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INSIDE THIS ISSUE – December 2013 AFMA’s Objectives Set for 2014 ....................................................................................... 2

2013 Key Policy Achievements ......................................................................................... 4

Policy News ...................................................................................................................... 6 AFMA Supports Financial System Inquiry Terms of Reference 6 AFMA ATO Online Banking Working Group Formed 6 AFMA Meets EU Tax Commissioner 7 MYEFO to be Released Shortly 7 AFMA Takes Issue with TOFA Stance 7 Grappling with Carbon Tax Uncertainty 7 AEMC Commences Stage Two Review of NEM 8 Auditing Standard Impacts on Debt Market Documentation 8 Review of AML/CTF Act Underway 9 Extra-territoriality – The Gloves are Off 9 Banking and Finance Sector Pandemic Exercise 10 Banking and Finance Oath Blog Up 11

Association News ........................................................................................................... 12 Board Appointments Made at AGM 12 Partner Members’ Contributions Appreciated 13

AFMA Committees Roundup .......................................................................................... 14 Swaps Committee 14 Gas Working Group 14 Derivatives Operations Committee 14 Debt Market Operations Committee 14 Electricity Committee 14 Debt Securities Committee 14 Electricity Regulatory Working Group 15 Equity Derivatives Committee 15 Debt Origination Committee 15 Product Approvals Working Group 15 Heads of Compliance Committee 15 Equities Steering Committee 15 Futures Compliance Committee 15 Capital Raising Committee 16 Futures Steering Committee 16 COO Committee 16 Gender Diversity Research Committee 16 Trade Reporting Industry / ASIC Liaison Group 16

Policy Calendar – February 2014 ................................................................................... 17

Australian Financial Markets Association SECRETARIAT secretariat@afma.com.au

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GENERAL MEMBER FEEDBACK memberfeedback@afma.com.au

EDITOR dhang@afma.com.au

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Web: www.afma.com.au DISCLAIMER The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents. The AFMA POLICY & MARKETS BRIEF may not be circulated outside of AFMA member organisations without permission from AFMA.

www.afma.com.au

DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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AFMA’S OBJECTIVES SET FOR 2014

Dear members and colleagues, At this time of the year, people often reflect on the events that occurred during the year, on what the future year might hold for us, what objectives we should set and how we are placed to achieve them. This sort of reflection is equally relevant for an industry body like AFMA; especially so given the scale and scope of changes underway in the financial markets industry. Over the year, the Association has worked hard to represent members on a wide array of issues (see key 2013 achievements), with over 85 submissions lodged with Australian and international regulators and policy makers. We have also continued to maintain effective industry self-regulation of the over-the-counter (OTC) markets.

AFMA’s Board recently considered the forces driving strategic change in the industry and how AFMA can best serve members’ interests in shaping the industry’s development. AFMA’s objectives include policy advocacy, promoting the development of efficient and competitive financial markets, industry self-regulation in addition to promoting high professional standards and providing education and data services. The Board concluded that our objectives provide the right framework to enable AFMA to continue to meet the needs of member firms, which are being affected by transformational change in the industry driven by regulatory reform, technology and economic developments. It’s important to the broader economy that we, at the industry level, manage these changes in a way that promotes the further development of financial markets. Efficient and well-functioning financial markets are a necessary condition to promote productivity and fund economic growth. The performance of Australia’s financial system during and after the GFC has been a significant strength of the economy but our financial markets are not immune from the issues confronting global markets. AFMA’s policy advocacy objective will be important during the forthcoming Financial System Inquiry. The Inquiry presents a valuable opportunity for the industry to remind policy makers and others of its economic utility and the central role it plays in economic development. AFMA will work with members to ensure that we do this effectively and promote the regulatory and tax settings that will best support members’ delivery of financial services to consumers and Australian business. This will complement our existing agenda of policy work across the financial, wholesale banking and energy markets. Consistent with our objectives, AFMA also has a program of action on developing industry best practice guidance and the building of professional standards through our accreditation program, amongst other things. AFMA’s industry education services are well resourced and we intend to continue to develop courses that support competency and ethical market practices. Positive outcomes from these initiatives will include greater public confidence in the financial markets, matched by a desire to conduct more business on the markets.

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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This activity complements AFMA’s aim to promote industry self-regulation, which we do by managing conventions, industry guidance and standard documentation that assist the smooth operation of the financial markets. Industry self-regulation is a significant ongoing exercise that improves market efficiency and reduces risk, and assists the industry to adapt to regulatory change, like those driven by the G20 OTC derivatives reforms. In our experience, a diligent effort in this area also reduces the need for official regulatory intervention. BBSW is synonymous with AFMA and is one way that we meet our objective to provide data that assists the development of our financial markets. AFMA is seen as a leader in this field internationally following our reform to the BBSW process in September and we will strive to maintain this position. As we enter 2014, we are working to ensure that the industry has ongoing access to the current set of AFMAdata independent end of day rates, which we can only do with the ongoing support of members. In summary, AFMA is well organised to serve members' interests over the next year. However, we depend on a significant commitment of time and expertise by members and their employees to our activities. In this context, I would like to thank members for their generous support in 2013. On behalf of the policy and markets team, I would like to extend my best wishes to you and all in the AFMA community during the Christmas and New Year period. Our office will be closed from Tuesday 24 December, re-opening on Monday 6 January 2014. The next edition of the Policy & Markets Brief will be published in mid-February 2014.

David Lynch Executive Director

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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2013 KEY POLICY ACHIEVEMENTS

OTC MARKETS

OTC derivatives reforms

• Worked with the Council of Financial Regulators to achieve a workable legislative framework for OTC derivatives reform in Australia, obtaining practical improvements on trade reporting and central clearing.

• Worked with Australian regulators to improve international coordination of OTC market reforms by the US and Europe.

• Successfully lobbied for the exemption of physically settled FX transactions that are associated with the exchange of principal of cross-currency swaps from the global margin requirements for non-centrally cleared derivatives.

OTC market conventions and industry standards

• Maintained AFMA’s OTC Market Conventions and promoted market best practice, including on Repo market trade matching.

• Developed new BBSW Benchmark Rate General Conventions. • Liaised with the Australian Office of Financial Management to introduce improved

tender methodology for Indexed Bonds and procedures for dealing with out-of-market bids in tenders.

BBSW benchmark rate enhancements

• Pioneered change to direct collection of the BBSW benchmark from multiple trading venues, consistent with the IOSCO Principles for Financial Benchmarks, to avoid the compliance costs for members associated with a submission-based methodology.

• Achieved regulatory outcomes that better support provision of price information to users of benchmark and valuation rates for risk management, investment valuation and transaction purposes.

Energy markets • Established an Electricity Regulatory Working Group to manage the plethora of issues affecting the OTC electricity derivatives market.

• Established a Gas Working Group which developed ISDA-based documentation covering transactions in the Declared Wholesale Gas Market (DWGM) in Victoria, the Short Term Trading Market (STTM) and for Market Schedule Variations (MSV) trades.

EQUITY & EXCHANGE MARKETS

Equity market regulatory reforms

• Achieved balanced regulatory outcomes for high frequency trading (HFT) and dark pools, in part through improving government understanding of these businesses.

• Successfully opposed minimum resting times for high frequency orders, minimum size thresholds for dark pools and heavy-handed intervention to algorithmic trading.

• Participated in ASX consultation on cash equity market account segregation and successfully opposed the introduction of client omnibus or Individually Segregated Client Account structures.

• Exerted influence on the Government’s review of competition in equities clearing to produce a fair and balanced outcome that increases transparency and industry participation in the governance of essential market infrastructure.

• Contributed to the Government’s review of the Australian financial market licensing regime to better cater for the diverse range of markets that operate in a modern financial system

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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Forums for specific businesses

• Established an industry forum for market making firms and coordinated input into ASIC processes through this group.

• Enhanced the Association’s capacity to represent all areas of members’ business through formation of the Private Wealth Steering Committee.

Retail broking and structured products regulation

• Engaged with Treasury and the Government to reduce the inappropriate scope of the Future of Financial Advice (FOFA) reforms, resulting in exemptions for brokerage and stamping fees for capital raisings.

• Facilitated engagement with ASIC resulting in significant changes to ASIC’s proposed approach to regulation of research houses.

• Engaged with AUSTRAC to clarify the customer due diligence obligations of stockbrokers who are dealing with investment managers, resulting in reduced compliance burden for members.

TAXATION

Business taxation

• Made strong representations on transfer pricing legislation resulting in a beneficial outcome for Australian branches of foreign banks.

• Delayed budget changes to the offshore banking unit (OBU) regime after early and strong AFMA representations and achieved a reversal of the most concerning budget announcements.

• Assisted Treasury with the wording of the Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement to ensure that the operational impacts of the implementation of FATCA are mitigated to the greatest extent possible.

Product taxation • Worked with international peers at the G20 level to oppose the extraterritorial application of the proposed European financial transaction tax (FTT).

• Provided input to Treasury on “dividend washing”, resulting in a provision that is both certain and prospective and least likely to give rise to unintended consequences.

• Lobbied successfully for a one-year extension to the deadline for bringing financial advisers that provide tax advice under the regulatory oversight of the Tax Practitioners Board.

• Successfully dissuaded the ATO from requiring all onerous questions in a questionnaire to members to be answered on the provision of web-based services to Australian customers from offshore, and facilitated discussions at an industry level.

OTHER

Bank regulation • Facilitated industry dialogue with the RBA to address member concerns around its strategic review of innovation in the payments system.

• Worked with members and APRA on a variety of regulatory matters, including Basel III liquidity reforms and APRA’s risk management requirements, receiving clarifications and obtaining improvements.

• Provided constructive feedback to APRA’s harmonisation of its risk management standards, and successfully argued for an extension of the implementation period by one year.

Gender diversity • Completed a research project on the perceptions of female graduates on the banking and finance industry and launched a set of initiatives to increase the industry’s competitiveness in attracting a diverse pool of graduates.

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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POLICY NEWS AFMA Supports Financial System Inquiry Terms of Reference AFMA has made a submission in support of the draft Terms of Reference for the Financial System Inquiry, released by the Government last month. While the Australian financial system has been resilient and has served the economy well since the 1997 Financial System Inquiry, it is now appropriate to evaluate the financial system’s capacity to meet the evolving needs of businesses and households during a time of significant change. We believe that the Inquiry should be directed to make findings and recommendations to place the financial system in the best position to serve the expected future needs of Australians in a secure, efficient, fair and cost-effective manner. While the draft Terms of Reference provide a relevant framework to guide this important work, we made suggestions on minor refinements to bring a sharper focus on:

• The role of policy making, including the efficacy of the domestic policy development process and its interrelationship with international bodies that set global regulatory standards;

• The role of the financial system in allocating financial risk in accordance with the desired risk profile of participants in the economy; and

• The taxation of financial services in a manner that gives appropriate priority to the objectives of financial system policy, including our international competitiveness.

Our submission emphasises the importance of financial markets as a key pillar in Australia’s highly interconnected financial system, providing competition within the system through savings, investment and risk management services that meet the needs of Australian businesses and households. Submissions are available to members – for a copy of this submission, please contact the Secretariat. AFMA ATO Online Banking Working Group Formed The first meeting of the AFMA/ATO Online Banking Working Group was held on Friday 6 December. The aim of the working group is to discuss taxation issues arising from the provision of web-based services by foreign banks to Australian customers. The activities of the working group have, to a large extent, relieved a significant number of AFMA members from completing an ATO questionnaire that requested significant information as to the development and ownership of such platforms globally. The working group comprises AFMA members and representatives from the major accounting firms (who act as tax agents for a number of recipients of the questionnaire). From the ATO side, in attendance were representatives from the Baking and Finance Division, the E-Commerce Division and the Economist Practice. AFMA is to submit an industry position paper by 20 December which will form the basis of discussions in 2014. Please contact Rob Colquhoun if you would like any further information.

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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AFMA Meets EU Tax Commissioner On Monday 2 December, KPMG hosted a Taxation Industry Roundtable with Mr Algirdas Šemeta, the European Commissioner responsible for Taxation and Customs Union, Statistics, Audit and Anti-Fraud. Mr Šemeta presented remarks regarding the agenda for Australia’s chair of the G-20 in 2014, particularly in relation to the ongoing work by the G-20 regarding Base Erosion and Profit Shifting (BEPS) in conjunction with the OECD. Mr Šemeta expressed confidence that Australia would continue to support and further the G-20 agenda. AFMA very much appreciated the opportunity to meet with the Commissioner and to participate in the roundtable. Our sincere thanks are extended to KPMG. MYEFO to be Released Shortly The Treasurer has announced that the Mid-Year Economic and Fiscal Outlook (MYEFO) will be available from 12:30pm on Tuesday, 17 December. AFMA expects a number of policy announcements to be included in MYEFO, particularly regarding the “announced and unenacted” taxation measures upon which AFMA has been consulting with the Government. AFMA Takes Issue with TOFA Stance AFMA has provided a submission to the ATO regarding a very strict interpretation adopted with regards to the ability of taxpayers to rely on Special Purpose Financial Statements in order to make elections under the Taxation of Financial Arrangements (TOFA) rules. Under the design of the TOFA provisions, taxpayers are permitted to rely on their financial accounts to reflect their tax position, as long as the accounts meet certain standards in terms of preparation and being audited. The ATO released a ruling which suggested that Special Purpose Financial Statements do not meet the required standard and only those financial accounts that meet all accounting standards will be sufficient to allow for TOFA elections. The view expressed by AFMA is that Special Purpose Financial Statements adopt all standards from a recognition and measurement perspective and will need to comply with the Corporations Act requirement to present a true and fair view. Accordingly, from both a technical and policy perspective, there is no basis to prevent such reports from being capable of grounding a TOFA election. Submissions are available to members – for a copy of this submission, please contact the Secretariat. Grappling with Carbon Tax Uncertainty The Electricity Committee recently met to discuss the prospect and implications of potential retrospective application of the Carbon Tax Repeal legislation in 2014, and the responsibilities of the Committee in regard to the Carbon Addendum. It was agreed that the Committee would distribute a note to a wider audience of market participants to summarise the issues that the Committee will likely make a determination on. This would then allow affected members to provide their viewpoints prior to any determination by the Committee in 2014.

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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This note is still being finalised and will be sent out shortly. Queries should be directed to Mike Chadwick. AEMC Commences Stage Two Review of NEM On 8 November, the Australian Energy Market Commission (AEMC) published an options paper in relation to the second stage of its review of financial market resilience in the national electricity market (NEM). The stage two options paper sets out a number of options for measures that could mitigate the risk of financial contagion in the NEM. These measures include reforms to the regulation of OTC derivatives agreed by the G-20 following the global financial crisis. Public submissions to the report are invited by 19 December 2013. AFMA will be looking to make a submission and all member feedback would be welcome – please direct feedback to Mike Chadwick. Auditing Standard Impacts on Debt Market Documentation AFMA has written to the Auditing and Assurance Standards Board (AUASB) about member concerns around the impact of a set of auditing and assurance standards on debt market documentation. The standard in question, ASRS 4450, on comfort letter engagements have given rise to advice by Australian auditors of participants in international debt capital market programmes and offshore debt offerings that they are precluded from providing a comfort letter in accordance with the International Capital Market Association (ICMA) standard. More specifically, Australian auditors have adopted the position that all comfort letters must be issued pursuant to ASRS 4450 which applies as a matter of law. However, market practices for delivering comfort letters for offshore debt offerings have been well-established by ICMA based on offshore market requirements and market practice. As such, members have reported that applying the ASRS 4450 standard to offshore debt offerings has increased costs and resulted in timing delays and, in some cases, created market access problems for Australian borrowers. Our submission to the AUASB suggests that ASRS 4450 is not written in a prescriptive form that precludes the issue of a comfort letter under the ICMA standard if so provided by the terms of engagement. As such, to provide clarity, we asked that the AUASB provide supplementary guidance to the market on the application of the ICMA standard on offshore debt offerings. Separately, to assist due diligence process for many international debt offers in the Australian market, AFMA had developed a Standard Form Arrangement Letter for International (excluding US) Debt Offers. This arrangement letter was designed for use in connection with offers of debt securities by Australian issuers outside the United States. The effect of ASRS 4450 has been to create uncertainty about the use of this arrangement letter. The future of this letter is a matter which will be considered by the DCM Legal Group once the AUASB response to our letter has been received. Submissions are available to members – for a copy of this submission, please contact the Secretariat.

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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Review of AML/CTF Act Underway The Minister for Justice has announced the commencement of a review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the AML/CTF Rules and Regulations. The AML/CTF Act was implemented in a staggered manner from 2006, with all the provisions of the Act fully operational from 12 December 2008. The Act contains a requirement that it be fully reviewed after seven years. The review will examine:

• The operation of the AML/CTF regime, including whether there is still a need for the continued operation of the Financial Transactions Reporting Act 1988;

• The extent to which the policy objectives of the AML/CTF regime remain appropriate; and

• Whether the provisions of the regime remain appropriate for the achievement of those objectives. The AUSTRAC cost recovery levy is excluded from the review, along with consideration of customer due diligence obligations in the Act and Rules as this is subject to a separate process which is already underway. AUSTRAC has just released revised draft customer due diligence rules for consultation. The Financial Action Task Force, which is the global standards setter for AML established under the auspices of the OECD, will be conducting the next mutual evaluation of the Australian regime in mid-2014. The review of the Act will also take into account the findings of the FATF mutual evaluation. The AFMA AML Committee has made a number of submissions to AUSTRAC in recent years about issues that impact the operation of financial markets-related business. The matters that have not been resolved by AUSTRAC (either because AUSTRAC has no power to make changes in the particular area, or the matter is one of public policy rather than a minor or administrative issue) will be raised again in the AFMA submission to the review. The AML Committee has representatives from a large number of members and will oversee the submission. Any members who would like to contribute to the submission can participate through the committee process or contact Tracey Lyons. Submissions are due 28 February 2014. Extra-territoriality – The Gloves are Off The extra-territorial impact of US OTC derivatives rules is an issue of great concern to affected AFMA members. The capricious nature of certain unexpected guidance on the rules that came in with the Commodity Futures Trading Commission's (CFTC) Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (Cross-Border Rule), and to the cross-border aspects of related rules published in July 2013 was particularly troubling because it threatens some market operations in Australia. The Cross-Border Rule contains guidance from the CFTC which clearly crosses the line of fairness and reasonableness. The United States, being a ‘black letter law’ jurisdiction administered by independent regulators with minimal policy oversight, is a jurisdiction where the courts are a primary avenue for seeking fair and reasonable application of the law when reasoning with the regulator fails.

www.afma.com.au

DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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The Securities Industry and Financial Markets Association (SIFMA), the International Swaps and Derivatives Association, Inc. (ISDA), and the Institute of International Bankers (IIB) have taken up the challenge of defending the industry by filing suit on 4 December against the CFTC. The claim against the CFTC is that it unlawfully circumvented the requirements of the Administrative Procedure Act and the Commodity Exchange Act by characterising its regulations as “guidance”; failed to conduct any cost-benefit analysis, as required by law; conducted a flawed rulemaking process; and imposed a series of rules that are contrary to the spirit and the letter of international cooperation and may harm global markets. The lawsuit alleges that the CFTC failed to follow key requirements mandated by law with regard to development and issuance of the Cross-Border Rule. The Cross-Border Rule violates existing agreements between global policymakers, and works against the G-20 Commitment to “implement global standards consistently in a way that ensures a level playing field and avoids fragmentation of markets.” AFMA will monitor the progress of developments over coming months. Members Consider Basel Committee’s Fundamental Review of the Trading Book Earlier this month, AFMA facilitated a meeting of members interested in learning more about the Basel Committee on Banking Supervision’s (BCBS) second consultation on its fundamental review of the trading book. This follows the first consultation which concluded in September 2012 and we again thank Partner Member KPMG for hosting the meeting and facilitating discussion. This second consultation describes a number of revisions to the market risk framework, including:

• A revised boundary between the trading and banking books aimed to create a less permeable boundary to reduce the incentive for regulatory arbitrage;

• A closer alignment between the books in the regulatory treatment of credit risk; and

• Revisions to the standardised approach (SA) to calculating capital requirements for banks with business models that do not require a more sophisticated measurement of market risk.

The proposed use of the SA as a floor to an internal models approach is topical amongst members, and we welcome further input on this and other aspects of the proposals, which should be directed to Murray Regan. AFMA and the Australian Bankers’ Association (ABA) will collaborate in responding to the proposals, submissions of which are due by 31 January 2014. Banking and Finance Sector Pandemic Exercise Earlier this month, a banking and finance sector discussion exercise on the implications of an influenza pandemic on business continuity planning was held. The exercise was organised by the Attorney-General’s Department for members of the Banking and Finance Group that is part of the Government’s Trusted Information Sharing Network (TISN) for critical infrastructure providers. The Banking and Finance Group is one sector group among seven, including the communications and energy sectors. The objective of the exercise was to build the banking and finance sector’s pandemic preparedness, and involved the consideration of how a range of pandemic scenarios would impact on the business continuity plans of the key stakeholders, including banks, insurers, regulators (ASIC, RBA, APRA) and market infrastructure

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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(ASX). Representatives of the communications and energy groups provided insight into how upstream providers’ plans would impact on the ability of industry organisations to implement their plans. Representatives from state and federal governments also participated, including the Department of Health. AFMA attended the exercise as an observer. The exercise provided a useful opportunity for participants to examine in detail how the Government’s National Action Plan for Human Pandemic Influenza would be rolled out, and the roles and responsibilities of the various state and national government entities. A key issue discussed was the need for clear and consistent information to be provided by the Government in a coordinated manner. There was also recognition that a pandemic presents a unique situation from a crisis management perspective, as the time horizon of such an event is expected to be much longer than other crisis scenarios; the challenge for organisations is to be able to adapt to various stages of a pandemic as they arise. Banking and Finance Oath Blog Up AFMA had previously promoted the Banking and Finance Oath (The BFO) to members, a set of commitments that individuals working in the banking and finance industry might agree to adopt and apply as personal principles in their work. The BFO is an initiative of a group of leaders from the banking and finance industry in Australia, and recognises that, while a formal system of regulation and surveillance is necessary, it is not sufficient. It is equally important that public oversight be complemented by a voluntary set of commitments developed by and for the industry. AFMA’s Board considers The BFO to be a good industry initiative. Members may be interested in a range of insightful articles authored by industry leaders on The BFO website blog.

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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ASSOCIATION NEWS Board Appointments Made at AGM At the Association’s recent AGM on 27 November, a third of the current Board Directors who were required by the constitution to retire were subsequently re-elected. The current Directors of AFMA are: Cathryn Carver Managing Director, Institutional, Australia

ANZ Banking Group Limited Mark Collette

Group Executive Manager, Energy Markets Energy Australia

Stephen Dunne Chief Executive Officer AMP Limited

John Feeney (MGC representative)

Head of Pricing, FICC, Products & Markets National Australia Bank Limited

Matthew Grounds

Chief Executive Officer, Australasia; Head of Corporate Client Solutions, Asia Pacific UBS AG, Australia Branch

Steve Harker

Managing Director and Chief Executive Officer Morgan Stanley Australia Limited

Debra Hazelton

General Manager Mizuho Bank Ltd

Stephen Knight Chief Executive Officer NSW Treasury Corporation

Mark Lazberger

Chief Executive Officer Colonial First State Global Asset Management

Didier Mahout Chief Executive Officer BNP Paribas

Ian Martin

SVP, Head of State Street Global Markets & Global Services, Australia & New Zealand State Street Bank and Trust Company

Hiroyuki Nishikawa Chief Executive Officer & Country Head Nomura Australia Limited

Michael Ormaechea

Head of Markets, Australia and New Zealand, and Head of Fixed Income Currency & Commodities and Equities, Asia Pacific

Deutsche Bank AG Robert Priestley

Chief Executive Officer (Asean & AU & NZ) JP Morgan Chase Bank, N.A.

