Australia’s over-the-counter centralized clearinghouse may not be locally incorporated, but it will be regulated proportionally to its systemic importance, said a senior official at the Reserve Bank of Australia (“RBA”).
Australia is currently reviewing its options for creating a centralized clearing system for certain OTC financial products. Regulators issued a discussion paper on the subject last June, and have recently been considering what the risks an offshore clearing operator might pose to the Australian financial system.
The June discussion paper noted that, without regulation, no domestically incorporated central counter-party was guaranteed to emerge. Malcom Edey, assistant governor of the RBA, was insistent that such an outcome would have to be met with regulatory precautions: “At the least, it argues that the (central counter-party) should be subject to safeguards that take into account its systemic significance for the Australian market.”
Edey’s remarks, as well as the June discussion paper, reflect Australia’s efforts to comply with a G-20 directive to bring safety and transparency to the derivatives market. These complex, interconnected, and sometimes murky financial products are blamed for the severity of the 2008 economic crisis. G-20 nations have pledged to implement domestic central clearing mechanisms for systemically important OTC products by the end of 2012.
Australia’s largest derivatives market is the Australian dollar interest rate swaps market. RBA regulators have deemed the most systemically significant based on its size and scope. The second-largest OTC market in the country is for foreign exchange (“forex”)-related derivatives.