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2014 Australian Financial Markets Report

Australia’s financial markets have grown over the last five years and are among the most

sophisticated in the Asia region. According to the latest AFMA data, total turnover in financial

markets is up 27% over the five years to June 2014. Australia’s financial markets collectively

turned over $125 trillion in 2013-14. The major markets in the Australian financial system include

the capital markets (shares and bonds), the money markets and derivatives markets.

AustrAliAn FinAnciAl MArkets AssociAtion 1

This year, as G20 President, Australia has had an unprecedented opportunity to steer what is considered the world’s pre eminent forum for international economic and financial cooperation.

Under Australia’s stewardship, the G20 has focused on completing key aspects of the core financial regulatory reforms agreed in response to the crisis. These include making derivatives markets safer, building resilient financial institutions, as well as addressing the too big to fail problem and potential risks in the shadow banking sector.

These reforms are aimed at enhancing the resilience of the global financial system. They are important to Australia because our financial markets are heavily integrated with those overseas. Stable and efficient financial markets are essential to supporting Australian economic growth and prosperity.

We have delivered key aspects of the core commitments we made in the wake of the financial crisis, and we have been giving stronger emphasis within the G20 on the implementation and monitoring of the impact of these reforms to ensure they are having the desired effect.

It is important that we implement reforms in a way that creates greater certainty in the regulatory environment to support confidence and growth. Our efforts should continue to promote an internationally coordinated approach to implementation because it is crucial to promoting an integrated global financial system, reducing harmful fragmentation and avoiding unintended costs for business.

Australia has a strong interest in participating in the development and implementation of carefully calibrated financial regulatory standards. It is important that Australia continue to engage in international forums so that we can help shape the development of this work.

To ensure that the financial system is in the best possible position to meet Australia’s evolving needs and support Australia’s economic growth, we look forward to the final report of the Financial System Inquiry due later this year. The Financial System Inquiry will establish the direction for the future of Australia’s financial system and will lay out a blueprint for the financial system over the next decade and beyond.

I congratulate the Australian Financial Markets Association (AFMA) on the publication of the 2014 Australian Financial Markets Report. AFMA plays an important role in representing Australia’s financial services industry domestically and internationally, and has been closely engaged in the Financial System Inquiry, as well as initiatives that enhance international regulatory coordination.

The hon Joe hockey MPTreasurer

Foreword

2 2014 AustrAliAn FinAnciAl MArkets report

The Australian Financial Markets Annual Turnover Summary By Market (AUD billion)

2009-10 2010-11 2011-12 2012-13 2013-14 % change

oTc MArkeTS

Government Debt securities 928 1,483 1,758 1,778 1,899 6.8

non Government Debt securities 675 908 592 777 772 (0.7)

negotiable & transferable instruments 4,112 3,676 3,675 3,271 2,784 (14.9)

repurchase Agreements 5,418 7,364 7,525 7,864 6,011 (23.6)

swapsa 5,923 6,809 9,848 10,495 10,461 (0.3)

overnight index swapsb 3,000 5,313 8,703 8,894 7,198 (19.1)

Forward rate Agreements 4,519 5,857 6,184 5,937 3,893 (34.4)

interest rate options 379 370 516 475 565 18.8

credit Derivatives 280 321 398 229 230 0.3

Foreign exchange 41,436 44,517 39,923 42,403 42,914 1.2

currency options 706 730 927 1,274 1,083 (15.0)

Total oTc 67,376 77,348 80,049 83,397 77,809 (6.7)

exchAnge TrADeD MArkeTS

equities

shares 1,359 1,339 1,185 1,151 1,188 3.2

options 504 681 816 862 697 (19.2)

sub-total 1,864 2,020 2,001 2,013 1,885 (6.4)

Futures

Futures 32,857 45,927 44,846 48,245 45,075 (6.6)

options 324 507 310 437 415 (5.1)

sub-total 33,181 46,434 45,157 48,682 45,490 (6.6)

Total exchange Traded 35,045 48,454 47,158 50,696 47,375 (6.6)

ALL FInAncIAL MArkeTS 102,421 125,802 127,207 134,093 125,184 (6.6)

energy MArkeTS

electricity (million megawatt hours)

otc electricity Derivatives 221 315 227 291 251 (13.8)

electricity Futures and options 399 549 437 342 387 13.1

Total electricity 620 864 664 633 637 0.7

environmental products (million certificates)

renewable energy certificates 21.5 47.3 61.7 77.8 18.9 (75.8)

nsW Greenhouse Gas Abatement certificates 14.2 26.5 1.9 0.0 0.0 0.0

Gas electricity certificates 2.4 8.5 1.4 2.6 0.2 (91.5)

Total environmental Products 38.0 82.4 65.0 80.4 19.1 (76.3)

a non AuD cross currency swaps were surveyed for the first time in 2011-12. b non-AuD ois were surveyed for the first time in 2013-2014

suMMAry oF MArket turnover


The Australian Financial Markets annual Turnover Summary By Asset class (AUD billion)

2009-10 2010-11 2011-12 2012-13 2013-14 % change

DeBT MArkeTS

physical Market turnover

Government Debt securities 928 1,483 1,758 1,778 1,899 6.8

non Government Debt securities 675 908 592 777 772 (0.7)

negotiable & transferable instruments 4,112 3,676 3,675 3,271 2,784 (14.9)

repurchase Agreements 5,418 7,364 7,525 7,864 6,011 (23.6)

sub-total 11,133 13,431 13,550 13,690 11,466 (16.2)

Derivative Market turnover

swaps 5,923 6,809 9,848 10,495 10,461 (0.3)

overnight index swaps 3,000 5,313 8,703 8,894 7,198 (19.1)

Forward rate Agreements 4,519 5,857 6,184 5,937 3,893 (34.4)

interest rate options 379 370 516 475 565 18.8

credit Derivatives 280 321 398 229 230 0.3

interest rate Futures and options 32,043 45,184 43,884 47,473 44,148 (7.0)

sub-total 46,143 63,853 69,535 73,504 66,494 (9.5)

Total Debt Markets 57,276 77,284 83,085 87,194 77,960 (10.6)

Derivative Market to Physical Market Activity 4.1 4.8 5.1 5.4 5.8

cUrrency MArkeTS


spot Foreign exchange 14,680 11,853 10,843 11,071 10,811 (2.4)


FX swaps 24,884 30,391 26,837 28,818 29,320 1.7

Forward Foreign exchange 1,872 2,274 2,242 2,514 2,783 10.7

currency options 706 730 927 1,274 1,083 (15.0)

sub-total 27,462 33,395 30,006 32,606 33,186 1.8

Total currency Markets 42,142 45,248 40,849 43,677 43,997 0.7


eqUITIeS MArkeTS


shares 1,359 1,339 1,185 1,151 1,188 3.2


options 504 681 816 862 697 (19.2)

equity Futures and options 1,139 1,250 1,272 1,209 1,342 11.0

sub-total 1,643 1,931 2,088 2,071 2,039 (1.6)

Total equities Markets 3,003 3,270 3,273 3,222 3,227 0.1


ALL FInAncIAL MArkeTS 102,421 125,802 127,207 134,093 125,184 (6.6)

1 Foreword

2 summary of Market turnover Data

5 the Financial Market landscape over the past Five years

9 over-the-counter Market commentary

13 exchange traded Market commentary

19 chi-X Australia

20 lcH.clearnet ltd – swapclear

21 regulatory Data Architecture and Analytics

MArket DAtA

23 Government Debt securities

28 non Government Debt securities

35 negotiable and transferable instruments

38 repurchase Agreements

41 swaps and Forward rate Agreements

47 interest rate options

49 credit Derivatives

52 Foreign exchange and currency options

55 electricity

58 environmental products

61 exchange traded – AsX

66 Appendices

72 About AFMA

contents



Australia’s financial markets have grown over the last five years. According to the latest AFMA data, total turnover in financial markets is up 27% over the five years to June 2014.

While overall volumes have continued to rise, the experience on a market-by- market basis has been disparate. Volumes in Overnight Index Swaps, for example, have increased nearly sixfold while we have seen turnover in the Bank Bill and Negotiable Certificates of Deposit markets halve.

Figure 1 gives a summary of changes in turnover over the past five years.

Many factors have influenced these changes in market volumes. There have been big changes in global and Australian economic settings, technology continues to evolve rapidly, regulatory change has been substantial, and, in general, financial markets and investors have continued to globalise.

In this article we take a look at some of the factors that have shaped market turnover over the past five years.

The Bond Market – The return of the governmentThe shape and participants in Australia’s bond market have changed significantly over the past five years. Prior to the global financial crisis (GFC) the majority of

issuance in the bond market was from the private sector, including domestic banks/lenders, foreigners and to a lesser extent non-bank corporates.

Non-government bonds outstanding totalled $346 billion at December 2007, well in excess of the combined

$125 billion of outstandings from state and Commonwealth governments – see Figure 2.

In fact, by the early 2000s, successive Commonwealth Government budget surpluses, and bond retirements, raised serious concerns about liquidity in the

Figure 1: Turnover Change over pasT Five Years

The Financial Market Landscape over the past Five Years

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NCD and Bank Bills

Interest Rate FRA's

Credit Derivatives

Foreign Exchange

Environmental Products

Total OTC

Electricity

Equities - Exchange traded

All Financial Markets

Currency Options

Non-Government Debt Securities

Total Exchange Traded

Futures - Exchange traded

Interest Rate Swaps

Interest Rate Options

Government Debt Securities

% Interest Rate - Overnight Index Swaps

Source: AFMA. % change in 2013/14 compared to 2008/09 for selected markets.

Bond Repurchase Agreements

Peter Jolly, Global Head of Research – Fixed Income, Currencies & Commodities, Product & Markets, National Australia Bank


Commonwealth Government bond market. Turnover had fallen and investors were looking for alternatives – even though the government could have retired its entire debt, they decided to keep $50 billion of government bonds on issue to support the efficacy of other bond and interest rate markets.

The GFC changed the shape of Australia’s bond markets. Firstly, and primarily, a return

to deficit saw the Commonwealth become the dominant issuer over the past five years. Second, domestic bank bond issuance has doubled since the end of 2007, although this has slowed more recently as securitisation markets have picked up again. Finally, what hasn’t changed is that non-bank corporate bond issuance has remained modest.1

The net of these changes is that combined Commonwealth and state government long-

term bonds totalled $540 billion in June 2014 and collectively are again larger than private sector bonds issued in Australia at $474 billion.

Against this backdrop of increased supply, demand for Australian bonds has remained strong. Global investors like Australia. The economy has more or less grown continuously2, the Australian Government retained its AAA credit rating when many other countries did not, and even though interest rates in Australia are at 50-year lows they remain high when compared to other countries.

This increased demand is evidenced in both narrow credit spreads and increased foreign participation in our bond market.

At 67% to March 2014, the share of Commonwealth Government bonds held by foreigners has fallen from the peak of 78% it reached in early 2012; however, this is mostly because the Commonwealth has continued to issue briskly as foreign buying has slowed somewhat. In actual dollar terms, foreigners owned a record $227 billion of Commonwealth Government bonds in March 2014.

Overall, Australia’s bond market has thrived over the past five years; issuance is up and demand is robust. Latest AFMA data shows that turnover in government and non-government bonds is 140% and 56% higher respectively than five years ago.

Increased turnover in the physical government bond market has also been a key contributor to the increased turnover in associated markets like the bond repo market, interest rate swap market and bond futures market.3

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Figure 2: Long TerM DebT issuanCe

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Source: ABS Financial Accounts 5232

Figure 3: Foreign ownership oF ausTraLian governMenT bonDs

tHe FinAnciAl MArket lAnDscApe over tHe pAst Five yeArs


Internationalisation of Australia’s MarketsIncreased foreign participation in our bond market is part of a broader uplift in foreign involvement in Australia’s markets.

The foreign exchange market is a good example.

The past five years has been a flat period for Australia’s foreign exchange markets. Latest AFMA data shows turnover fell a slight 3% in the five years to June 2014. Declining volatility and reduced trading opportunities for investors have been factors behind subdued volumes.

However, against this subdued backdrop the Australian dollar has actually risen in its importance relative to other currencies. The Bank for International Settlements (BIS) triennial survey showed that in 2013 the AUD/USD was the fourth most traded currency pair and the AUD the fifth most traded currency, with its share of global currency trade at 8.6% in 2013, up from 7.6% in 2010 and 6.6% in 2007 – see Figure 4.

These volumes are well in excess of the Australian economy’s share of global GDP, which has remained a little over 1% over the past five years.

regulation changesThe regulatory response to the GFC saw changes to both prudential rules and market regulations. These changes have impacted turnover in a number of financial markets, sometimes for the better and sometimes for the worse.

An example is the short-term bank bill market. Prior to the GFC, the short-term bank bill market was the largest debt market

in Australia. Outstandings totalled $470 billion in December 2007 and this accounted for 35% of Australian banks’ liabilities.

Basel III liquidity rules (prudential rules) now require banks to have more stable funding and to increase funding from sources such as deposits and longer term debt securities. Outstanding bank bills have plunged, standing at $289 billion to June 2014, a little over 20% of bank liabilities; meanwhile, turnover is half what it was five years ago.

On the other side, changes in market regulation may be impacting positively the turnover in some over-the-counter (OTC) markets, like interest rate swaps.

The G20 meeting in 2009 included recommendations around:

– central clearing

– trade reporting

– risk mitigation

– exchange or electronic trading.

Immediately post-2008, interest rate swap volumes dropped as counterparties were

unwilling to take credit risk on each other. Since then volumes have increased, with centrally cleared derivatives becoming the industry standard for interest rate swaps. Market liquidity is now increasingly found in centrally cleared swaps.

Trade reporting is now in place in most large markets to some degree, although more work is being done to ensure full coverage of derivative markets. It is now possible to find out recent derivative turnover, at least in US markets, rather than wait for an annual survey.

