Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Corporations Legislation Amendment (Derivative Transactions) Bill 2012

Bill home page  


Download WordDownload Word


Download PDFDownload PDF

2010-2011-2012

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Corporations Legislation Amendment (Derivative Transactions) Bill 2012

 

 

 

 

SUPLLEMENTARY EXPLANATORY MEMORANDUM

 

Amendments to be Moved on Behalf of the Government

 

 

(Circulated by the authority of the

Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

 



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               Explanation of Amendments............................................. 5

Chapter 2               Statement of Compatibility with Human Rights.............. 7

 



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

AEMC

Australian Electricity Market Commission

ASIC

Australian Securities and Investments Commission

Corporations Act

Corporations Act 2001

DTR

Derivative Transaction Rules

G-20

Group of Twenty (G-20) forum of 19  countries and the European Union

NEM

National Electricity Market

OBPR

Office of Best Practice Regulation

OTC derivatives

Over-the-counter derivatives

RIS

Regulation Impact Statement



Outline

The Bill amends the Australian Prudential Regulation Authority Act 1998 , Australian Securities and Investments Commission Act 2001 , the Corporations Act 2001 , the Mutual Assistance in Business Regulation Act 1992 , and the Reserve Bank Act 1959 to provide a legislative framework to implement Australia’s G-20 commitments in relation to over-the-counter (OTC) derivatives reforms.

The amendments to the Bill introduce a requirement that both the Minister and the Australian Securities and Investments Commission (ASIC) have regard to the effect on the underlying physical market prior to making a determination mandating a commodity derivative or making a Derivative Transaction Rule (DTR).

Date of effect :  T he amendments take effect on the 28 th day after the Act receives Royal Assent.

Proposal announced The reforms in the Bill were announced in a joint Media Release of the Deputy Prime Minister and Treasurer, the Minister for Financial Services and Superannuation and the Parliamentary Secretary to the Treasurer on 18 April 2012.

Financial impact Nil.

Human rights implications :  These amendments do not raise any human rights issues.  See Statement of Compatibility with Human Rights — Chapter 2.

Compliance cost impact The compliance cost impact of the Bill is low.  These amendments are considered to have no impact on business or the not-for-profit sector.

Summary of regulation impact statement

Regulation impact on business

Impact The Office of Best Practice Regulation (OBPR) has advised that a Regulation Impact Statement (RIS) is not required for this Bill.



Chapter 1          

Explanation of Amendments

Outline of chapter

1.1                   The Bill amends the Australian Prudential Regulation Authority Act 1998 , Australian Securities and Investments Commission Act 2001 , the Corporations Act 2001 (‘the Corporations Act’), the Mutual Assistance in Business Regulation Act 1992 , and the Reserve Bank Act 1959 to provide a legislative framework to implement Australia’s G-20 commitments in relation to OTC derivatives reforms.

1.2                   The amendments to the Bill introduce a requirement that both the Minister and ASIC have regard to the effect on the underlying physical market prior to making a determination mandating a commodity derivative or making a DTR.

Context of amendments

1.3                   This Bill provides for the implementation of graduated measures to respond proportionally in managing risks in Australian OTC derivatives markets.  In outline, the framework will operate as follows:

•        The responsible Minister will be empowered by the Corporations Act to prescribe a certain class of derivatives (in relation to a mandatory obligation).

•        A DTR may in turn be issued by ASIC to establish one or more mandatory obligations (reporting, clearing or execution) for participants transacting in this prescribed class of derivatives.

•        Any rule must be consented to by the Minister before taking effect.  The scope of rules and other technical features of the scheme may be further limited by regulation.

•        A new licensing regime will be introduced for a new kind of financial infrastructure entity - trade repositories.

Summary of new law

1.4                   The amendments to the Bill introduce a requirement that both the Minister and ASIC have regard to the effect on the underlying physical market prior to making a determination mandating a commodity derivative or making a DTR.

1.5                   This proposal addresses a concern expressed by stakeholders that limitations on use of OTC derivatives may affect the effective operation of the underlying physical market.

1.6                   For instance, energy market participants have requested that the effective operation of the National Electricity Market (NEM) be considered prior to the introduction of any prescriptions related to electricity derivatives.

Detailed explanation of new law

1.7                   Schedule 1, item 32 of the Bill is amended so that paragraph 901B(3)(a) of the Corporations Act will include a requirement that prior to making a determination mandating a commodity derivative the Minister must consider ‘the likely impact, on the market or markets that underlie those commodity derivatives, of allowing the derivative transaction rules to impose requirements of that kind in relation to those commodity derivatives’.

1.8                   As part of the process of fulfilling this requirement the Minister would be expected to seek the written agreement of relevant ministers with portfolio responsibility for the underlying market, for example in the case of electricity derivatives, this would include the Commonwealth Minister with responsibility for Energy; currently the Minister for Resources, Energy and Tourism.

1.9                   Schedule 1, item 32 of the Bill is amended so that paragraph 901H(a) of the Corporations Act will include a requirement that prior to making DTRs in relation to commodity derivatives ASIC must consider ‘the likely impact of the proposed rule on the market or markets that underlie those commodity derivatives’.

1.10               As part of the process of fulfilling this requirement ASIC would be expected to seek the views of equivalent regulatory agencies and bodies with responsibility for the underlying market; for example in the case of electricity derivatives this would include the Australian Energy Market Commission (AEMC).



Chapter 2          

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Amendments to the Corporations Legislation Amendment (Derivative Transactions) Bill 2012

2.1                   These amendments to the Bill are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.1                   The Bill amends the Australian Prudential Regulation Authority Act 1998 , Australian Securities and Investments Commission Act 2001 , the Corporations Act 2001 , the Mutual Assistance in Business Regulation Act 1992, and the Reserve Bank Act 1959 .

2.2                   The Bill introduces new restrictions on the trading of over-the-counter derivatives (OTC derivatives).  The Bill will allow the Minister for Financial Services to prescribe classes of derivatives in relation to certain mandatory obligations.  Subject to a class of derivatives being prescribed for one or more mandatory obligations (trade reporting, central clearing or on platform execution), ASIC may make related derivatives transaction rules, with the Minister’s consent.  The Bill also introduces a licensing regime for trade repositories, a new type of financial market infrastructure.

2.3                   The amendments to the Bill require that both the Minister and the ASIC have regard to the effect on the underlying physical market prior to making a determination mandating a commodity derivative or making a DTR.

Human rights implications

2.4                   These amendments do not engage any of the applicable rights or freedoms.

Conclusion

2.5                   These amendments are compatible with human rights as they do not raise any human rights issues.

Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP