Australia's ASX is preparing for G20 action on OTC derivatives

Australia’s ASX is preparing for G20-prompted action on OTC derivatives

The Australian Securities Exchange has set out plans to offer client clearing of OTC derivatives before the end of the year, in a move designed to provide new risk management controls to Australian investors.

Client clearing lets asset managers protect their individual positions and collateral in the event of a major default; should this occur, client positions and the associated collateral will be transferred to another clearing participant. ASX is responding to the G20 commitment made in 2009 to mandate the centralised clearing and reporting of the bulk of OTC derivatives.

ASX has also stated that its OTC derivatives clearing service will provide operating efficiencies and cross-margining benefits with existing ASX derivative products traded on-exchange. In December, ASX announced that seven domestic and international banks had joined a foundation program to work with ASX to develop an OTC derivatives clearing service for Australian dollar-denominated interest rate swaps by the middle of this year.

“ASX is currently working with seven banks on the technical design of its clearing services,” said Elmer Funke Kupper, chief executive at ASX. “We welcome the input by major Australian investors to ensure that the solution meets their needs. ASX believes it is important that investors have access to a world-class and highly liquid clearing service in Australia. It is part of our agenda to ensure that Australia has the infrastructure that position it well globally and in the Asian Century.”

In February, ASX expanded its efforts to connect to international markets with the launch of the ASX Net Global network, which connects to Asia, Europe and North America. ASX Net Global links the ASX’s Australian Liquidity Centre in Sydney with financial communities at SGX Singapore, Interxion London and Equinix Chicago.

Meanwhile in April, ASX rival Chi-X Australia appointed a new chief executive, John Fildes, to continue the platform’s battle against the ASX for market share. Chi-X Australia entered the Australian market in October 2011 after a lengthy period of negotiation with the Australian financial regulator ASIC. Incumbent exchange group ASX had warned that the introduction of competition could lead to fragmentation of liquidity and harm the interests of investors.