A clear theme over the five years is the global impact of local regulation. The US implementation of the G20 OTC derivative reforms (Dodd-Frank Act) took a detour from the more common domestic focus and introduced us to the term ‘extra-territorial impact’. The Commodities and Futures Trading Commission (CFTC) transformed from an agency with a focus on agricultural and financial futures to regulating, in some way, the world’s OTC derivative trades. This has resulted in inevitable tensions between local regulations and global markets. All

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Figure 4: auD share oF gLobaL FX Turnover


four of the major Australian banks registered with the CFTC as a ‘Swap Dealer’ to ensure continued access to global markets. One of the downsides of this tension, despite the increase in overall market activity, is the impact differences in regulation are having on local liquidity. Regulator responses have varied, although cooperation is increasing due to active participation in global regulatory forums.

A key concern for Australian regulators and The Treasury has been to ensure Australian entities continue to be able to access global capital markets. Australia’s regulators have embraced the change, and after an initial focus on setting up trade reporting, the government is considering mandating central clearing of G4 interest rate swaps together with AUD interest rate swaps.

Interest rate swap volumes have already improved a sharp 83% over the past five years.

Technology and new ProductsTechnology has and will continue to be a key influence on the shape of financial markets and their volumes. Increased computing power has allowed better price discovery and broader access to markets, both of which have encouraged an increase in liquidity. This has been particularly true in foreign

exchange markets, where electronic trading platforms (both one-to-many and many-to-many) are accounting for an increasing share of foreign exchange transactions as reflected in the increasing proportion of non-bank transactions in BIS surveys.

These developments are also emerging in interest rate markets, largely due to the mandate by the CFTC for many US counterparties. New providers, together with traditional inter-dealer brokers, are developing swap execution facilities (SEFS) to provide electronic and voice markets, which appear to be more like exchanges (where central limit order books exist), or provide a means to streamline requests for quotes where exchange-like markets are more difficult.

Increased computing power has also been behind the rise of high-frequency trading and so-called dark liquidity pools. As ASIC wrote in 20134 ‘Advances in technology have made it easier to trade away from exchange markets and have facilitated a proliferation of dark trading venues known as ‘crossing systems’ and ‘dark pools’… Advances in technology have also fundamentally changed the way orders are generated and executed by all users of the market.’

Some are concerned that these dark pools and high-frequency trading make markets more

opaque and this could lead to investors losing confidence which would have a deleterious impact on liquidity. There is no evidence of this. ASIC’s taskforce found that “some of the commonly held negative perceptions about high-frequency trading are not supported by our analysis of Australian markets.”

SummaryRecent years have seen huge change. There was a bull market through the 2000s that ended with the GFC. The five years post the GFC have seen even more change.

Changes to the economic and fiscal landscape, increased regulation and ongoing technological development have been some of the factors that have shaped markets in recent years.

Through this period Australia’s financial markets have expanded. As well, Australia’s standing in global markets and relevance to global investors has grown.

The years ahead may not see the scale of upheaval of recent times but inevitably there will be more change. Australia’s robust economy and strong regulatory framework puts our already deep and transparent financial markets in a good position to keep innovating and growing. n

changes to the economic and fiscal landscape, increased regulation and ongoing technological development have been

some of the factors that have shaped markets in recent years. through this period Australia’s financial markets have

expanded. As well, Australia’s standing in global markets and relevance to global investors has grown.

1 Debelle G (Assistant Governor RBA) 2014, ‘The Australian bond market’, speech to the Economic Society of Australia, Canberra, 15 April.2 Aside from negative GDP quarters in Q1 2011, Q4 2008, and Q4 2000, the Australian economy has grown continuously since Q3 1991.3 The sharp increase in turnover volumes on the futures market is almost entirely due to the increased turnover in interest rate products like interbank cash rate futures, 90 day bank bill futures and 3 and 10 year bond futures.4 https://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep331-published-18-March-2013.pdf/$file/rep331-published-18-March-2013.pdf.

tHe FinAnciAl MArket lAnDscApe over tHe pAst Five yeArs


global MarketsThe beginning of 2014 had most financial market participants expecting a renewed upward trend in global interest rates driven by a winding back in the US Federal Reserve’s (Fed) quantitative easing (QE) program. This in turn was expected to drive flows into US-dollar denominated assets, increasing volatility and turnover across a broad range of asset classes.

These expectations were soon disappointed, with a continuation of the downtrend in both nominal and real interest rates globally. US 10 year Treasury yields fell from 3.00% to 2.50% in the first half of 2014. Inflation-linked bonds recorded similar declines, implying that markets are expecting an extended period of subdued, low-inflationary economic growth and low short-term interest rates. The Fed’s preferred measure of inflation remains below 2%, implying that there is still little urgency to normalising US monetary policy. The Fed’s balance sheet, at 25.5% of GDP, is unlikely to undergo a significant contraction any time soon, with no official timetable for interest rate normalisation.

Even larger declines were seen in European yields, with German Bunds posting record

lows around 1.10% during 2013-14. The Eurozone economies continue to face disinflationary/deflationary pressures, with the single European currency forcing internal devaluations through lower

domestic prices in the absence of a stronger external adjustment in the euro exchange rate. The European Central Bank (ECB) resumed easing monetary policy via cuts to its refinance and deposit rates in June and September, and introducing additional, unsterilised, asset-buying programs, moving it more firmly in the direction of outright government bond purchases or QE. The ECB will likely need to expand the scope and magnitude of its outright asset purchases in the year ahead to stabilise the nominal side of the Eurozone economy.

Japanese government bonds have also posted some of their lowest yields since the global deflation scare of 2003. An increase in Japan’s consumption tax in April induced a significant expenditure shift, with a 6% annualised expansion in GDP in the first quarter of the year followed by a 7.1% slump in the second quarter. Japanese inflation remains below 1% and below the Bank of Japan’s (BoJ) target of 2%, pointing to the prospect of a further expansion of its QE program. The BoJ’s balance sheet is equal to 55% of GDP.

The continuation of monetary easing in the Eurozone and Japan coupled with a winding back of QE in the United States

points to a divergence in expectations for G3 monetary policy that should broadly favour flows into US dollar-denominated assets. However, the exchange rate response to this divergence has so far been muted.

The broad trade-weighted US dollar index was little changed over the financial year in both nominal and real terms, but should continue to trend higher from the multi-decade lows seen in 2011.

Measures of market volatility in global interest rate, equity and foreign exchange markets have been subdued and this has been reflected in a broad-based narrowing of spreads to relatively risk-free assets. Global financial markets have also absorbed a significant increase in geo-political tensions throughout the world, including in Ukraine, Gaza and Syria–Iraq, and tit-for-tat economic sanctions against Russia. The reduction in market volatility has a basis in economic fundamentals, in that there has also been a reduction in the realised volatility of global industrial output and other economic indicators. Measures of economic policy uncertainty in the United States have also declined. However, there are also concerns that a low-volatility environment might encourage increased leverage and risk-taking in the search for yield. Low market volatility has weighed on turnover and rates of return across a broad range of asset classes.

Australian MarketsThe reduction in market volatility globally found expression locally, with turnover in Australian financial markets down 7% over the financial year. Turnover in debt markets

over-the-Counter Markets

the beginning of 2014 had most financial market participants expecting a renewed upward trend in global interest rates

driven by a winding back in the us Federal reserve’s (Fed) quantitative easing (Qe) program.... these expectations were

soon disappointed, with a continuation of the downtrend in both nominal and real interest rates globally.


fell 11% over the year. Turnover in currency markets was up modestly, while turnover in equities markets was virtually flat. Over-the-counter (OTC) markets saw a 7% decline in turnover, while exchange-traded market turnover also fell 7%.

Australian sovereign fixed income outperformed for much of the year, especially at the long end of the curve. The 3 year bond yield rallied 14 basis points, while the 10 year rallied 22 basis points over the course of 2013-14. The Australia–US 10 year bond spread narrowed to below 100 basis points during the year for the first time since 2006. Semi-government and corporate bond spreads to Australian Commonwealth Government Securities (ACGS) have also narrowed to historically low levels. Government and semi-government securities have benefited from demand associated with increased prudential liquidity requirements ahead of the Australian Prudential Regulation Authority’s implementation of its liquidity coverage ratio, as well as their relatively high yielding status in absolute terms, despite the narrowing in spreads to offshore.

Government bond turnover rose 7% over 2013-14, with Commonwealth Government bond turnover up 6% and foreign bond turnover up 39% over the same period. Semi-government bond turnover fell 11%. Non-government debt securities saw little change in turnover, although mortgage-backed securities turnover rose 6%, with issuance up around 13%, the best year

for residential mortgage-backed securities issuance since 2008. Corporate issuance was subdued, reflecting reduced funding needs on the part of major issuers, although the emergence of new issuers in the market was a highlight.

The federal government sought to implement a fiscal consolidation equal to 4% of GDP over 10 years in its May 2014 budget. However, key budget initiatives have met with resistance in the minor-party controlled Senate, putting the government’s fiscal consolidation plans at risk. Australian Government net debt is projected to rise from an estimated 13.9% of GDP in 2014-15 to 14.6% of GDP by 2016-17, ensuring further growth in ACGS outstanding to around $450 billion by 2017-18 from $320 billion in 2013-14. State government central borrowing authorities had $230 billion in bonds outstanding as at June 2014, with a further $31 billion in issuance planned for 2014-15.

Uncertainty with respect to the repeal of the carbon tax mechanism and the Review of the Renewable Energy Target (RET) restricted turnover in energy markets over the course of 2013-2014.

The Reserve Bank of Australia (RBA) has kept the official cash rate steady at a record low in nominal terms since August 2013. The real cash rate has turned slightly negative for the first time since the financial crisis, consistent with the decline in real interest rates globally. The RBA has

signalled an extended period of steady rates, with inflation expected to remain consistent with the 2–3% medium-term target range into the second half of 2015. With the long end of the curve supported by the decline in bond yields globally, the yield curve has flattened, pointing to subdued economic growth over the medium term.

The spread between BBSW and Overnight Indexed Swap (OIS) rates traded within a very narrow range of 8–23 basis points over the year. With official interest rates steady for such an extended period, turnover in interest rates products is likely to remain subdued. Turnover in AUD OIS fell significantly over 2013-14, while negotiable and transferable instruments turnover was down 15%, reflective of expectations of a stable interest rate environment. Turnover in forward rate agreements was down 34% in 2013-14. A renewed RBA tightening cycle could be expected to increase both volatility and turnover in the second half of 2015 as the upper bound of the RBA’s inflation target range comes under challenge.

The AUD exchange rate rose over the 2013-14 year by 0.8% on a trade-weighted index basis and 1.6% against the USD. The AUD remains stronger than the narrowing in interest rate differentials and a 40% decline in commodity export prices from their 2011 highs would otherwise imply. However, still positive yield differentials and safe-haven appeal have underpinned continued strong offshore demand for AUD-denominated assets. The RBA has

over-tHe-counter MArkets

the reserve Bank of Australia (rBA) has kept the official cash rate steady at a record low in nominal terms since August

2013. the real cash rate has turned slightly negative for the first time since the financial crisis, consistent with the decline in

real interest rates globally.


expressed dissatisfaction with the resilience of the exchange rate, but official jawboning is at best a temporary downward influence in the absence of further easing in the official cash rate. The intra-day trading range for AUD–USD remains well below its long-run average, consistent with subdued trading ranges across other major currency pairs. The narrower trading range reduced hedging demand and this was reflected in foreign exchange market turnover.

Australian equities have underperformed the United States, but have otherwise participated in the extended global rally in equity markets from the financial crisis lows. S&P/ASX 200 VIX futures trended lower for much of the year since their launch in October 2013, consistent with low readings in offshore equity volatility indices. The decline in volatility has weighed on equity market turnover.

The main challenges to the Australian economy in the year ahead will be managing the transition from the investment to the production stage of the mining boom. Resource export volumes are at record levels, and a lower exchange rate supports Australian dollar export values; however, non-mining business investment and new dwelling construction will need to pick up the slack left by mining investment. The prospect of a further slowing in the Chinese economy, which now accounts for more than one-third of exports by value, can be expected to further weigh on the terms of trade and growth in national income. Economic growth is expected by the RBA to be somewhat below trend at around 3% during 2014-15, before firming to be somewhat above trend at around 3.5% in 2015-16. This is expected to see inflation remain consistent with the 2–3% target range into the second half of 2015. Monetary policy will need to balance its

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Figure 1: annuaL Turnover bY MarkeT

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Figure 2: annuaL Turnover bY asseT CLass


accommodation of subdued underlying inflation pressures with continued house price inflation driven by low interest rates and supply-side rigidities in the housing market.

Financial System InquiryAFMA put in a first round submission to the Financial System Inquiry (FSI) and responded to the interim report released in July 2014 with a second round submission. AFMA has also met with the FSI committee on issues of specific interest to OTC markets. Key issues highlighted by AFMA include the need for an integrated approach to reforming the financial system that will drive the further development of Australia’s financial markets and their integration with regional and global markets. AFMA also highlighted the need for a more consistent and principles-driven approach to regulation that seeks to promote efficiency and economic growth as well as prudential, supervisory and consumer protection objectives. The Inquiry is due to report to the Treasurer by November this year and the Government’s response is likely to follow some time afterwards. Implementation of the inquiry’s recommendations and the government’s response will have to run the gauntlet of the minor parties in the Senate.

g20 Meeting in BrisbaneAustralia has the G20 Presidency in 2014 ahead of the G20 Summit in Brisbane in November. The Australian Government

has been pushing the G20 to implement an agenda to raise the level of GDP by 2% above its current trajectory across member economies through structural reform measures. However, it will be difficult to measure performance against this target given the long lead times and lags entailed in the implementation of structural reforms. The G20 meetings will be monitored for further progress in the implementation of OTC derivatives reforms and prudential liquidity measures. AFMA wrote to the Treasurer in August to highlight the importance to the Australian economy and financial system of the proposals of the Financial Stability Board to achieve greater financial market regulatory coordination, to resolve the incoherence in the regulation of global financial market activity and to seek his support in moving this agenda item forward. n

www.afma.com.au

AFMA wrote to the treasurer in August to highlight the importance to the Australian economy and financial system

of the proposals of the Financial stability Board to achieve greater financial market regulatory coordination, to resolve

the incoherence in the regulation of global financial market activity and to seek his support in moving this agenda

item forward.


