ASIC has recently finalised the new OTC derivative reporting requirements, which commence on 30 September 2024, which are known as ASIC Rewrite.
The first part of the ASIC Rewrite was finalised some time ago. However, there were still some changes to be updated following the various rounds of ASIC’s consultation papers. These changes have now been completed, and there is nothing further pending from ASIC. The final changes, released in late August 2024, constitute the last amendments to the 2024 Reporting Rules.
Significant Changes for CFDs Brokers
The ASIC Rewrite will bring many major and minor reporting changes for CFDs brokers. The significant ones that these CFD brokers should be aware of are:
- The requirement to report collected collateral (i.e. margin received from clients, not just margin posted to hedging counterparties)
- Changes to single-sided relief provisions
- New fields, such as Unique Transaction Identifier and Unique Product Identifier
- XML format
When Will ASIC Rewrite Commence?
Although the commencement date for the ASIC Rewrite has been set for 30 September 2024, its implementation will be done over two staggered dates:
- 21 October 2024 – when the bulk of ASIC Rewrite comes into effect
- 20 October 2025 – when the remainder of ASIC Rewrite commences
Details of the ASIC Rewrite changes
The main changes relevant to CFD brokers that apply on the respective dates are as follows:
1. 21 October 2024
- Significant updates to the fields that need to be reported, including additions of new concepts and reporting formats, such as Unique Product Identifier, Unique Trade Identifier, XML format, and the country of counterparty 2.
- Previously, reporting entities (such as CFD brokers) only had to report collateral that was “posted”. Soon, they will also have to report collateral received. This is a significant obligation imposed on reporting entities, like CFD brokers, who receive collateral frequently from their retail clients. There will be updates to changes in derivative transaction information included in Rule S1.3.1 and Tables S1.1(1) of the 2024 Reporting Rules – this includes a requirement that a Reporting Entity must report ‘each updated collateral amount posted or collected in relation to the OTC Derivative’.
2. 20 October 2025
- Changes to the single reporting regime by removing the ‘alternative reporting’ framework as a form of substituted compliance. ASIC-regulated firms will have to report their trades with foreign firms, regardless of the reporting requirements of the liquidity provider on the other end.
- Essentially, reporting will need to be done by the other counterparty to one of the ASIC-authorised derivative trade repositories (ADTRs) in order to qualify for relief.
- A ‘Nexus Derivative’ definition (wider than current definitions) will be introduced. The test used in determining whether an OTC Derivative is a Nexus Derivative will depend on the functions of the person executing the relevant OTC and is designed to capture persons commonly called ‘salespersons’ or ‘traders’. However, the person’s role is not definitive in determining if the OTC is a Nexus Derivative. Also, reportable transactions by ‘foreign entities’ will be subject to the ‘nexus derivatives’ scope test instead of the ‘entered into’ scope test, which will simplify the scope of the foreign entities’ reporting requirements.
CFD brokers should consider the changes, particularly the impact of the additional requirement to report collected collateral in relation to derivatives on behalf of their clients. Whether this will be strenuous on the business and require additional resourcing, along with the timing of the two implementation dates, should be carefully considered.
ASIC has recently finalised the new OTC derivative reporting requirements, which commence on 30 September 2024, which are known as ASIC Rewrite.
The first part of the ASIC Rewrite was finalised some time ago. However, there were still some changes to be updated following the various rounds of ASIC’s consultation papers. These changes have now been completed, and there is nothing further pending from ASIC. The final changes, released in late August 2024, constitute the last amendments to the 2024 Reporting Rules.
Significant Changes for CFDs Brokers
The ASIC Rewrite will bring many major and minor reporting changes for CFDs brokers. The significant ones that these CFD brokers should be aware of are:
- The requirement to report collected collateral (i.e. margin received from clients, not just margin posted to hedging counterparties)
- Changes to single-sided relief provisions
- New fields, such as Unique Transaction Identifier and Unique Product Identifier
- XML format
When Will ASIC Rewrite Commence?
Although the commencement date for the ASIC Rewrite has been set for 30 September 2024, its implementation will be done over two staggered dates:
- 21 October 2024 – when the bulk of ASIC Rewrite comes into effect
- 20 October 2025 – when the remainder of ASIC Rewrite commences
Details of the ASIC Rewrite changes
The main changes relevant to CFD brokers that apply on the respective dates are as follows:
1. 21 October 2024
- Significant updates to the fields that need to be reported, including additions of new concepts and reporting formats, such as Unique Product Identifier, Unique Trade Identifier, XML format, and the country of counterparty 2.
- Previously, reporting entities (such as CFD brokers) only had to report collateral that was “posted”. Soon, they will also have to report collateral received. This is a significant obligation imposed on reporting entities, like CFD brokers, who receive collateral frequently from their retail clients. There will be updates to changes in derivative transaction information included in Rule S1.3.1 and Tables S1.1(1) of the 2024 Reporting Rules – this includes a requirement that a Reporting Entity must report ‘each updated collateral amount posted or collected in relation to the OTC Derivative’.
2. 20 October 2025
- Changes to the single reporting regime by removing the ‘alternative reporting’ framework as a form of substituted compliance. ASIC-regulated firms will have to report their trades with foreign firms, regardless of the reporting requirements of the liquidity provider on the other end.
- Essentially, reporting will need to be done by the other counterparty to one of the ASIC-authorised derivative trade repositories (ADTRs) in order to qualify for relief.
- A ‘Nexus Derivative’ definition (wider than current definitions) will be introduced. The test used in determining whether an OTC Derivative is a Nexus Derivative will depend on the functions of the person executing the relevant OTC and is designed to capture persons commonly called ‘salespersons’ or ‘traders’. However, the person’s role is not definitive in determining if the OTC is a Nexus Derivative. Also, reportable transactions by ‘foreign entities’ will be subject to the ‘nexus derivatives’ scope test instead of the ‘entered into’ scope test, which will simplify the scope of the foreign entities’ reporting requirements.
CFD brokers should consider the changes, particularly the impact of the additional requirement to report collected collateral in relation to derivatives on behalf of their clients. Whether this will be strenuous on the business and require additional resourcing, along with the timing of the two implementation dates, should be carefully considered.
This post is originally published on FINANCEMAGNATES.
