13 Sep 2012

Government introduces derivatives reform Bill into Parliament

A new over-the-counter (OTC) derivatives regulatory framework for Australia is one step closer with the introduction into Parliament yesterday of the Corporations Legislation Amendment (Derivative Transactions) Bill 2012. Although the Bill is largely identical to the exposure draft of the Bill released in July, crucially, the definition of "derivative transaction" has changed.

A new definition of derivative transaction

Set out below is a mark-up showing the changes to the definition of derivative transaction:

derivative transaction means:

(a) the entry into of an arrangement that is a derivative; or

(b) the modification or termination of such an arrangement; or

(c) the assignment, by a party to such an arrangement, of some or all of the party’s rights and obligations under the arrangement; or

(cd) any other transaction relating that relates to a derivative and that is in a class of transactions prescribed by the regulations for the purpose of this paragraph.

The former sub-paragraph (d) of the definition caused some concern among industry participants because it potentially extended the new laws to transactions that are not in the nature of a derivative, such as security or other credit support.

Industry participants will welcome the fact that the Government has addressed this potential for overreach by extending the definition to only catch "other transactions" to the extent they are in a derivatives class prescribed by the regulations.

The new sub-paragraph (c) has been included to ensure that the new laws apply to the transfer of rights or obligations under a derivative contract.

Other housekeeping additions to the Bill relate to consequential legislative amendments, primarily to provide for the sharing of information between regulators, and to extend confidentiality and information protection laws to data provided by market participants to regulators.

Next steps

The legislation is expected to be in place before the end of the year. It is not yet known if or when the responsible Minister will prescribe a class or classes of derivatives under the new laws. However, if this occurs, the Australian Securities and Investments Commission will consult publicly in relation to any rules that will apply to prescribed classes of derivatives.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.