The year in reviewIn the 2014 financial year (FY14), Australian Securities Exchange strengthened its position as a leading exchange group in the region and one of the top 10 listed exchanges in the world. The exchange’s business mix and size give it the financial strength to invest in Australia’s central financial market infrastructure. This in turn gives Australian investors access to services that are innovative, relevant and globally competitive.

New global regulations are changing the way financial markets operate, particularly in post-trade and risk management areas. This creates new business opportunities for exchanges. In FY14, ASX launched several new services, including a clearing service for over-the-counter (OTC) derivatives that helps Australia meet its G20 commitments and provides investors with the choice of a domestic clearing service that is regulated under Australian law. A collateral management service was also offered, which reduces collateral costs for clients by allowing them to use fixed income securities held in Austraclear, ASX’s securities depository, as collateral for financial market transactions.

New listings and capital raising activity were particularly strong in FY14. There were 107 initial public offerings for the year, up from 82 in FY13, and $66.0 billion in total capital raised, 42.3% higher than 12 months earlier.

There was modest growth in overall equity market activity, with on-market value traded per day increasing 4.3% and ASX’s on-market value traded per day flat at $3.3 billion.

The daily average number of futures contracts traded on ASX 24 was up 1.7% to more than 461,000 contracts, while ASX equity derivatives (mainly exchange-traded options) underperformed, with the daily average number of contracts traded down 21.1%. ASX is rebuilding liquidity in the exchange-traded options (ETO) market with a new marketing and education campaign, and by changing the crossing rules and improving market-maker liquidity arrangements.

Across the year, ASX launched a range of product and service innovations designed to stimulate market growth and broaden the choices available for customers and end investors. These included:

– reduced timetable for rights issues from 26 to 19 days, balancing the needs of companies for timely access to capital with the opportunity for existing shareholders to participate in raisings

– mFund settlement service, giving retail investors access to unlisted managed funds through their broker platforms

– Renminbi settlement service, enabling Australian companies to take or make payments in the Chinese currency in near real time, reducing their risk and cost of doing international business.

In addition, legislation will soon be passed to improve retail investor access to the corporate bond market and, subject to regulatory approval, ASX hopes to add international equities to its product suite in the near future.

An important initiative in FY14 was the establishment of a Code of Practice for ASX’s equity market clearing and settlement services. The Code makes commitments to ASX clients on transparent and non-discriminatory access to its services and pricing. Under the Code, a Forum of senior industry representatives was created that provides valuable input into the development of the ASX services.

The Forum recently recommended that ASX moves from a T+3 to a T+2 settlement cycle in early 2016. This will reduce risk, create savings for the industry and deliver faster settlement of transactions for investors. In June 2014, the Forum received a report produced by independent economics consulting firm Oxera, which benchmarks the costs of clearing and settlement services in Australia against the costs in other financial centres. The report concludes that ‘the costs of post-trading services in Australia are in line with the costs of similar services provided in financial centres of comparable size’.

The Code of Practice and Forum are consistent with ASX’s advocacy of policies that support investors and promote market quality. So too is its participation in public

exchange Traded Market in the 2014 financial year (Fy14), Australian securities exchange strengthened its position as a leading exchange group in the

region and one of the top 10 listed exchanges in the world. the exchange’s business mix and size give it the financial strength

to invest in Australia’s central financial market infrastructure. this in turn gives Australian investors access to services that are

innovative, relevant and globally competitive.


policy debates, such as the Financial System Inquiry and the Competition Policy Review. These allow for choices to be made that help secure the future and competitiveness of Australia, and which make the most of the opportunities in Asia.

ASX provides critical infrastructure that sits at the centre of Australia’s financial markets. ASX has announced that it will reduce its fees and increase growth incentives for electricity futures, interest rate futures and OTC clearing.

The new fee schedule recognises that customers use exchange-traded and OTC interest rate products together and positions ASX to compete for liquidity within an evolving global market structure. It also signals the next phase in the development of ASX’s Derivatives and OTC Markets business – continued investment in critical platforms, launch of new products that further integrate the exchange-traded futures and OTC markets (known as ‘futurisation’), and improved alignment between ASX and its clients.

Primary Markets Initial capital raised in cash equity markets nearly tripled in FY14, from $9.9 billion in FY13 to $27.7 billion, due to a particularly strong December quarter. Overall, 107 new entities listed in FY14, a 30.5% increase on last year. The largest floats came from the utilities, commercial and professional services, and real estate industries. Activity

in the mining sector was subdued compared with previous years.

Nine Entertainment Co. Holdings Ltd had the highest market capitalisation of $1.93 billion upon listing. Spotless Group Holdings Ltd and Z Energy Ltd were also notable listings, raising $994.6 million and $741.6 million in new capital respectively.

ASX increased global investment opportunities for local investors as a number of foreign firms completed successful listings. The majority came from New Zealand, with two of the most significant floats, Meridian Energy Ltd and Genesis Energy Ltd, formerly New Zealand state-owned enterprises, raising $1.12 billion and $680.6 million respectively. Z Energy Ltd is also New Zealand-based.

Secondary raisings of equity capital in FY14 totalled $33.4 billion, up 2.9% on FY13. Placements accounted for 55.1% of secondary raisings or $18.4 billion. The largest placements were completed by the big banks: National Australia Bank ($1.7

billion placement of convertible preference shares), ANZ Bank ($1.6 billion placement of capital notes) and Westpac Banking Corporation ($1.3 billion placement of Capital Notes II). Rights and accelerated issues almost doubled from FY13, raising $7.7 billion or 23.1% of secondary capital raised (FY13: $4.0 billion and 12.2%) with Transurban playing a significant role ($2.3

billion raised). Use of dividend reinvestment plans (DRPs) continued its downward trend, falling 33.8% to $4.6 billion in FY14.

Secondary equity Market Australian equities produced another year of double-digit returns. The S&P/ASX All Ordinaries index rose 12.7% while the accumulation index finished 17.6% higher. In comparison, the MSCI World Index was up 21.6% and the S&P 500 was up 22.0% in FY14.

Consolidated average daily turnover was $4.6 billion, which was in line with the previous year. With turnover flat and higher market capitalisations, velocity softened to 76%. Volatility continued on a downward trajectory with the S&P/ASX 200 VIX averaging 13.3 and approaching single figures towards the end of the financial year. A daily average 719,000 trades were executed on ASX in FY14, which was up 3.7% on the previous corresponding period (pcp). Across all markets there were 881,000 daily trades, which was up 7.8% on FY13.

ASX matched 91.2% of lit market trades and captured 85.5% of the gross traded and reported value in Australian equities. Fragmentation slowed in the second half of the year with ASX maintaining a market share of trading above 90%. Following the meaningful price improvement reforms in 2013 there were fewer dark pools operating in the Australian market by the end of

eXcHAnGe trADeD MArket

Australian equities produced another year of double-digit returns. the s&p/AsX All ordinaries index rose 12.7% while the

accumulation index finished 17.6% higher. in comparison, the Msci World index was up 21.6% and the s&p 500 was up 22.0%

in Fy14.


FY14. The number of crossing systems registered with the Australian Securities and Investments Commission fell from a peak of 22 in 2013 to 16 in July 2014.

ASX continued to invest in enhancements to its trading platform throughout FY14, and in February added regulatory data fields to order messages ahead of Participants being required to provide additional order information on 28 July 2014.

ASx eTo Market ETO market volumes were down 20.1% in FY14 compared to the pcp. Despite the overall decline in volumes, the notional value of Low Exercise Price Options (LEPOs) traded increased by 30.2%. The ETO market observed a sustained shift to European-style flex options over the traditional American-style single stock options accounting for approximately 25% of traded volume. During the last financial year, the Australian equity option market experienced the lowest volatility environment in its history, which is predominantly the reason for the decline in overall volumes.

In February 2014, ASX introduced a new market-making scheme with a significant increase in the minimum requirements covering both minimum quote size and number of option series quoted. This has significantly increased the displayed liquidity in the market to the benefit of both retail and institutional investors.

From February through to June 2014, ASX made a number of market structural changes to ETO crossings. Non-special size crossings were changed so that the transaction must be completed on a price-time priority basis through the screen. This was a major change from the traditional trade report mechanism previously employed, and is expected to result in better execution for the end client. Special size crossing levels were changed to incorporate both a premium

and notional value component to more accurately and fairly reflect the properties of option contracts.

ASX is continuing with further reforms in FY15 to improve the ETO market offering. ASX will be launching Equity FlexClear™ for wholesale clients to report customised option trades for central clearing, while also listing new weekly, serial and TORESS (Total Return Single Stock) option contracts.

ASx SPI 200® Futures and options Despite the Australian equity market benchmark index, the S&P/ASX 200, rallying from the 4800 mark to finish the year some 13% higher near 5400, ASX SPI 200® futures and options volume was mixed. ASX SPI 200® futures volume decreased slightly by 5.3% while options volume increased by 35.6% compared to pcp. However, any comparison in futures versus options trading activity needs to be mindful

of total volumes traded, with ASX SPI 200® futures trading 9.7 million contracts in contrast to just under half a million SPI 200 options being traded during the course of the financial year. Notional value traded for ASX SPI 200® futures and options increased in FY14 by 9.5% and 55.5% respectively. The market rally offset the decline in futures volumes to increase the notional value traded, and options benefited from both an increase in activity and the market rally.

ASx Warrants The ASX warrant market experienced a year of change in FY14. Two long-term issuers pulled back on their involvement leaving only one major issuer of MINI warrants, while other issuers focused on more traditional products like instalment and trading warrants. There was a total of 3,564 warrants listed (down 17.14%); however, this was expected as the high level in the previous year included the issuance of a whole product suite by an entirely new issuer. Value traded of $3.8 billion was virtually unchanged and MINI-style warrants remained the most popular type of new product (around $2.6 billion of value traded).

exchange-traded Products (eTPs) The ETP market continued to see significant growth, both in terms of number of products, issuers and funds under management. Thirteen new funds commenced trading

the etp market continued to see significant growth, both in terms of number of products, issuers and funds under

management. thirteen new funds commenced trading on the AsX, with Market vectors, state street Global Advisers,

Betashares and uBs issuing new funds (compared to eight new funds in the previous year).


on the ASX, with Market Vectors, State Street Global Advisers, BetaShares and UBS issuing new funds (compared to eight new funds in the previous year). Market capitalisation of traded market ETPs continued to see strong growth with around $11.8 billion of funds under management, up over 40% from around $8.4 billion the year before. The number of trades in ETPs also grew from 29,800 trades per month to around 31,700 trades per month at the end of FY14, and value traded per month was up around 13% to just under $1 billion each month.

ASx Bond Market The ASX bond market includes government bonds (Treasury bonds and Treasury indexed bonds) and corporate bonds (fixed and floating rate). A total of 54 bonds are now available to retail investors with maturities extending out as far as August 2035. A key milestone in the development of the retail corporate bond market is the passage through federal parliament in August 2014 of the Simple Corporate Bonds Bill. The legislation introduces a new streamlined disclosure regime for issuers of simple corporate bonds (SCBs) on ASX. It also lays the foundation for SCBs issued into the wholesale market and held in Austraclear to be assessed on ASX by retail investors in the form of a depository interests (DI). It is anticipated that in the year ahead these market developments will greatly expand the number and range of bonds quoted on ASX.

ASx hybrid Securities Market The ASX hybrid securities market includes convertible notes, capital notes and preference shares. The market for hybrid securities continued to attract issuers and investors with the total value traded during the year exceeding $5.6 billion, up 7.7%, and the total market capitalisation for the sector exceeding $28.1 billion, up 17.4%.

ASx 24 Interest rate Futures Market ASX 24 interest rate futures volumes were slightly stronger throughout the second half of FY14 compared to the first half of FY14. Market activity was driven by a reduction in interest rate volatility in 2014 given glimpses of an improving global economic environment and divergent monetary policy actions by the major global central banks. The Reserve Bank of Australia (RBA) indicated that the current accommodative monetary policy stance was appropriate and the prudent course of action was stability in interest rates.

Volume in the 30 day interbank cash rate futures was the benchmark interest rate futures contract most affected by the flat short-term yield curve, with volume declining 26.4% on a pcp basis. The 90 day bank bill futures contract performed better given the market environment with volume growth in FY14 on par with FY13. Activity in contract months in the bank bill futures further out along the yield curve has improved, offsetting the decline in activity due to low volatility in contracts at the

short end of the yield curve. Longer dated bond futures were either flat or increased; this was due to higher volatility at the longer end of the yield curve and increased demand for Australian Government bonds, given the global search for AAA-rated securities offering a yield premium over other developed market government bonds. The 3 year Treasury bond futures saw flat volume growth, while volume in the 10 year Treasury bond futures increased 20.3% on a pcp basis.

One-session options on 3 year bond futures declined slightly following an improvement in the previous financial year. Volume decreased 9% on a pcp basis given the decline in underlying market volatility.

Liquidity, as measured by order book depth, continued to increase across all benchmark interest rate futures contracts. The increase in liquidity was significant in the shorter dated futures given the reduction in interest rate volatility. The depth in 3 and 10 year futures also increased albeit to a smaller degree.

Activity through the exchange-for-physicals continued to be strong, increasing 12.4%. Exchange-for-physical transactions contributed 10.3% of interest rate futures activity in FY14, up slightly on the pcp. Block trade activity in bond futures contracts decreased 46.1% on the pcp.

Trading Activity in a 24-hour Trading Day The SYCOM (ASX Trade24) trading system permits near 24-hour trading of


AsX 24 interest rate futures volumes were slightly stronger throughout the second half of Fy14 compared to the first half of

Fy14. Market activity was driven by a reduction in interest rate volatility in 2014 given glimpses of an improving global economic

environment and divergent monetary policy actions by the major global central banks.


