01 May 2014

OTC trade reporting deadline looms for superannuation and funds management sectors

by Louise McCoach

Phase 3 reporting entities need to get ready for mandatory reporting of OTC derivatives.

From 1 October 2014, Phase 3 reporting entities under Australia's new over-the-counter (OTC) derivatives regime, including certain superannuation fund trustees and responsible entities of managed investment schemes, will be required to report, for the first time, credit and interest rate OTC derivatives.

From 1 April 2015, Phase 3 reporting entities will be required to report equity, credit and commodity (other than electricity) OTC derivatives. Electricity derivatives may be added to the list of reportable OTC derivatives, depending on the outcome of the Australian Energy Market Commission's financial resilience review, due to report later this year.


The reporting of OTC derivatives is the first aspect of the G20 commitment to be addressed both in Australia and internationally. In Australia, this has been effected through the introduction of mandatory trade reporting of OTC derivatives to licensed trade repositories on a phased-in basis.

Who is caught on 1 October 2014?

Phase 3 reporting entities comprise certain participants in the Australian OTC derivatives industry to the extent they have total gross notional outstanding OTC derivative positions of less than A$50 billion as of 31 December 2013, namely, Australian authorised deposit-taking institutions (ADIs), foreign ADIs, clearing and settlement facility licensees, any holder of an Australian financial services licence (AFSL) and certain exempt foreign licensees.

As a result of the new reporting regime, AFSL holders and other Phase 3 reporting entities who issue derivatives products in aggregate notional amounts of less than the A$50 billion threshold, including superannuation fund trustees and responsible entities of managed investment schemes, will be required to report under Australia's OTC derivatives regime for the first time. In the case of a superannuation fund trustee or responsible entity, the reporting obligation will apply to all OTC derivatives that it has entered into on its own behalf, as well as in its capacity as trustee or responsible entity.

The Phase 3 reporting commencement date follows reporting requirements that were introduced for Phase 1 reporting entities from 1 October 2013 and for Phase 2 reporting entities from 1 April 2014. Phase 1 reporting entities are confined to the five Australian banks registered as swap dealers with U.S. regulatory authorities under the Dodd–Frank Wall Street Reform and Consumer Protection Act, while Phase 2 reporting entities are essentially the same as Phase 3 reporting entities but have total gross notional outstanding OTC derivative positions of A$50 billion or more as of 31 December 2013.

Are there any exemptions?

End-users are currently exempt from the requirement to report under the regime. The Treasury is consulting on the scope of the end-user exemption and the extent to which it should be made permanent.

An end-user is defined for the purpose of the exemption as a person who is not an ADI, AFSL holder, clearing and settlement facility licensee or exempt foreign licensee.

Trade repositories

Reporting entities are required to report to trade repositories licensed by ASIC or, under transitional measures due to expire on 1 October 2014, to certain prescribed overseas trade repositories pending the licensing of trade repositories in Australia. No trade repositories have been licensed by ASIC at the time of writing.

Delegation of reporting requirement

Reporting entities may satisfy their reporting obligations under the reporting regime by delegating those obligations to a third party, including their derivatives counterparties. The reporting entity will remain responsible for the accuracy of the report made on its behalf by the third party and will also have an obligation to take reasonable steps to ensure the report is complete, accurate and current.


All reporting entities will be required to maintain records which demonstrate that they have complied with their reporting obligations.

Consequences of breach

A failure by a reporting entity to comply with the reporting regime will not invalidate the relevant derivative transaction. However, the breach may attract a fine of $170,000. Regulations made under the reporting regime also establish an enforceable undertaking and infringement notice regime in respect of contraventions.

How should Phase 3 reporting entities prepare for the new regime?

In anticipation of their obligations under the reporting regime we recommend that, prior to 1 October 2014, Phase 3 reporting entities establish:

  • the necessary infrastructure to operationally support their reporting obligations, if they decide to manage the reporting process directly; or
  • formal reporting delegation arrangements with third parties, if they decide to delegate their reporting obligations.

In deciding whether or not to delegate its reporting obligations, a Phase 3 reporting entity will need to consider:

  • whether it has access to all of the information that it will be required to report; and
  • the out-of-pocket costs associated with reporting to a trade repository, including ongoing reporting fees charged by the repository and the substantial investment involved in building the computing infrastructure capability to enable it to collate the required data and connect to the reporting repository.

Any delegation arrangements entered into by a Phase 3 reporting entity will need to address how the risks and responsibilities for accurate reporting should be allocated between the parties, including whether it should be protected from any losses which may arise as a result of inaccurate reporting by its delegate.

The Phase 3 reporting entity will also need to ensure that the arrangements allow it to comply with its obligation to take reasonable steps to ensure that the information reported on its behalf is complete, accurate and current.


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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.