Stephen Roberts

Chief Executive Officer, Global Corporate and Investment Bank Australia & New Zealand

Citi Simon Rothery

Chief Executive Officer Goldman Sachs Australia Pty Ltd

Ian Saines

Group Executive Institutional Banking & Markets Commonwealth Bank of Australia

Rick Sawers Group Executive of Products and Markets

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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National Australia Bank Limited Rob Stewart Managing Director - Investment Banking

Credit Suisse AG Robert Whitfield

Group Executive Westpac Banking Corporation

Rick Sawers, who has served as Chair for two years, announced that he would step down as Chair following the AGM, with Stephen Roberts to become Chair and Rob Whitfield Deputy Chair. All current members of the Market Governance Committee and Operations Committee have also been re-elected to these committees. Partner Members’ Contributions Appreciated AFMA has long recognised the vital contribution to the efficient operation of the financial markets from firms that provide professional services to those directly involved in the financial markets. Partner Members share a common interest with firms who provide financial services in the growth and development of Australia’s financial markets. This is reflected in their vital role in activities like capital raising, documentation and policies for trading of securities and derivatives, innovation and product development, audit, taxation and risk management, amongst others. AFMA created the Partner Member category to enhance the interaction at the industry level between these firms and participants in the financial market. The exceptional pace of regulatory and tax reform which affects all aspects of financial markets, including market infrastructure, capital and liquidity management and retail products, has highlighted the importance and benefits of this relationship, which has been stronger and more productive than ever in recent years. The Secretariat appreciates being able to draw on the resources of Partner Members (listed below) and thank them for their commitment to AFMA and financial markets. Allen & Overy Australia Allens Ashurst Australia Baker & McKenzie Bloomberg Clayton Utz Clifford Chance Corrs Chambers Westgarth Gilbert + Tobin Herbert Smith Freehills

Interactive Data (Australia) Pty Ltd Johnson Winter & Slattery K&L Gates King & Wood Mallesons KPMG Minter Ellison Norton Rose Fulbright Australia PricewaterhouseCoopers Standard & Poor's Thomson Reuters (Markets) Australia Pty Ltd

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

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AFMA COMMITTEES ROUNDUP AFMA’s Market and Operations Committees and Working Groups play a vital role in the efficient operation of the OTC markets by developing and managing the conventions, practices and documentation that enable the conduct of OTC transactions on common terms and understandings. Market Committees are elected by their peers and are subject to oversight by the Market Governance Committee. AFMA also has a wide range of Policy Committees that facilitate industry discussion and action on policy and regulatory issues. Upcoming committee meetings are summarised in the Policy Calendar. We encourage member firms that do not have a representative on a particular committee but are aware of a matter that might usefully be considered by a committee to suggest items for inclusion on meeting agendas by contacting the AFMA Secretariat. The summary below gives a snapshot of the issues considered and initiatives undertaken by AFMA Committees over the past month. MARKET & OPERATIONS COMMITTEES Swaps Committee 19 November

• Discussed a potential new convention to address a situation where a transaction executed through a Swap Execution Facility (SEF) fails to clear.

• Discussed a transition to a new contribution process for AFMA Data for Swaps, similar to the BBSW NBBO process.

Gas Working Group 20 November

• Reviewed differences between the Gas Addendum and other energy product addenda.

Derivatives Operations Committee 25 November

• Focused on the Derivative Transaction Rules and industry trade reporting requirements.

• Discussed CFTC’s recent rule changes, notably the “Void Rule” which requires that “any trade that is executed on a SEF or Designated Contract Markets (DCM) and that is not accepted for clearing should be void ab initio”. The Committee will closely monitor this development.

Debt Market Operations Committee 26 November

• Noted recent Austraclear enhancements regarding the 128F exemption flag and call notices.