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8.30am - ASX Trade24 Day Session Opens

11.30am AustralianEconomic Releases

2.30pm Cash RateAnnouncements

10.20pm Chicago Markets Open

5.10pm ASX Trade24 NightSession Opens

4.30pm ASX Trade24Day Session Closes

Chicago Time

London Time

Singapore/HK Time

Australian Time

Figure 1: asX TraDe24 TraDeD voLuMe bY hour (asX non-DaYLighT savings / us anD uk DaYLighT saving)

ASX’s futures contracts, making the market accessible at any time from many major global financial centres through the ASX Trade24 distribution network. The above chart shows average trading activity that occurs over a 24-hour period.

Activity during the day session predominantly occurs with the opening of the interest rate and ASX SPI 200 contracts market; around economic and RBA cash rate announcements; and in the lead-up to market close. During the night session, trading activity centres around the session open and early trading in the European and US markets. Night session activity represented 27.5% of total trading activity during FY14, an increase on previous years.

Austraclear Austraclear is the major central securities depository for the domestic debt market.

It primarily provides settlement, custody and issuer services for Australian dollar-denominated debt securities and has a direct link to the Reserve Bank Information and Transfer System (RITS), facilitating real-time gross settlement of Australian dollar debt, cash, foreign exchange and derivatives transactions. Austraclear has just over 850 participants, including banks, Commonwealth and state government authorities, trustee companies, custodian banks, other non-bank financial institutions and large corporates.

Total Austraclear debt holdings experienced moderate growth in FY14 rising by 11.7%, to $1,571.8 billion at the end of June 2014 from $1,406.8 billion at the end of the pcp. This growth continues to be driven by strong increases in floating rate notes (up 21.3% to pcp) and Treasury bond (up 24.6% to pcp) issuances.

Austraclear also experienced an uptick in membership, rising from 778 Participants to 854 in the 12 months to 30 June 2014. Participants admitted in the last 12 months included a number of credit unions, building societies and retail energy providers, the last being special purpose participants (energy) to settle daily margins on electricity supply contracts with the Australian Energy Market Operator (AEMO) that acts as a clearing house.

Austraclear also admitted one other Special Purpose (Collateral Manager) Participant in the last 12 months.

ASx energy and environmental Markets The ASX Australian electricity market continued to deliver robust liquidity over the FY14 period, with volume increasing 3.0% from FY13. Traded volume equated to


$16.5 billion in face value, or 386.7 TWh of traded energy or 216.5% of the underlying national electricity market (NEM) system demand. The average daily volume of energy traded was 1.5 TWh with a face value of $65 million. With the introduction of new options products the options market grew 30% to 143.7 TWh with a face value of $6.5 billion, representing 80.5% of annual underlying NEM system demand.

Activity continued to concentrate in the base load calendar quarter futures, where traded volume represented 50.9% of traded energy, followed by the base load calendar year options at 20.8%, base load financial year options at 14.1%, base load $300 cap futures at 11.0%, base load average rate quarter options at 2.2%, peak load calendar quarter futures at 0.9% and base load calendar month futures at 0.1%. The bulk of the annual traded energy was in New South Wales at 37.2%, followed by Victoria at 33.0%, Queensland at 26.6% and South Australia at 3.2%.

Price ($/MWh) movements in the 2015 base load calendar futures were all down across the regions. Throughout the year, Victoria slowly declined to finish the year down 23.3% to reach $31.65. In New South Wales, prices fell by 21.8% to $35.63. In Queensland, the year began with a slight upward trend; however, it gradually declined to finish the year down by 10.7% to $43.26.

Similarly in South Australia, prices rose until October and then continued to decrease by 6.6% to close at $44.10.

ASx Agricultural Derivatives Trading activity on the ASX grain futures and option market was less active in FY14 than in FY13. The total volume traded was 182,846 contracts, which equates to 3,668,120 tonnes of Australian grain and oilseed – a 49.1% decline in volume on the pcp.

ASX has reviewed the grain market contract offering and has implemented a number of changes and introduced incentives that will foster greater market activity in FY15. The deregulation of Australia’s bulk wheat export marketing framework is expected to continue to be supportive for future market growth. A promising winter season for the crops across Australia has growers and the industry alike hopeful of a solid harvest of high-quality milling wheat in FY15. n

www.asx.com.au


AsX has reviewed the grain market contract offering and has implemented a number of changes and introduced incentives that

will foster greater market activity in Fy15. the deregulation of Australia’s bulk wheat export marketing framework is expected to

continue to be supportive for future market growth.


Chi-X australiaDuring the 2013-14 financial year, exchange trading in cash equities was impacted by significant macro factors including the high Australian dollar, secular trading trends and the business performance of the main index constituents and industry sectors.

In this environment, trading on Chi-X has been shaped by the continued growth and diversity of the Australian exchange trading community: over 30% of all aggressive flow on the Chi-X market comes from retail investors and the variety of participants posting to the order book has also increased.

Noteworthy trading metrics for Chi-X in the past financial year, the first in which Chi-X traded the complete universe of

Australia Securities Exchange-listed cash equities, include the following:

– total market share of 29.57% on 18 June 2014

– total daily value traded of over $2.1 billion on 18 June 2014

– continuous trading value of $552.3 million on 4 February 2014

– continuous trading market share of 20.52% on 11 June 2014.

The continued development of the Australian exchange-trading community during the year also enabled Australian investors to:

– improve fill rates and obtain price improvement on exchange traded

orders – the presence of an alternate market operator and the increase in posting by liquidity providers across all platforms have decreased queue times and improved the available prices and fill rates for all investors

– access innovative order types – in December 2013, Chi-X became the first exchange in Asia to execute a market-on-close order

– lower execution costs – costs charged by market operators have decreased significantly in the areas where market operators compete (e.g. trade report fees for some participants have decreased from over $500,000 per annum to no more than $12,000 per annum). n

equity Trading on chi-x Australiaa

survey Yearnumber of shares per annum

(million)annual value (auD million)

Trades per annum ('000) average daily trades

average daily value (auD million)

2012-13b 25,409 105,097 31,389 124,560 417

2013-14 70,986 178,818 42,857 169,394 707

% change 179.4 70.1 36.5 36.0 69.5a chi-X Australia had their market launch on 31 october 2011.b the 2012-2013 financial year was the first full financial year of chi-X Australia operations.

Figure 1: Chi-X ausTraLia DaiLY ToTaL Turnover

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Over the last year, LCH.Clearnet Ltd’s interest rate derivative (IRD) clearing service, SwapClear, significantly increased its activity and presence in Asia-Pacific, particularly in Australia. The service currently clears 99% of all cleared Australian dollar IRDs and over 41% of the entire Australian dollar IRD market. Following approval from the Australian government in 2013, Australian banks are now able to join SwapClear as direct clearing members, dramatically increasing the depth of liquidity

available to Asia-Pacific participants. In addition, LCH.Clearnet recently opened an office in Sydney to support plans to extend clearing and collateral operations into this region and time zone.

July – June 2012/13 vs 2013/14 saw an increase of 42% year on year of notional and registered IRD AUD trades cleared through SwapClear, with the average daily notional currently standing at AUD 22 billion*, 25% of which is made up of client cleared trades.

In May 2014, SwapClear successfully completed its first AUD triReduce compression run. 24,616 trade sides were compressed amounting to AUD1.07 trillion reduction in outstanding notional (USD1 trillion), representing 28.5% of the IRD AUD portfolio. n

*As at June 2014

LCh.Clearnet Ltd – swapClear

FiGure 1: totAl sWApcleAr A$ cleAreD notionAl – July - June 2012/13 vs July - June 2013/14

700,000

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100,000

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ons

July August September October November December January February March April May June

Notional Registered 2013/14

Notional Registered 2012/13

343,453,068,404 379,824,653,304 493,334,047,834 519,379,775,292 379,633,402,362 539,217,550,504 489,557,207,854 402,436,275,418 627,349,020,881 498,213,806,426 478,127,494,000 556,900,223,977

156,685,327,000 209,117,464,000 138,175,784,000 204,937,200,000 192,321,001,000 197,551,512,000 269,464,974,400 261,235,278,000 464,132,290,000 325,215,423,000 474,486,877,000 429,955,622,000


Since the global financial crisis (GFC), there has been a greater appreciation of the importance of accurate and timely data within the regulatory system. Recall the story of one John Paulson, the US hedge fund manager, who successfully bet against the US sub-prime mortgage lending market in the lead-up to the financial meltdown. Paulson was successful, in part, due to having invested in a comprehensive dataset of mortgages which guided his team to those collateralised debt obligation (CDO) deals to short.1

Certainly, there is value in data when used wisely. However, there is also a growing appreciation of the opportunities presented by new forms of analysis. The Office of Financial Research (OFR) has been active in researching both new data sources and improved visual tools for their analysis.2

Just as ‘big data’ and ‘analytics’ have become popular in commercial applications, there is a growing realisation that regulatory agencies may benefit from new technology. The Australian Securities and Investments Commission (ASIC) adopted the very same commercial technology typically used by algorithmic traders when constructing their new Market Analysis Intelligence (MAI) system.3

The role of cIFrThe Centre for International Finance and Regulation (CIFR) is well placed to help shape the research agenda emerging around the ‘regulatory data architecture’. This term describes the full body of data which is available to the regulatory community, but which may not be suitably linked together, or is found residing in formats which are not readily capable of being queried or analysed.

The new technologies of big data are rapidly expanding the scope of potential data sources that can be examined, and accelerating the process of unlocking unstructured and semi-structured data in ways that make them useable for academic research and regulatory purposes.

Within the CIFR community, there are a number of leading centres for financial data and technology. In addition to our university partners4, we mention SIRCA Ltd and the Capital Markets CRC Ltd. The wide range of technologies employed, from collecting financial tick data to parsing text, requires an interdisciplinary research program drawing on the strengths of our research partners.

Furthermore, as new data initiatives are put before the private sector, such as the proposed Legal Entity Identifier (LEI)

initiative5, it becomes important to engage with industry bodies such as the Australian Financial Markets Association (AFMA) and its members.

cIFr Data Architecture ProjectThe CIFR Regulatory Data Architecture and Analytics project will examine the architecture for the gathering, provisioning and analysis of data in the financial services sector. It aims to establish a baseline for current practice and a future vision from three perspectives:

– global best practice – locate case studies on noteworthy projects in financial sectors which plugged data gaps, improved data quality or extended access to data, such as via a public web portal

– data mapping and gap analysis – survey datasets and their custodians, and assess the data gaps and data linkage and analytical challenges based on stakeholder input

– regulatory analytics – identify barriers to adoption and distribution of analytics, including the prototyping of platforms for the calculation and dissemination of regulatory indicators.

The term ‘architecture’ in the context of this project refers not only to the data itself, but

regulatory Data architecture and analytics

Dr Kingsley Jones, Research Fellow, Centre for International Finance and Regulation (CIFR)

Just as ‘big data’ and ‘analytics’ have become popular in commercial applications, there is a growing realisation that regulatory

agencies may benefit from new technology.


also to the important network effects, such as who has custody of the data, who owns it, who can see it and who has knowledge of analytical methods that might be usefully deployed against that data.

Every organisation has its own purpose, culture and resource constraints that limit the extent to which it can collect and utilise data. Hence we need to consider the bigger picture of linkages in knowledge and data across organisations in the context of technology and regulatory trends.

The project draws upon input from industry and regulatory stakeholders. It will ask a series of questions in three phases:

‒ The first phase will seek to identify important data access issues and initiatives (with positive or negative outcomes) from around the world that represent useful case studies for discussion. The purpose is to create a narrative around the importance of moving beyond raw data to insight.

‒ The second phase of the project will survey financial sector experts on the collection, custody and usage of data to produce a gap analysis on the available data against such strategic policy questions as: What do we know about self-managed superannuation funds and their asset allocations? Could the supervisory activity of regulators be enhanced by predictive indicators of financial stress? Can future retirement income planning be improved through richer cohort-based data on income needs?

‒ The third phase of the project aims to bring stakeholders together at a regulatory

analytics workshop to exhibit proof-of-concept indicators, facilitate discussion and debate and marshal the best available technical expertise to foster regulatory and industry insights.

The final stage of the project will focus on disseminating the outcomes of the first three phases and other outputs using CIFR’s multimedia and digital communication capabilities. There are many new and interesting opportunities for disseminating regulatory analytics using digital technology.

conclusionThe role of data in the financial system has become more prominent due to the increasing role of digital technologies in all

aspects of the financial business process. In partnership with our regulatory stakeholders and research partners, CIFR aims to develop use of such technology in the emerging sphere of regulatory analytics as an important step towards enhancing financial stability. n

1 Zuckerman G 2010, The greatest trade ever: The behind-the-scenes story of how John Paulson defied Wall Street and made financial history, Crown Business, New York. 2 Flood MD, Lemieux VL, Varga M & Wong BLW 2014, The application of visual analytics to financial stability monitoring, Office of Financial Research (OFR) Working Paper Series 14-02, US Treasury, Washington.3 http://www.afr.com/p/business/sunday/asic_targets_insider_traders_with_UbmmHE8v9cFZaGDfir6QGO4 For a comprehensive list of CIFR partners and sponsored research, see www.cifr.edu.au/.5 www.leiroc.org/

every organisation has

its own purpose, culture

and resource constraints

that limit the extent

to which it can collect

and utilise data. Hence

we need to consider

the bigger picture of

linkages in knowledge

and data across

organisations in the

context of technology

and regulatory trends.


Figure 1: annuaL Turnover

600

800

1,000

1,200

1,400

1,600

1,800

2,000

AUD

billio

n

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13

Index Linked Floating Fixed

Figure 2: Turnover bY issuer

CommonwealthGovernment58%

State Government21%

Foreign Government21%

Figure 3: Turnover bY CounTerparTY

Survey Respondents13%

Other Banks15%

Inhouse Transactions19%

Fund ManagersTraditional

26%

Government13%

O�shore Central Banks6%

Other Counterparties8%

The 2013-14 financial year could be best described as featuring a stable, low-interest rate environment.

Rates had risen slightly in the 2012-13 period after the previous five years of market turmoil instigated by the global financial crisis. The 2013-14 financial year started with the anticipation that further stability would lead to an increase in rates globally, including Australia. Despite the Reserve Bank of Australia (RBA) reducing the cash rate in August 2013 from 2.75% to 2.50%, the only rate move in the year, rates began to climb as markets anticipated a return to ‘normal rates’ in the US and a reduction in the Fed’s quantitative easing program (bond buying program).

By January 2014, 10 year yields had risen to 4.38% after starting at 3.76%, and 3 year yields had risen to 3.10% from 2.76%. However, by the end of June 2014, the 10 year rate fell to 3.54% and the 3 year fell to 2.69%, despite the Fed tapering (reducing quantitative easing). There was no move in the Fed’s funds rate and inflation around the globe remained low, while weakness persisted in the European economies.

Domestically, a tough budget was announced, inflation remained low and the unemployment rate increased over the year. These factors ensured that a stable, low-interest rate environment persisted longer than expected, and relative to other markets, Australian yields looked highly attractive to foreign investors.

Issuance from the Commonwealth and the states increased over the year. Total long-term government securities increased from $461 billion to $540 billion. The majority of this was an increase in the total outstandings of Commonwealth Government Securities (CGS), increasing from $233 billion to $291 billion.

The low and stable interest rate environment was also conducive to a continued contraction of the spreads between state government securities and CGS. New South Wales Treasury Corporation (NSWTC) indicative 3 year bond yields contracted from 38 to 17 basis points over CGS during the year, and the NSWTC indicative 10 year bonds contracted from 76 to 34 basis points.

Over the next year, issuance will depend on the passage of the budget and the pace of economic growth, particularly with respect to the unemployment rate. The RBA has held rates steady since August 2013 and has continued to signal that rates are appropriate. This should be conducive for another year of stable and low interest rates. n

government Debt securities


government Debt Securities Annual Turnover Summary (AUD million)

survey Yearsurvey

respondents other banksinhouse

TransactionsTraditional Fund

Managershedge Funds/

CTa’s governmentoffshore

Central banks other Total

coMMonWeALTh governMenT BonDS

2009-10 84,470 45,851 122,162 81,020 15 65,380 23,375 30,209 452,482

2010-11 150,885 52,502 216,234 120,504 2,355 49,983 58,537 38,834 689,834

2011-12 183,565 77,667 211,011 201,486 1,944 73,214 187,414 37,905 974,206

2012-13 187,918 89,244 184,724 269,762 4,639 88,572 185,499 39,052 1,049,411

2013-14 150,609 144,337 206,273 328,065 5,157 112,282 95,914 66,239 1,108,876

% change (19.9) 61.7 11.7 21.6 11.2 26.8 (48.3) 69.6 5.7

STATe governMenT BonDS

2009-10 78,780 34,390 71,256 71,652 25 114,768 10,276 13,628 394,775

2010-11 127,592 35,758 98,994 120,457 1,209 173,887 14,238 25,541 597,676

2011-12 114,618 27,752 119,800 114,109 192 128,469 9,822 15,295 530,057

2012-13 98,106 25,036 67,991 108,222 3,860 125,189 9,018 7,796 445,217

2013-14 77,810 48,538 67,005 97,209 781 87,009 7,978 11,483 397,813

% change (20.7) 93.9 (1.5) (10.2) (79.8) (30.5) (11.5) 47.3 (10.6)

ForeIgn governMenT BonDS

2009-10 7,840 2,941 26,479 11,861 0 2,033 2,363 26,978 80,495

2010-11 32,270 19,594 71,841 13,511 262 1,878 4,181 51,650 195,187

2011-12 34,694 40,226 50,848 37,209 159 45,083 4,736 40,560 253,515

2012-13 26,601 56,149 46,388 43,711 275 53,036 11,483 45,641 283,285

2013-14 11,255 97,634 91,709 59,183 1,329 56,941 4,397 70,027 392,474

% change (57.7) 73.9 97.7 35.4 383.8 7.4 (61.7) 53.4 38.5

ToTAL

2009-10 171,090 83,182 219,896 164,533 40 182,181 36,014 70,815 927,751

2010-11 310,747 107,853 387,069 254,472 3,826 225,748 76,956 116,025 1,482,696

2011-12 332,877 145,644 381,659 352,804 2,295 246,766 201,972 93,760 1,757,777

2012-13 312,624 170,430 299,104 421,694 8,774 266,797 206,000 92,489 1,777,914

2013-14 239,675 290,509 364,986 484,457 7,267 256,232 108,289 147,749 1,899,164

% change (23.3) 70.5 22.0 14.9 (17.2) (4.0) (47.4) 59.7 6.8

GovernMent DeBt securities


Fixed government Debt Securities Annual Turnover (AUD million)

survey Yearsurvey







2009-10 78,061 45,007 114,411 68,390 15 58,167 23,241 29,620 416,912

2010-11 143,163 51,294 209,456 106,329 2,355 48,483 58,366 38,007 657,453

2011-12 175,005 74,847 206,497 181,082 1,913 70,956 187,357 36,857 934,514

2012-13 175,561 87,548 180,593 247,271 4,487 85,722 185,265 37,294 1,003,740

2013-14 141,331 140,815 199,623 304,985 5,102 102,483 94,887 64,247 1,053,474

% change (19.5) 60.8 10.5 23.3 13.7 19.6 (48.8) 72.3 5.0


2009-10 73,398 33,971 68,315 65,937 25 112,744 9,854 12,263 376,507

2010-11 126,218 35,557 97,803 111,312 1,209 172,593 14,058 25,338 584,088

2011-12 113,042 27,339 118,194 108,691 191 126,679 9,822 14,888 518,846

2012-13 94,910 24,022 63,514 100,919 3,803 120,016 8,978 7,436 423,600

2013-14 75,331 43,907 64,211 94,749 778 80,815 7,766 11,368 378,924

% change (20.6) 82.8 1.1 (6.1) (79.5) (32.7) (13.5) 52.9 (10.5)


2009-10 7,637 2,925 25,792 11,643 0 2,016 2,363 26,914 79,290

2010-11 31,979 19,545 71,231 12,910 262 1,873 4,181 47,133 189,114

2011-12 34,601 35,573 50,351 37,018 159 44,656 4,736 39,993 247,087

2012-13 26,391 54,096 46,191 43,348 275 52,882 11,417 43,734 278,334

2013-14 11,081 97,121 91,136 58,795 1,323 56,432 4,155 69,247 389,291

% change (58.0) 79.5 97.3 35.6 381.5 6.7 (63.6) 58.3 39.9

Total

2009-10 159,096 81,903 208,518 145,969 40 172,928 35,458 68,796 872,708

2010-11 301,359 106,396 378,490 230,551 3,826 222,949 76,605 110,478 1,430,654

2011-12 322,649 137,759 375,042 326,791 2,264 242,291 201,914 91,738 1,700,448

2012-13 296,863 165,666 290,298 391,539 8,565 258,620 205,659 88,464 1,705,674

2013-14 227,743 281,843 354,971 458,528 7,203 239,730 106,809 144,862 1,821,689

% change (23.3) 70.1 22.3 17.1 (15.9) (7.3) (48.1) 63.8 6.8


Index Linked government Debt Securities Annual Turnover (AUD million)

survey Yearsurvey







2009-10 6,344 825 7,750 12,630 0 7,213 134 589 35,485

2010-11 7,722 1,208 6,778 14,175 0 1,499 171 827 32,380

2011-12 8,560 2,820 4,514 20,404 31 2,258 58 1,048 39,693

2012-13 12,356 1,697 4,132 22,491 152 2,851 235 1,758 45,671

2013-14 9,278 3,521 6,649 23,081 55 9,799 1,027 1,992 55,402

% change (24.9) 107.5 60.9 2.6 (63.8) 243.7 337.7 13.3 21.3

state government bonds

2009-10 5,276 399 2,941 5,694 0 1,875 417 1,366 17,968

2010-11 1,334 201 1,190 9,140 0 1,227 180 203 13,475

2011-12 1,274 257 1,604 4,360 0 744 0 347 8,586

2012-13 1,543 122 1,520 5,845 57 797 0 326 10,210

2013-14 337 124 499 2,183 3 512 2 18 3,679

% change (78.2) 2.0 (67.2) (62.7) (94.7) (35.7) na (94.4) (64.0)


2009-10 203 13 687 217 0 17 0 9 1,146

2010-11 18 4 462 208 0 5 0 22 719

2011-12 6 0 278 57 0 20 0 206 567

2012-13 11 0 6 168 0 142 27 0 354

2013-14 72 34 50 218 6 191 42 119 732

% change 577.6 na 698.0 30.1 na 34.5 54.4 na 107.0

ToTAL

2009-10 11,824 1,236 11,378 18,540 0 9,104 551 1,964 54,597

2010-11 9,074 1,412 8,431 23,523 0 2,731 351 1,052 46,574

2011-12 9,839 3,077 6,395 24,821 31 3,023 58 1,601 48,845

2012-13 13,910 1,819 5,658 28,504 209 3,790 261 2,084 56,235

2013-14 9,687 3,680 7,198 25,482 64 10,502 1,071 2,129 59,813

% change (30.4) 102.3 27.2 (10.6) (69.3) 177.1 309.4 2.1 6.4

GovernMent DeBt securities


Market rank % Market sharea % Cumulative share

1 28.3 28.3

2 19.6 47.8

3 12.5 60.4

4 10.8 71.1

5 9.2 80.3

6 6.1 86.5

7 4.8 91.3

8 4.5 95.7a Market share data excludes inhouse transactions

Top 8 respondents % Market sharea

2009-10 88.0

2010-11 76.7

2011-12 80.1

2012-13 85.3

2013-14 95.7a Market share data excludes inhouse transactions

government Debt Securities Trading concentration

commonwealth government Bonds Liquidity ratio (AUD million)

survey Year outstandingsa Turnover ratio

2009-10 110,199 452,481 4.1

2010-11 158,801 689,834 4.3

2011-12 208,877 974,206 4.7

2012-13 241,412 1,049,411 4.3

2013-14 296,886 1,108,876 3.7

a outstandings was calculated as an average of monthly data on commonwealth Government Bonds as published by AoFM



Index Linked Floating Fixed

100

200

300

400

500

600

700

800

900

1,000

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13

AUD

billio

n

Figure 2: Turnover bY insTruMenT

Corporate Securities15%

Bank Securities40%

Bank Securities Covered Bonds1%

Bank Securities Commonwealth Guaranteed

1%

Mortgage Backed Securities28%

Foreign Non Government Issues15%



Other Banks18%


Fund ManagersTraditional

36%

Government2%



non government Debt securitiesWith the global markets reverting to a more stable and predictable level, the number of significant market shocks that created periods of reduced or no issuance have dissipated over the course of 2013-14. To a certain extent the Australian dollar market has suffered from the fact that core markets (USD and EUR) have stabilised and their yields are returning to more normal levels. Additionally, the perception (rightly or wrongly) that the Australian economy is more susceptible to a slowdown in the economies of core trading partners, coupled with an increased budget deficit, has seen a slowing down of additional allocation to AUD of the larger offshore fund managers and sovereign wealth funds.

While global factors have taken some of the focus away from AUD, reflected in generally smaller transactions in the rates space, the outlook remains positive from an issuance perspective, particularly given how entrenched the AUD is in core global investors’ portfolios as well as domestic accounts.

Issuance in non-government debt securities in 2013-14 was characterised by a period of relative stability in the first half, which coincided with a period of regular and diversified supply. The second half of 2013-14 was less robust with respect to total volume of issuance, and the lack of corporate bond supply has been a notable feature.

Corporate issuance for the first half was robust. Encouragingly, the market was provided with access to numerous new credits. Also beneficial was the ability to access tenors out past the traditional five years which influenced companies to issue in AUD as opposed to USD, EUR or JPY. Furthermore, the increased risk appetite from investors created greater interest in lower rated paper with BBB deals becoming increasingly popular.

The financial institutions sector similarly benefited from the additional risk appetite, with borrowers (both domestic and Kangaroo) accessing longer tenors, and a selection of new borrowers coming to market in senior unsecured format. A recent development has been the growth of the institutional market for Basel III-compliant bank capital transactions.

Supranational, sovereign and agency issuers (SSA) Kangaroo borrowers continued to access the market in a regular manner; however, the form of issuance was increasingly in smaller sized deals combined with more regular increases of the same lines. The focus has increasingly been on the longer dated maturities which have appealed to a number of life insurance companies.

It is worth noting that the 2013-14 year saw two benchmark syndicated transactions from the Australian Office of Financial Management (AOFM). Both these deals broke new ground in respect of total volume issued. The new 2033 bond represents the longest dated maturity on the government nominal curve. The significance of this to the non-government sector is that the

establishment of a longer dated nominal bond curve should provide the basis for fund managers to benchmark portfolios and for issuers to have a more liquid and identifiable term benchmark. While it is too early to see evidence of this, there is an increasing level of acceptance of longer dated deals from a select group of SSA and semi-government borrowers. n


non government Debt Securities Annual Turnover Summary (AUD million)

survey Yearsurvey


TransactionsTraditional

Fund Managershedge Funds/



corPorATe SecUrITIeS

2009-10 16,167 17,096 18,754 38,662 49 10,095 1,687 20,735 123,245

2010-11 19,221 40,993 40,741 32,848 504 3,942 1,521 36,744 176,514

2011-12 9,533 10,478 11,061 29,481 11 1,616 1,177 16,484 79,841

2012-13 11,930 17,726 13,133 37,123 67 2,289 1,590 23,557 107,416

2013-14 9,225 13,163 18,097 48,446 52 2,300 1,947 22,875 116,105

% change (22.7) (25.7) 37.8 30.5 (22.5) 0.5 22.4 (2.9) 8.1

BAnk SecUrITIeS

2009-10 67,172 100,262 47,582 57,685 5 11,182 1,209 48,909 334,006

2010-11 93,845 108,023 85,506 48,709 46 10,639 3,287 30,209 380,264

2011-12 64,591 42,624 65,744 46,160 34 5,972 2,967 33,863 261,955

2012-13 39,319 78,490 71,709 56,947 104 9,282 4,628 38,133 298,612

2013-14 32,727 76,511 75,637 68,030 44 5,017 7,428 40,783 306,177

% change (16.8) (2.5) 5.5 19.5 (57.7) (45.9) 60.5 6.9 2.5

BAnk SecUrITIeS covereD BonDS

2009-10 - - - - - - - - 0

2010-11 - - - - - - - - 0

2011-12 1,864 581 6,832 2,410 6 125 5 405 12,228

2012-13 561 297 1,376 1,010 2 80 56 363 3,746

2013-14 312 779 936 1,761 1 15 1 316 4,120

% change (44.4) 162.5 (32.0) 74.3 (50.0) (81.4) (97.8) (12.9) 10.0

BAnk SecUrITIeS coMMonWeALTh gUArAnTeeD

2009-10 4,025 24,143 13,256 8,175 5 1,301 30 1,848 52,783

2010-11 2,548 5,222 7,341 6,684 0 1,206 183 1,102 24,286

2011-12 3,454 2,002 2,722 4,731 25 307 335 1,254 14,830

2012-13 2,372 1,343 5,364 4,417 166 279 648 657 15,245

2013-14 911 3,724 1,689 2,275 0 93 166 492 9,349

% change (61.6) 177.3 (68.5) (48.5) (100.0) (66.7) (74.4) (25.1) (38.7)

MorTgAge BAckeD SecUrITIeS

2009-10 4,693 35,407 9,268 74,985 0 1,672 378 16,709 143,112

2010-11 10,101 16,182 18,646 111,858 0 2,348 129 20,247 179,511

2011-12 5,321 3,686 9,080 74,217 0 972 0 8,057 101,333

2012-13 6,388 25,449 13,190 114,288 51 967 0 42,173 202,507

2013-14 8,822 26,658 19,575 139,094 105 2,249 90 18,125 214,720

% change 38.1 4.8 48.4 21.7 105.9 132.5 na (57.0) 6.0

oTher ASSeT BAckeD SecUrITIeS

2009-10 23 1,171 329 946 0 20 0 1,063 3,552

2010-11 0 0 142 44 0 0 0 351 537

2011-12 407 887 337 854 0 64 0 1,559 4,108

2012-13 502 0 108 160 0 66 0 165 1,001

2013-14 72 486 76 616 0 62 0 154 1,467

% change (85.7) na (29.1) 284.8 na (5.6) na (6.6) 46.6

cont...


non government Debt Securities Annual Turnover Summary (AUD million)...cont’

survey Yearsurvey






oFFShore AUD ISSUeS

2009-10 1,378 716 5,180 171 0 10 0 527 7,982

2010-11 679 425 2,039 279 0 83 120 891 4,516

2011-12 704 2,240 4,450 2,526 0 16 14 315 10,265

2012-13 0 0 0 1 0 0 0 0 2

2013-14 0 11 67 132 0 11 0 25 246

% change na na na 13100.0 na na na na 16217.3

ForeIgn non governMenT ISSUeS

2009-10 2,495 3,264 1,901 891 1 477 71 1,574 10,674

2010-11 21,433 10,823 24,108 15,795 70 507 1,770 67,588 142,094

2011-12 11,855 19,466 19,385 12,989 41 1,320 1,273 41,190 107,519

2012-13 14,423 25,860 27,209 20,034 0 1,724 1,698 57,146 148,093

2013-14 9,833 19,752 24,276 14,269 0 1,638 644 49,031 119,442

% change (31.8) (23.6) (10.8) (28.8) na (5.0) (62.1) (14.2) (19.3)

ToTAL

2009-10 95,952 182,059 96,271 181,517 60 24,756 3,376 91,365 675,356

2010-11 147,828 181,668 178,522 216,217 620 18,725 7,011 157,131 907,722

2011-12 97,729 81,964 119,611 173,367 116 10,390 5,771 103,128 592,076

2012-13 75,495 149,165 132,089 233,980 390 14,687 8,621 162,195 776,622

2013-14 61,901 141,083 140,353 274,623 202 11,385 10,276 131,802 771,626

% change (18.0) (5.4) 6.3 17.4 (48.2) (22.5) 19.2 (18.7) (0.6)

Fixed non government Debt Securities Annual Turnover (AUD million)

survey Yearsurvey







2009-10 9,921 7,034 12,144 20,152 38 7,666 1,624 13,008 71,587

2010-11 9,649 8,685 27,105 18,179 3 1,853 1,350 22,357 89,181

2011-12 5,428 5,367 7,161 19,800 8 1,060 1,165 13,806 53,795

2012-13 7,448 5,210 6,782 26,127 58 751 1,416 17,719 65,510

2013-14 6,816 7,220 13,389 35,940 35 860 1,686 18,572 84,518

% change (8.5) 38.6 97.4 37.6 (39.8) 14.5 19.1 4.8 29.0

BAnk SecUrITIeS

2009-10 56,728 51,745 25,679 35,863 0 6,296 1,081 30,371 207,763

2010-11 73,773 64,181 59,773 29,372 24 5,880 2,958 17,926 253,887

2011-12 52,469 25,936 42,305 28,542 20 2,185 2,917 21,599 175,973

2012-13 23,003 43,005 39,055 32,521 20 4,200 4,310 25,770 171,883

2013-14 17,624 34,765 45,751 34,420 24 1,823 5,752 25,053 165,212

% change (23.4) (19.2) 17.1 5.8 20.0 (56.6) 33.5 (2.8) (3.9)

cont..

non GovernMent DeBt securities


Fixed non government Debt Securities Annual Turnover (AUD million)...cont’

survey Yearsurvey







2009-10 2,787 4,984 6,197 5,708 5 403 22 1,554 21,660

2010-11 1,515 1,971 4,818 4,513 0 525 183 818 14,343

2011-12 0 0 0 0 0 0 0 0 0

2012-13 2,109 754 4,472 3,622 0 62 538 566 12,123

2013-14 558 1,421 745 981 0 46 166 378 4,295

% change (73.5) 88.4 (83.3) (72.9) na (25.8) (69.1) (33.2) (64.6)


2009-10 2 57 0 28 0 0 0 56 143

2010-11 119 224 810 816 0 0 0 549 2,518

2011-12 131 0 2,574 39 0 0 0 53 2,797

2012-13 0 0 254 241 0 0 0 24 519

2013-14 75 78 714 489 0 0 0 4 1,359

% change na na 181.1 102.8 na na na (84.6) 162.0


2009-10 0 0 0 28 0 0 0 62 90

2010-11 0 0 28 10 0 0 0 3 41

2011-12 0 0 50 4 0 50 0 13 117

2012-13 0 0 66 5 0 66 0 1 139

2013-14 0 0 62 5 0 62 0 1 131

% change na na (5.6) (5.5) na (5.6) na (9.3) (5.7)

oFFShore AUD ISSUeS

2009-10 1,378 716 5,180 171 0 10 0 527 7,982

2010-11 432 325 1,713 279 0 83 120 415 3,367

2011-12 569 2,088 3,916 1,838 0 16 14 35 8,476

2012-13 0 0 0 1 0 0 0 0 2

2013-14 0 11 67 132 0 11 0 25 246

% change na na na 13100.0 na na na na 16217.3


2009-10 2,260 3,113 1,871 627 1 477 71 1,359 9,779

2010-11 19,263 10,534 16,670 14,991 69 488 1,710 58,828 122,553

2011-12 11,082 16,617 17,294 11,168 41 1,290 1,244 38,212 96,948

2012-13 13,279 22,203 23,565 16,514 0 1,694 1,620 51,956 130,832

2013-14 8,755 16,729 21,433 12,120 0 1,566 607 45,551 106,760

% change (34.1) (24.7) (9.0) (26.6) na (7.6) (62.5) (12.3) (18.4)

ToTAL

2009-10 73,076 67,650 51,071 62,578 44 14,853 2,798 46,936 319,006

2010-11 104,752 85,920 110,917 68,160 96 8,829 6,321 100,895 485,890

2011-12 71,996 50,443 75,785 63,966 69 4,833 5,507 74,458 347,057

2012-13 45,838 71,172 74,194 79,031 78 6,773 7,884 96,036 381,007

2013-14 33,828 60,224 82,162 84,087 59 4,368 8,211 89,583 362,521

% change (26.2) (15.4) 10.7 6.4 (24.5) (35.5) 4.1 (6.7) (4.9)a Hedge Funds/ctA’s and offshore central Banks are included in other


Floating non government Debt Securities Annual Turnover (AUD million)

survey Yearsurvey







2009-10 6,195 10,055 6,598 14,545 11 2,330 63 7,587 47,384

2010-11 9,530 32,304 13,573 14,401 501 2,062 171 14,344 86,886

2011-12 4,106 5,105 3,804 9,536 3 556 12 2,621 25,743

2012-13 4,470 12,514 6,349 10,847 9 1,533 175 5,803 41,700

2013-14 2,409 5,943 4,701 12,382 17 1,430 261 4,291 31,433

% change (46.1) (52.5) (25.9) 14.1 88.9 (6.8) 49.4 (26.1) (24.6)

BAnk SecUrITIeS

2009-10 10,443 48,510 21,903 21,678 5 4,872 128 18,522 126,061

2010-11 20,068 43,842 25,700 19,208 22 4,759 330 12,275 126,204

2011-12 12,121 16,687 22,760 17,531 14 3,787 50 12,264 85,214

2012-13 16,315 35,479 32,654 24,001 84 5,082 318 12,363 126,296

2013-14 15,102 41,745 29,886 33,182 20 3,189 1,677 15,731 140,532

% change (7.4) 17.7 (8.5) 38.3 (76.2) (37.3) 427.2 27.2 11.3


2009-10 1,238 19,158 7,059 2,466 0 898 8 294 31,121

2010-11 1,033 3,250 2,523 2,171 0 681 0 284 9,942

2011-12 1,136 1,568 237 2,156 25 75 168 514 5,879

2012-13 263 588 892 795 166 217 110 91 3,123

2013-14 353 2,303 944 1,294 0 47 0 114 5,054

% change 34.0 291.3 5.8 62.8 (100.0) (78.3) (100.0) 25.0 61.8


2009-10 4,691 35,350 9,268 74,956 0 1,672 378 16,628 142,943

2010-11 9,981 15,958 17,830 111,042 0 2,348 129 19,695 176,985

2011-12 3,946 3,586 6,390 71,274 0 960 0 7,365 93,521

2012-13 6,388 25,449 12,936 114,047 51 967 0 42,149 201,988

2013-14 8,747 26,580 18,861 138,606 105 2,249 90 18,122 213,360

% change 36.9 4.4 45.8 21.5 105.9 132.5 na (57.0) 5.6


2009-10 23 1,171 329 884 0 20 0 966 3,393

2010-11 0 0 100 34 0 0 0 345 479

2011-12 407 887 287 849 0 14 0 1,546 3,990

2012-13 502 0 42 155 0 0 0 164 862

2013-14 72 486 14 611 0 0 0 153 1,336

% change (85.7) na (66.3) 294.7 na na na (6.5) 55.0

oFFShore AUD ISSUeS

2009-10 0 0 0 0 0 0 0 0 0

2010-11 248 100 326 0 0 0 0 476 1,150

2011-12 135 152 534 688 0 0 0 280 1,790

2012-13 0 0 0 0 0 0 0 0 0

2013-14 0 0 0 0 0 0 0 0 0

% change na na na na na na na na na

cont...



Floating non government Debt Securities Annual Turnover (AUD million)...cont’

survey Yearsurvey







2009-10 234 90 30 214 0 0 0 215 783

2010-11 2,170 289 7,438 805 2 19 60 8,760 19,542

2011-12 773 2,848 2,091 1,820 0 30 29 2,979 10,570

2012-13 1,144 3,657 3,644 3,519 0 29 78 5,190 17,261

2013-14 1,078 3,023 2,843 2,149 0 72 37 3,480 12,682

% change (5.8) (17.3) (22.0) (38.9) na 144.4 (52.8) (32.9) (26.5)

ToTAL

2009-10 22,824 114,334 45,187 114,743 16 9,792 577 44,212 351,685

2010-11 43,030 95,744 67,490 147,660 525 9,869 690 56,179 421,187

2011-12 22,625 30,833 36,104 103,854 42 5,421 259 27,569 226,707

2012-13 29,083 77,688 56,516 153,363 310 7,829 681 65,759 391,229

2013-14 27,761 80,080 57,250 188,223 142 6,986 2,064 41,890 404,396

% change (4.5) 3.1 1.3 22.7 (54.2) (10.8) 203.2 (36.3) 3.4

Bank Securities covered Bonds Annual Turnover (AUD million)

survey Yearsurvey






BAnk SecUrITIeS covereD BonDS – AUD DoMIcILe, AUD cUrrency

2009-10 - - - - - - - -

2010-11 - - - - - - - -

2011-12 1,646 562 6,469 2,286 6 125 5 404 11,503

2012-13 457 295 1,322 901 2 80 56 253 3,366

2013-14 228 760 703 791 1 15 0 273 2,771

% change (50.2) 158.1 (46.8) (12.2) (50.0) (81.4) (100.0) 7.9 (17.7)

BAnk SecUrITIeS covereD BonDS – oTher

2009-10 - - - - - - - -

2010-11 - - - - - - - -

2011-12 218 19 363 125 0 0 0 1 726

2012-13 104 2 54 110 0 0 1 110 380

2013-14 84 18 233 970 0 0 1 43 1,350

% change (18.7) 814.6 330.8 783.3 na na 128.8 (60.7) 255.1

ToTAL

2009-10 - - - - - - - -

2010-11 - - - - - - - -

2011-12 1,864 581 6,832 2,410 6 125 5 405 12,228

2012-13 561 297 1,376 1,010 2 80 56 363 3,746

2013-14 312 779 936 1,761 1 15 1 316 4,120

% change (44.4) 162.5 (32.0) 74.3 (50.0) (81.4) (97.8) (12.9) 10.0



1 38.6 38.6

2 23.4 62.0

3 16.2 78.2

4 9.2 87.4

5 7.6 95.0

6 3.0 98.0

7 1.3 99.3



2009-10 98.9

2010-11 90.4

2011-12 90.6

2012-13 96.9


non government Debt Securities Trading concentration



Over the 2013-14 financial year, the Reserve Bank of Australia (RBA) cash rate was predominantly left on hold, with only one move over the year being a 25 basis points cut in August 2013 to 2.50%. Despite financial conditions remaining very accommodative, domestic and global growth was below average. Domestically, this was expected as the economy adjusted to lower levels of mining investment and the unemployment rate edged higher. While the exchange rate was lower than in prior years it was still generally considered to be too high, hindering a rebalancing of growth in the economy. Given the economic backdrop, this led the market to expect the RBA would remain on hold for a long period of time. Given the outlook for the RBA cash rate, pricing of short-dated overnight indexed swap (OIS) was very stable and trading volumes were significantly reduced as market participants looked to take risk further out the curve where RBA decisions were considered to be likely.

