Financial Market Infrastructure
Systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories are collectively known as financial market infrastructures (FMIs). FMIs are key components of the financial system, delivering services critical to the smooth functioning of financial markets. Well-designed and reliable FMIs can be a source of both financial stability and operational efficiency. FMIs act as a coordinating device, bringing a network of counterparties together to support trading liquidity and the netting of exposures and settlement obligations. They also establish secure arrangements for the timely clearing and settlement of obligations between counterparties, assist institutions in the management of counterparty credit risks, and help to coordinate actions in the event of a market participant's default.
In Australia, FMIs are supervised by either the Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia (RBA), or both, depending on the type of FMI. FMIs are generally deemed to be systemically important given their typically large size, lack of substitutability in the markets they serve, and strong connections with banks and other financial institutions. This means they require sound design, and high standards of operational and financial resilience.
Following determinations by the Minister, ASIC has the power to impose mandatory requirements for some classes of over-the-counter (OTC) derivatives and counterparties. The types of mandatory requirements that ASIC could impose involve:
- reporting trades to trade repositories
- clearing trades through central counterparties
- trading on trading platforms.
Both the Australian Prudential Regulation Authority (APRA) and the RBA have a role in advising in the development of these mandatory obligations. APRA is also responsible for margining and risk mitigation requirements for non-centrally cleared derivatives as well as capital requirements for clearing member exposures to qualifying central counterparties. These requirements apply to APRA covered entities.
The Council of Financial Regulators' role
Given regulatory agencies’ overlapping interests and mandates in relation to financial market infrastructures (FMIs), policy matters are often considered by the Council of Financial Regulators (CFR). To assist in policy development and coordination of policy implementation for FMIs, the CFR established an FMI Steering Committee in 2012. This Committee, which typically meets once a quarter, involves senior executives and other senior specialists from each CFR agency. Currently there are three CFR working groups on FMI issues:
- the FMI Crisis Management Working Group
- the Competition in Clearing and Settlement Working Group (which includes the Australian Competition and Consumer Commission (ACCC) but not APRA)
- the OTC Derivatives Working Group
FMI policy issues are also discussed in the context of the Cyber Security Working Group and the Distributed Ledger Technology Working Group. See the Organisation page for a full list of CFR working groups.