Electricity Committee 27 November

• Discussed the prospect and implications of potential retrospective application of the Carbon Tax Repeal legislation in 2014, and the responsibilities of the Committee in regard to the Carbon Addendum.

Debt Securities • Discussed ASX proposed changes to the Bond Futures Expiry settlement process, in

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DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

p.15 | DECEMBER 2013

POLICY & BUSINESS LINE COMMITTEES

Committee 28 November

particular the move to a NBBO process for the settlement price.

Electricity Regulatory Working Group 2 December

• Received a presentation from the AEMC on the NEM financial market resilience review process.

Equity Derivatives Committee 4 December

• Noted AFMA’s continuing work on Treasury’s market licensing review, which will not be affected by the Financial System Inquiry.

• Noted the need for the review to be progressed grows more urgent as the exempt market regime presents growing problems for cross border recognition as the importance of swap execution platforms and other trade platforms takes effect.

Debt Origination Committee 10 December

• Discussed a draft document “DCM Handling Confidential & Price Sensitive Information and Soundings – Best Practice Guidelines”.

Product Approvals Working Group 18 November

• Agreed to review the Product Approval Principles predominantly against the IOSCO suitability requirements with respect to the distribution of complex financial products, which was released earlier this year.

Heads of Compliance Committee 20 November

• Discussed with ASIC two new projects being run out of the Investment Banks team; the wholesale conduct risk review and the systemic risk assessment project.

• Provided views on the Void Rule impact on OTC derivatives trades.

• Considered work being carried out by AFMA’s compliance committees.

Equities Steering Committee 21 November

• Discussed the ASX Forum process.

• Discussed potential market responses to the Financial System Inquiry from an equities perspective.

Futures Compliance Committee 25 November

• Received a briefing by ASX on its proposed changes to ASX 24 Operating Rule Procedure 4800 – flowing from its exchange for physical (EFP) review and subsequent feedback from the Committee.

www.afma.com.au

DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

p.16 | DECEMBER 2013

Capital Raising Committee 28 November

• Received an update on the FOFA amendments, including the status of “investment entities” under the stamping fees exemption.

• Reviewed the Master ECM Terms and agreed to start work in 2014 on standardisation of due diligence documentation and research guidelines.

• Agreed that AFMA should write to AUASB providing views on its guidance in ASRS 4450 and its impact on comfort letters for offshore issues.

Futures Steering Committee 4 December

• ASIC attended as a guest to discuss current supervision and compliance issues in futures. In particular there was discussion about the statutory requirements in relation to client account buffers viz the practical efficiencies of allowing some buffer (that is client money, not house money) to sit in an account.

• Received an update from ASX about progress on a number of initiatives and market enhancements that the committee has raised/suggested.

COO Committee 5 December

• Discussed AFMA’s response to proposed ASX changes to trade cancellation appeals.

• Discussed the ASX Forum Business Committee process.

• Discussed potential market responses to the Financial System Inquiry from an equities perspective.

Gender Diversity Research Committee 5 December

• Reviewed key insights and discussion points of the panellists and participants at the 14 November launch of initiatives to attract female graduates to the industry.

• Decided on key priorities for the first quarter of 2014.

Trade Reporting Industry / ASIC Liaison Group 28 November 10 , 12 December

• The Group has been holding regular fortnightly meetings with ASIC and preparatory meetings to discuss implementation of trade reporting for Phase 2 group reporting entities.

• Focused on the scope and details of transitional class order relief that will be required as well as seeking from ASIC clarification on its views of the requirements.

www.afma.com.au

DISCLAIMER: The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents.

p.17 | DECEMBER 2013

POLICY CALENDAR – FEBRUARY 2014 Mon Tue Wed Thu Fri Sat Sun

1 2

3 4 5 6 Repo Committee

7 8 9

10 Cash Committee

11 12 13 14 15 16

17 18 19 AFMA Board

20 Documentation Committee

21 22 23

24 Debt Securities Committee Capital Raising Committee

25 26 27 Gender Diversity Research Committee

28

Market and Operations Technical Committees Policy and Business Line Committees

AFMA Governance Committees External