Central Clearing of OTC Derivatives in Australia


The Reserve Bank of Australia has just published a report into Central Clearing of OTC Derivatives in Australia.

The paper looks at the challenges of introducing central clearing for OTC derivatives to Australia and would apply equally to other smaller regional markets.

Whilst international OTC markets are dominated by the large global player, in Australia and other smaller regional markets, domestic and regional players have a far more active and important role. And similarly, current offshore Central Counterparty (CCP) offerings are geared to the needs of the large international markets, and don’t address the needs of smaller regional markets.

In terms of the Australian market, the products most actively traded by domestic market participants are interest rate and foreign exchange derivatives, and the report concludes that it is likely that there would be some scope for central clearing of at least some of this activity.

The report looks into four areas:

  • Availability of CCP to Australian-based market participants
  • Significance of the cross-border linkages that are a part of the Australian (and most other countries’) OTC derivatives markets
  • Implications that CCP might have for financial stability
  • Effects on the efficiency and functioning of a market

The report finds that whilst large offshore CCPs might allow for greater efficiencies in the cross border nature of OTC derivatives, the risks and stability considerations make a domestic solution a strong possibility.

Table below of current and proposed CCPs

Thanks to Colin Lambert for alerting me to this in his Squawkbox article today


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