The strength seen in funding markets in the prior year continued into 2013-14, with financial conditions globally still accommodative, enabling access by the major Australian banks to large amounts of term funding at tight levels. On the asset side, while the housing market strengthened domestically, credit growth still remained subdued. Given the backdrop of subdued balance sheet activity there was not a large requirement for Prime banks to increase their short-term funding through the negotiable and transferable instruments (NTI) market, and as a result annual turnover in the market reflected this, falling approximately 15%.

With low supply in the NTI market, the RBA on hold and OIS very stable, volatility in BBSW was significantly reduced. The spread between 3M BBSW and 3M OIS (often seen as a gauge of bank funding pressures) was very stable, setting at an average of 15 basis points over the year, and trading within a tight range over the year, from 8 basis points to 23 basis points, making it the most stable year since the global financial crisis (GFC).

On 27 September 2013, AFMA refined the BBSW calculation methodology, which was previously calculated using panellist observations of the mid-point rate at which Prime Bank Eligible Securities traded in the open market. On this date, BBSW transitioned to a calculation methodology using live and executable prices in the market for Prime Bank Eligible Securities as the price discovery mechanism, such national best bid and best offer (NBBO) methodology being deemed to meet IOSCO principles for benchmark rates. BBSW remains underpinned by an actively traded market, measured in a two-minute window around 10:00am.

AFMA continuously monitors BBSW to ensure it remains current and responsive to changing market conditions and to its users’ expectations. Given its systemic importance, it is important for the health of the financial markets that confidence in BBSW is maintained and as necessary enhanced.

Looking forward, while the second half of 2014 will likely see continued stability in the NTI market, over the latter half of the financial year there is a possibility of a move higher in short-term rates. Market participants will closely analyse the minutes of RBA

meetings and the sentiment, and therefore volumes will play out commensurate with expectations as to whether short-dated products like OIS and forward-rate agreements (FRAs) will see higher rates, which will also impact volatility in BBSW and the BBSW–OIS spread. Similarly, any changes in domestic credit growth will be closely monitored as they could lead to a temporary increase in supply of NTI eligible securities, such scenario also putting upward pressure on BBSW–OIS spreads.

Barring any major global financial shocks, conditions in funding markets are unlikely to change substantially, although the prospect of the US Fed finishing tapering and possibly increasing the Fed’s funds rate will need to be monitored. Locally, banks will be fine-tuning their balance sheets as the Australian Prudential Regulation Authority’s liquidity coverage ratio (LCR) requirements will be implemented on 1 January 2015. n

negotiable and Transferable instruments


AUD

billio

n

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13


Treasury Notes1%

Semi-Government Paper2%

Bank Paper92%

Corporate Paper5%



Other Banks4%


Fund Managers Traditional17%

Fund Managers Hedge Funds/CTAs

1%

Government6%



negotiable and Transferable Instruments Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds

/ CTa’s governmentoffshore

Central banks other grand Total

TreASUry noTeS

2009-10 4,576 5,399 1,601 3,659 587 9,877 5,273 7,313 38,285

2010-11 5,854 3,877 2,396 1,314 0 12,247 9,905 5,591 41,184

2011-12 4,948 2,698 1,178 1,258 0 11,937 13,662 6,545 42,226

2012-13 8,581 5,826 1,896 6,134 2,154 23,082 5,386 18,893 71,953

2013-14 2,511 2,912 1,226 1,511 2,172 7,103 1,767 5,232 24,434

% change (70.7) (50.0) (35.3) (75.4) 0.8 (69.2) (67.2) (72.3) (66.0)

SeMI governMenT PAPer

2009-10 6,164 5,052 1,994 5,590 0 68,243 723 758 88,524

2010-11 4,406 971 500 6,474 0 37,116 1,176 512 51,155

2011-12 3,526 3,724 3,093 13,004 0 49,206 1,892 1,204 75,649

2012-13 3,981 4,189 2,361 12,983 0 54,294 845 1,001 79,655

2013-14 2,003 9,364 6,315 10,984 0 38,128 821 251 67,866

% change (49.7) 123.5 167.5 (15.4) na (29.8) (2.8) (74.9) (14.8)

BAnk PAPer

2009-10 449,519 223,430 1,347,595 609,678 29,252 167,336 11,701 575,495 3,414,006

2010-11 533,669 202,998 1,243,709 501,197 24,761 200,400 9,946 487,599 3,204,279

2011-12 503,618 260,752 1,211,224 579,088 27,641 185,218 11,315 526,215 3,305,071

2012-13 378,552 114,524 1,039,514 435,912 29,357 126,462 8,548 816,390 2,949,259

2013-14 294,507 76,365 909,494 398,477 24,146 123,436 8,887 730,420 2,565,731

% change (22.2) (33.3) (12.5) (8.6) (17.7) (2.4) 4.0 (10.5) (13.0)

corPorATe PAPer

2009-10 34,791 57,797 94,997 163,412 0 6,503 0 213,696 571,196

2010-11 31,849 16,606 40,075 118,562 0 3,618 0 168,055 378,765

2011-12 21,749 24,385 9,763 92,295 0 5,461 0 97,710 251,363

2012-13 18,351 26,581 3,200 60,419 381 1,897 0 59,226 170,055

2013-14 10,009 11,242 1,842 47,378 90 1,684 33 53,822 126,100

% change (45.5) (57.7) (42.5) (21.6) (76.3) (11.2) na (9.1) (25.8)

ForeIgn governMenT PAPer

2009-10 33 65 0 0 0 0 0 0 98

2010-11 53 413 0 0 0 0 0 36 502

2011-12 32 358 0 0 0 0 0 26 416

2012-13 0 0 0 0 0 0 28 0 29

2013-14 0 0 14 0 0 0 0 0 14

% change 0.0 na na na na na (100.0) na (50.5)

ToTAL

2009-10 495,082 291,744 1,446,188 782,339 29,839 251,959 17,697 797,263 4,112,111

2010-11 575,831 224,865 1,286,680 627,547 24,761 253,380 21,027 661,793 3,675,884

2011-12 533,873 291,917 1,225,259 685,646 27,641 251,821 26,869 631,699 3,674,725

2012-13 409,465 151,120 1,046,971 515,449 31,891 205,735 14,808 895,511 3,270,951

2013-14 309,030 99,883 918,890 458,349 26,408 170,350 11,509 789,725 2,784,145

% change (24.5) (33.9) (12.2) (11.1) (17.2) (17.2) (22.3) (11.8) (14.9)

neGotiABle AnD trAnsFerABle instruMents


Treasury note Liquidity ratio (AUD million)


2009-10 11,467 38,285 3.3

2010-11 14,908 41,184 2.8

2011-12 13,317 42,226 3.2

2012-13 14,667 71,953 4.9

2013-14 3,000 24,434 8.1a outstandings was calculated as an average of monthly data on treasury notes from March to June 2014 as published by AoFM


1 32.6 32.6

2 20.2 52.8

3 19.3 72.1

4 18.4 90.5

5 3.0 93.4

6 1.8 95.3

7 1.2 96.5



2009-10 93.0

2010-11 90.9

2011-12 95.2

2012-13 92.9


negotiable and Transferable instruments Trading concentration

Bank Paper Liquidity ratio (AUD million)


2009-10 296,130 3,414,007 11.5

2010-11 258,834 3,204,279 12.4

2011-12 254,312 3,305,072 13.0

2012-13 235,884 2,949,259 12.5

2013-14 225,646 2,565,731 11.4a outstandings was calculated as an average of monthly data on Bank paper as reported by AprA


Reflecting the steady increase in both Commonwealth and state government debt issuance over the course of the year, the Australian repo market showed strong gains in outstanding volumes, up 19% over 2013, excluding in-house transactions. The market has also seen greater interest in term financing, with general collateral (GC) trades out to six months taking place on a more frequent basis and a pick-up in reverse enquiries. This trend towards a greater use of term financing is partly evident in the decline in repo turnover, which overall is down 24% from 2013, and largely flat against 2013, excluding in-house transactions.

The introduction of the Reserve Bank of Australia’s (RBA) same-day settlement of Direct Entry (DE) payments in late November 2013 has seen some structural change in the markets, necessitating behavioural changes by market participants in order to adjust to the new system and how to respond to the resultant increase in second-round operations conducted by the RBA. The effect of this, along with other factors, was a spike in GC repo rates in January and early February 2014. The AFMA Repo and Cash committees, working collaboratively with the RBA, sought to ensure all market participants were aware of the issues. While this ultimately saw GC funding rates normalise for a period, a general increase in secure funding rates relative to the cash rate continues to be a feature of this market.

The RBA’s Committed Lending Facility (CLF) will come into effect on 1 January 2015, forming part of the introduction of Basel III liquidity standards. This and other regulatory changes, such as the Supplementary Leverage Ratio (SLR) in the United States and the Financial Stability Board’s (FSB) recommendations on securities lending and repos, will have an impact on our market, as will the move to T+2 settlement of securities, and which will be a focus of committee undertakings in 2015.

The development and use of collateral management platforms is ongoing with support from a number of market participants. To date, outstanding balances are modest, while it is anticipated that a number of participants will undertake further testing in Q4.

The market evidenced a pick-up in bonds trading tight in late 2013 and early 2014. A number of issues traded up to 25 basis points below cash with an example seen at 50 basis points below cash for a short tenor. The tightness tended to be short-lived, persisting for a week or two, and may have resulted from either settlement mismatches that required stock to be borrowed the same day, or shortages of the bonds in the domestic market. Overall, post-settlement trading tended to ease, reverting back to normal levels.

The regular issuance of bonds by the Australian Office of Financial Management (AOFM), and whose net issuance for 2013-14 is expected to be approximately $52 billion, continues to be a feature of this market and which ensures a regular supply of trading stock for the repo market.

The low incidence of settlement failures served to allow both repo and cash markets to function as optimally as conditions permitted. In an effort to strengthen the guidance provided to

market participants with regard to settlement obligations and the avoidance of settlement failures, the AFMA Repo Committee added new conventions in March 2014 dealing with market best practice. These new conventions require that a party dealing on-screen and via brokers will either directly access stock lending facilities provided by the AOFM or engage an eligible party on its behalf to access these facilities whenever is it apparent that its settlement obligation is compromised in any way, and that settlement failure is likely. n

repurchase agreements


2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

AUD

billio

n

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13


CommonwealthGovernment Bonds42%

State Government Bonds35%

Other Government Guaranteed Bonds

3%

Corporate & Bank Bonds16%

Treasury Notes1%

Semi-Government Promissory Notes2%

Residential Mortgage Backed Securities1%



Other Banks12%


Fund Managers Hedge Funds/CTAs

1%

Government RBA14%


Government Other2%




repurchase Agreements Annual Turnover Summary (AUD million)

survey Yearsurvey


Transactions

Traditional Fund

Managershedge Funds

/ CTa’s government

– rbagovernment

– otheroffshore



2009-10 518,025 272,208 849,405 140,948 0 88,544 15,133 66,003 26,813 1,977,079

2010-11 642,364 426,969 1,413,025 231,512 0 121,262 7,929 109,037 107,355 3,059,453

2011-12 508,053 375,765 1,561,955 268,187 0 265,406 13,587 70,626 53,591 3,117,170

2012-13 461,437 268,863 1,536,573 432,758 77,862 415,566 4,952 89,644 124,802 3,412,457

2013-14 529,200 269,121 692,175 348,595 77,519 403,764 9,650 111,981 56,130 2,498,137

% change 14.7 0.1 (55.0) (19.4) (0.4) (2.8) 94.9 24.9 (55.0) (26.8)


2009-10 419,543 267,539 1,217,107 156,320 0 269,052 90,358 22,101 60,437 2,502,457

2010-11 425,667 378,829 1,411,633 253,063 0 287,464 88,483 5,404 101,100 2,951,643

2011-12 388,508 303,111 1,654,497 241,733 0 361,685 65,917 18,682 54,000 3,088,133

2012-13 355,653 236,253 1,367,591 318,720 7 279,130 45,854 25,005 73,490 2,701,703

2013-14 428,099 221,163 841,553 268,645 2,324 173,399 24,177 8,300 122,064 2,089,725

% change 20.4 (6.4) (38.5) (15.7) 33106.8 (37.9) (47.3) (66.8) 66.1 (22.7)

oTher governMenT gUArAnTeeD BonDS

2009-10 41,077 21,841 66,290 22,725 0 11,913 60 8,996 15,986 188,888

2010-11 79,283 96,118 149,646 32,533 0 26,932 471 9,775 35,650 430,408

2011-12 100,513 148,813 290,776 40,316 0 23,999 460 39,759 20,421 665,057

2012-13 38,847 43,405 179,965 45,142 0 31,991 0 7,663 34,444 381,457

2013-14 6,459 41,395 61,557 27,146 0 32,206 0 35 43,377 212,175

% change (83.4) (4.6) (65.8) (39.9) na 0.7 na (99.5) 25.9 (44.4)

corPorATe & BAnk BonDS

2009-10 10,776 8,634 100,382 3,890 0 71,977 152 41,704 920 238,435

2010-11 15,047 51,612 381,852 61,106 0 104,545 1,241 492 17,109 633,004

2011-12 23,466 52,545 270,513 34,352 0 77,693 1,025 101 4,315 464,010

2012-13 30,751 143,776 665,198 76,604 0 64,053 100 57,954 61,420 1,099,856

2013-14 15,550 138,102 390,671 37,002 0 131,134 57,812 2,450 203,954 976,674

% change (49.4) (3.9) (41.3) (51.7) na 104.7 57711.9 (95.8) 232.1 (11.2)

