec 2014
Submitted inaugural CCO Report
Jul 2013
JFSA Reporting: Phase 1
Apr 2014
MAS Phase 1 Reporting
Jan 2015
Aug 2013
CFTC Portfolio Reconciliation
Apr 2014
ASIC Phase 2A Reporting
Feb 2015
Sep 2013
EMIR Portfolio Reconciliation
Apr 2014
Internal Milestone
Apr 2015
AU: ASIC Ph 2 (NZ Reporting - position
reporting for FX, commods & equities)
Sep 2013
Clearing: Category 3
May 2014
SHCH: FX Spot Clearing
Apr 2015
AU: ASIC Phase 3A Large Funds and ADI’s
Delegated Reporting - Credit & Rates
Sep 2013
Internal Milestone
May 2014
Internal Milestone
Apr 2015
HK Nexus rules finalised – report nexus
trades early
Oct 2013
US Reporting: Expanded US Person Definition
Jun 2014
Apr 2015
CCIL PvP Go Live
Oct 2013
ASIC Reporting: Phase 1
Jul 2014
May 2015
SG: MAS FX Position Reporting (including
Part 1A)
Oct 2013
Clearing: US foreign branches
Jul 2014
Key:
US: Reporting valuation data to
CME/ICE
ASIC Phase 1 Reporting (emission
trading & physically settled
commodities)
MAS Phase 2 Reporting
Regulatory Requirement
Internal ANZ Requirement
Jul 2015
Unmasked ASIC reporting for all trades
(except Singapore and Korea)
US: Large Trader Report Phase 2 Ownership & Control Report to CFTC
Hong Kong (HKMA) UTI Pair/Share, Nexus
and additional field reporting
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OTC Program – Compliance Status and Forward Agenda
Compliance Forward Agenda
U.S. Dodd Frank Developments
 CFTC issued updated Part 20 Guidebook providing instructions for submitting large trader reports (LTR). The
guidebook includes a number of technical corrections to the existing LTR validation rules that the CFTC staff use to
check Part 20 LTR data submissions. The validation rules will go live for testing on 31 August 2015. reporting entities
LTR will need to pass the new validation requirements for the LTR to be successfully submitted to the CFTC from the
go live date. The Compliance go live date for successful submission is 1 October 2015
 CFTC new electronic submissions of Ownership and Control Rules 102s Reports has opened the test environment for
swap dealers to test new 102s report filings
EMIR
• ESMA published responses to the consultation paper on extending the clearing obligation to EEA currencies. ESMA
proposed to extend the mandatory clearing obligation for certain IRS products in CZR, DKK, HUF, NOK, SEK & PLN – the
remaining countries (after the UK) that have not taken the Euro
Switzerland
• Switzerland will implement legislation with regards to OTC reform with the Swiss Financial Market Infrastructure Act
(FMIA) expected to come into effect in early 2016. Although the FMIA appears to follow EMIR to a certain extent, it is
not a mirror copy. For instance, although the Swiss reforms will bring in trade reporting, risk mitigation requirements,
mandatory clearing and a trading obligation in a similar format to EMIR, reporting will be single-sided only. FMIA will
also introduce four (4) categories of counterparties. This categorisation will apply to both Swiss and non-Swiss
counterparties when they enter into a derivative contract with a Swiss entity. FMIA is yet to be translated into English
Clearing
• MAS is consulting on a SGD and USD clearing mandate.
• Similarly consultation on ASIC’s clearing mandate closed in July. Hong Kong have not yet consulted. Based on this
the industry do not expect to see clearing mandates for Australia, Hong Kong or Singapore until Q1 2016 at the
earliest.
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