Regulations

Spread the love

Regulations

Regulations around derivatives vary from country to country, but they generally focus on promoting financial stability, protecting investors, and preventing systemic risks.

Some common regulatory requirements include:

  1. Reporting: Many countries require reporting of trades to regulators and trade repositories, increasing transparency and improving the ability of regulators to monitor and mitigate systemic risk.
  2. Risk management: Regulations often require market participants to have appropriate risk management systems in place to manage the risks associated with derivatives, including credit risk, market risk, liquidity risk, and operational risk.
  3. Counterparty credit risk: Regulations help to mitigate counterparty credit risk by requiring collateralization of trades, marking-to-market of positions, and other measures.
  4. Market integrity: Regulations around derivatives help to prevent market manipulation and abuse, ensuring that markets are fair and transparent for all participants.

Overall, regulations around derivatives play an important role in promoting financial stability and protecting investors. They help to ensure that derivatives markets are fair, transparent, and well-functioning, and they help to prevent the kind of systemic risks that can lead to financial crises.

EMEA

Key European Union (EU) derivatives reporting requirements for financial institutions:

  1. European Market Infrastructure Regulation (EMIR):
  • EMIR requires financial institutions to report all derivative trades to a trade repository, regardless of where the trade was executed. This includes both exchange-traded and over-the-counter (OTC) derivatives.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  • Financial institutions must report trades no later than the next working day following the trade’s execution.
  • In addition to trade reporting, EMIR also requires financial institutions to clear certain types of OTC derivatives through central counterparties (CCPs).
  1. Markets in Financial Instruments Directive II (MiFID II):
  • MiFID II requires financial institutions to report all derivative trades to a trade repository, regardless of where the trade was executed. This includes both exchange-traded and over-the-counter (OTC) derivatives.
  • Reports must include additional information beyond what is required by EMIR, such as the transaction’s price, the date and time it was executed, and the method of execution.
  • Financial institutions must report trades no later than the next working day following the trade’s execution.
  • MiFID II also requires financial institutions to publicly report certain information about trades in equity derivatives.
  1. European Securities and Markets Authority (ESMA) Guidelines:
  • ESMA has issued guidelines for financial institutions on how to report derivatives trades under EMIR and MiFID II. The guidelines cover topics such as data fields to be included in reports, how to report novations and cancellations, and how to report trades involving non-EU entities.
  • Financial institutions are expected to comply with the guidelines to ensure consistent and accurate reporting.

United States

Key United States derivatives reporting requirements for financial institutions:

  1. Dodd-Frank Wall Street Reform and Consumer Protection Act:
  • Title VII of the Dodd-Frank Act requires swap dealers, major swap participants, and other market participants to report swap data to registered swap data repositories (SDRs).
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  • Reporting requirements apply to both cleared and uncleared swaps, as well as to certain other types of derivatives.
  • Reports must be submitted no later than the end of the business day following the execution of the trade.
  1. Commodity Futures Trading Commission (CFTC) Regulations:
  • The CFTC has issued regulations outlining the requirements for swap data reporting under Dodd-Frank.
  • These regulations cover topics such as what data must be reported, how to report data, and how to correct errors in reports.
  • In addition to trade reporting, the CFTC also requires swap dealers and major swap participants to maintain certain records related to their swap activities.
  1. Securities and Exchange Commission (SEC) Rules:
  • The SEC has issued rules requiring certain security-based swap dealers and participants to report security-based swap transactions to registered security-based swap data repositories (SBSDRs).
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  • Reporting requirements apply to both cleared and uncleared security-based swaps.
  • Reports must be submitted within 24 hours of the execution of the trade.

Canada

Key derivatives reporting requirements in Canada:

  1. Multilateral Instrument 96-101:
  • This instrument outlines the requirements for derivatives trade reporting in Canada.
  • Reporting requirements apply to over-the-counter (OTC) derivatives as well as exchange-traded derivatives.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  • Reports must be submitted to a designated trade repository (TR) no later than the end of the business day following the execution of the trade.
  1. Ontario Securities Commission Rule 91-507:
  • This rule outlines the requirements for derivatives trade reporting in Ontario.
  • Reporting requirements apply to OTC derivatives as well as exchange-traded derivatives.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  • Reports must be submitted to a designated TR no later than the end of the business day following the execution of the trade.
  1. Investment Industry Regulatory Organization of Canada (IIROC):
  • IIROC has issued guidance on the reporting requirements for derivatives transactions executed on trading platforms that are subject to IIROC supervision.
  • Reports must be submitted to a designated TR no later than the end of the business day following the execution of the trade.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.

Japan

Key derivatives reporting requirements in Japan:

  1. Financial Instruments and Exchange Act (FIEA):
  • The FIEA is the primary legislation governing securities and derivatives markets in Japan.
  • It requires all financial institutions to report their OTC derivatives transactions to a registered trade repository (TR) within two business days of execution.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  1. Japan Securities Clearing Corporation (JSCC):
  • JSCC is a central counterparty clearing house for derivatives transactions in Japan.
  • It requires all clearing members to report their derivatives transactions to JSCC no later than the business day following the execution of the trade.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  1. Tokyo Financial Exchange (TFX):
  • TFX is a regulated exchange for trading financial derivatives in Japan.
  • It requires all members to report their derivatives transactions to TFX no later than the business day following the execution of the trade.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.

Australia

Key derivatives reporting requirements in Australia:

  1. Australian Securities and Investments Commission (ASIC) Derivative Transaction Rules:
  • The ASIC Derivative Transaction Rules (Reporting) 2013 requires all market participants to report their OTC derivatives trades to a licensed trade repository (TR).
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.
  • Reporting is required within one business day of execution, with daily reporting of any changes to the original report.
  1. Australian Prudential Regulation Authority (APRA):
  • APRA is responsible for the prudential supervision of financial institutions in Australia.
  • APRA requires financial institutions to report their derivative exposures as part of their regular reporting requirements.
  • Reports must include details such as the notional value of the trade, the counterparty, and any collateral held.
  1. Australian Securities Exchange (ASX):
  • ASX is a regulated exchange for trading financial derivatives in Australia.
  • It requires all members to report their derivatives transactions to ASX within one business day of execution.
  • Reports must include details such as the parties involved, the terms of the contract, and the notional value of the trade.