TreASUry noTeS

2009-10 30,705 0 51,241 0 0 6,840 0 0 0 88,786

2010-11 13,852 3,858 36,914 0 0 17,214 0 0 12 71,850

2011-12 6,450 12,904 25,359 266 0 27,078 0 0 0 72,057

2012-13 10,966 55,077 76,360 138 0 26,941 0 0 661 170,143

2013-14 5,660 36,616 9,614 0 0 13,400 0 0 3,358 68,648

% change (48.4) (33.5) (87.4) (100.0) na (50.3) na na 408.0 (59.7)

SeMI governMenT ProMISSory noTeS

2009-10 0 0 0 0 0 0 0 0 0 0

2010-11 0 0 0 0 0 0 0 0 0 0

2011-12 0 31 5,292 0 0 998 0 0 0 6,321

2012-13 0 98 1,521 0 0 4,710 0 0 0 6,329

2013-14 578 24,401 32,624 253 0 30,056 0 0 5,619 93,531

% change na 24799.0 2044.9 na na 538.1 na na na 1377.8

cont..


repurchase Agreements Annual Turnover Summary (AUD million)...cont’

survey Yearsurvey


Transactions

Traditional Fund

Managershedge Funds

/ CTa’s government

– rbagovernment

– otheroffshore


corPorATe & BAnk PAPer

2009-10 16,076 64,994 237,616 5,467 0 26,788 0 0 3,412 354,353

2010-11 11,736 26,672 110,264 924 0 15,550 0 0 30,693 195,839

2011-12 632 22,455 62,528 2,230 0 3,533 0 0 14,344 105,722

2012-13 993 1,902 18,779 430 778 11,532 0 0 1,422 35,836

2013-14 1 3,611 411 7 0 24,481 0 0 0 28,511

% change (99.9) 89.8 (97.8) (98.3) (100.0) 112.3 na na (100.0) (20.4)

reSIDenTIAL MorTgAge BAckeD SecUrITIeS

2009-10 0 0 29,275 1,087 0 35,685 0 0 0 66,047

2010-11 74 0 0 0 0 19,616 0 0 0 19,690

2011-12 0 415 2,083 0 0 1,912 0 0 0 4,410

2012-13 792 0 29,240 0 0 26,417 0 0 0 56,449

2013-14 0 0 35,933 0 0 7,798 0 0 0 43,731

% change (100.0) na 22.9 na na (70.5) na na na (22.5)

ASSeT BAckeD coMMercIAL PAPer

2009-10 0 0 0 2,447 0 0 0 0 0 2,447

2010-11 0 0 0 0 0 1,780 0 0 0 1,780

2011-12 0 0 0 0 0 1,663 0 0 0 1,663

2012-13 0 0 0 0 0 0 0 0 0 0

2013-14 0 0 0 0 0 0 0 0 0 0

% change na na na na na na na na na na

ToTAL

2009-10 1,036,202 635,215 2,551,316 332,884 0 510,799 105,702 138,803 107,569 5,418,490

2010-11 1,188,023 984,057 3,503,335 579,138 0 594,364 98,124 124,708 291,918 7,363,667

2011-12 1,027,621 916,039 3,873,004 587,084 0 763,965 80,989 129,168 146,670 7,524,540

2012-13 899,440 749,373 3,875,228 873,792 78,646 860,339 50,907 180,267 296,240 7,864,232

2013-14 985,548 734,407 2,064,539 681,649 79,844 816,238 91,639 122,766 434,502 6,011,132

% change 9.6 (2.0) (46.7) (22.0) 1.5 (5.1) 80.0 (31.9) 46.7 (23.6)


1 25.6 25.6

2 18.6 44.2

3 10.0 54.2

4 8.3 62.5

5 8.2 70.8

6 5.4 76.2

7 4.5 80.7



2009-10 96.2

2010-11 95.7

2011-12 92.9

2012-13 88.6


repurchase Agreements Trading concentration

repurcHAse AGreeMents


swaps and Forward rate agreementsThe interest rate swaps (IRS) market has seen a quiet year in terms of underlying volatility in market conditions, largely due to the Reserve Bank of Australia keeping interest rates on hold since August last year. The 3 year outright swap has had a 60 basis point range over that period. We have seen a slow but steady movement lower in yields over that time, largely due to the sheer weight of money flooding to the Australian bond market (and currency market) with foreign investors in search of yield which they are not seeing offshore.

While the IRS market conditions have been somewhat muted, activity behind the scenes has been anything but. The past year has seen the move by all major market participants to voluntarily clear all standardised AUD IRS. The commencement of a clearing service at the Australian Securities Exchange (ASX) has given a choice of central counterparty clearing to the limited group of ASX members; however, LCH. Clearnet is still attracting the bulk of liquidity. Platform trading on Swap Execution Facilities has had limited impact but is mostly avoided by participants not required to comply. Compression activity between participants has been gaining traction with the completion of the most successful multilateral compression of AUD IRS by TriOptima in late February. There are further initiatives regarding date rolls currently being worked on to improve the success rate for the next compression run later this year.

In addition to increased activity on the clearing front, there has been an increase in focus on Basel III as we head towards 1 January 2015. It appears that the focus on clearing and Basel III will continue for the coming year.

Ahead, it seems an end to quantitative easing in the United States and a continued focus on a potential recovery post the mining boom in Australia will be the focus of the Australian interest rate market. n


0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

24,000 FRA OIS IRCC

AUD

billio

n

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13

Figure 2: irCC Turnover bY CounTerparTY


Other Banks29%



Fund ManagersHedge Funds / CTAs

2%


Figure 3: Fra Turnover bY CounTerparTY


Other Banks28%




Figure 4: ois Turnover bY CounTerparTY


Other Banks20%




Fund Managers Hedge Funds / CTAs6%


Interest rate and cross currency Swaps Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds



FIxeD AUD:FLoATIng AUD

2009-10 760,185 592,417 2,008,685 126,394 9,613 21,806 287 510,427 4,029,814

2010-11 820,384 590,706 2,499,354 74,965 136,025 37,318 541 511,049 4,670,342

2011-12 907,005 854,243 1,741,223 177,152 140,430 24,625 736 432,993 4,278,407

2012-13 1,331,585 1,732,416 1,922,865 489,147 284,571 40,981 2,879 988,004 6,792,447

2013-14 993,083 2,269,880 1,722,950 526,171 145,572 17,416 12,899 1,790,873 7,478,845

% change (25.4) 31.0 (10.4) 7.6 (48.8) (57.5) 348.0 81.3 10.1

FLoATIng AUD:FLoATIng AUD

2009-10 90,608 61,713 447,963 245 0 0 0 15,211 615,740

2010-11 94,541 40,225 700,497 601 0 320 0 26,661 862,845

2011-12 104,563 64,511 355,526 28,232 0 292 0 42,179 595,302

2012-13 95,364 105,194 377,519 25,657 1,153 0 0 83,194 688,081

2013-14 42,031 124,036 355,935 11,905 1,304 105 265 115,926 651,505

% change (55.9) 17.9 (5.7) (53.6) 13.1 na na 39.3 (5.3)

FIxeD AUD:non AUD

2009-10 3,330 15,190 213,605 1,147 2,057 50 334 10,770 246,483

2010-11 9,007 18,436 300,152 2 133 166 2,542 22,070 352,508

2011-12 4,081 12,756 431,923 1,385 754 232 1,612 8,931 461,674

2012-13 224 9,562 135,793 33 0 11 1,596 15,110 162,329

2013-14 151 9,515 21,206 1,218 100 110 306 7,554 40,160

% change (32.7) (0.5) (84.4) 3548.0 na 882.1 (80.8) (50.0) (75.3)

FLoATIng AUD:non AUD

2009-10 315,552 254,486 391,974 5,786 1,067 246 0 61,774 1,030,885

2010-11 301,773 224,294 305,170 4,823 5,578 427 567 72,830 915,462

2011-12 232,253 305,167 215,698 24,271 7,367 569 115 32,354 817,793

2012-13 287,550 290,086 392,118 68,973 90,327 667 0 91,558 1,221,280

2013-14 266,029 303,851 366,955 55,100 30,452 568 766 96,787 1,120,507

% change (7.5) 4.7 (6.4) (20.1) (66.3) (14.9) na 5.7 (8.3)

InFLATIon-LInkeD SWAPS

2009-10 0 0 0 0 0 0 0 0 0

2010-11 5,276 943 1,113 3,903 350 417 0 173 12,175

2011-12 9,359 1,640 1,142 4,497 735 1,995 0 1,531 20,899

2012-13 4,748 2,044 2,671 4,134 52 294 0 594 14,537

2013-14 9,233 6,906 350 2,136 10 161 0 655 19,450

% change 94.5 237.8 (86.9) (48.3) (80.8) (45.4) na 10.3 33.8

ToTAL

2009-10 1,169,676 923,807 3,062,228 133,572 12,737 22,102 621 598,183 5,922,926

2010-11 1,230,980 874,604 3,806,286 84,294 142,086 38,648 3,650 632,783 6,813,331

2011-12 1,257,260 1,238,316 2,745,512 235,538 149,286 27,713 2,463 517,987 6,174,075

2012-13 1,719,471 2,139,302 2,830,967 587,944 376,103 41,953 4,475 1,178,459 8,878,675

2013-14 1,310,527 2,714,188 2,467,396 596,531 177,438 18,359 14,236 2,011,795 9,310,469

% change (23.8) 26.9 (12.8) 1.5 (52.8) (56.2) 218.1 70.7 4.9

sWAps AnD ForWArD rAte AGreeMents


cross currency Swap Annual Turnover Summary – non AUD (AUD million)

survey Yearsurvey



Managershedge Funds



FIxeD non AUD:FLoATIng non AUDa

2009-10 0 0 0 0 0 0 0 0 0

2010-11 0 0 0 0 0 0 0 0 0

2011-12 243,971 1,166,778 879,377 22,375 27,419 210 5,047 61,520 2,406,697

2012-13 248,085 167,302 409,077 268,018 46,043 45 656 264,784 1,404,012

2013-14 15,951 9,031 17,908 5,491 10,167 282 20 12,502 71,352

% change (93.6) (94.6) (95.6) (98.0) (77.9) 521.7 (97.0) (95.3) (94.9)

FLoATIng non AUD:FLoATIng non AUDa

2009-10 0 0 0 0 0 0 0 0 0

2010-11 0 0 0 0 0 0 0 0 0

2011-12 42,977 38,202 1,177,798 1,945 0 1,070 237 5,433 1,267,662

2012-13 35,355 41,008 87,730 4,959 22,626 0 993 19,223 211,894

2013-14 29,589 26,874 39,820 2,985 5,163 0 430 11,702 116,563

% change (16.3) (34.5) (54.6) (39.8) (77.2) na (56.7) (39.1) (45.0)

FIxeD non AUD:FLoATIng non AUD – SIngLe croSS cUrrency SWAPS

2009-10 0 0 0 0 0 0 0 0 0

2010-11 0 0 0 0 0 0 0 0 0

2011-12 0 0 0 0 0 0 0 0 0

2012-13 0 0 0 0 0 0 0 0 0

2013-14 64,832 136,797 209,246 25,964 30,350 100 5,659 450,769 923,719


FLoATIng non AUD:FLoATIng non AUD – SIngLe croSS cUrrency SWAPS

2009-10 0 0 0 0 0 0 0 0 0

2010-11 0 0 0 0 0 0 0 0 0

2011-12 0 0 0 0 0 0 0 0 0

2012-13 0 0 0 0 0 0 0 0 0

2013-14 1,149 7,742 15,048 1,523 594 0 1,551 10,806 38,414


ToTAL

2009-10 0 0 0 0 0 0 0 0 0

2010-11 0 0 0 0 0 0 0 0 0

2011-12 286,949 1,204,981 2,057,174 24,319 27,419 1,280 5,283 66,953 3,674,358

2012-13 283,440 208,310 496,807 272,977 68,670 45 1,649 284,007 1,615,905

2013-14 111,520 180,444 282,023 35,963 46,275 382 7,661 485,780 1,150,048

% change (60.7) (13.4) (43.2) (86.8) (32.6) 741.8 364.5 71.0 (28.8)

a non AuD cross currency swaps were surveyed for the first time in 2011-12.



1 34.1 34.1

2 14.8 48.9

3 12.7 61.7

4 12.4 74.0

5 8.9 83.0

6 8.4 91.3

7 5.8 97.2



2009-10 99.6

2010-11 94.9

2011-12 87.2

2012-13 87.3


overnight Index Swaps Trading concentration

overnight Index Swaps Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds



2009-10 720,544 529,478 1,493,627 38,579 31,025 4,148 0 183,015 3,000,416

2010-11 1,642,986 901,433 2,184,362 110,370 91,634 9,332 0 373,223 5,313,340

2011-12 2,354,502 2,591,129 1,954,447 459,450 802,416 44,918 1,570 495,059 8,703,491

2012-13 2,576,782 1,848,193 2,132,283 325,052 1,324,972 6,220 2,095 678,848 8,894,445

2013-14 2,051,382 1,409,519 2,183,836 408,347 420,077 24,522 7,382 692,551 7,197,616

% changea (20.4) (23.7) 2.4 25.6 (68.3) 294.2 252.4 2.0 (19.1)

a 2013-14 turnover data includes nZD ois and other non-AuD ois


1 24.7 24.7

2 17.0 41.6

3 13.5 55.1

4 11.5 66.6

5 9.5 76.1

6 9.2 85.4

7 6.1 91.5

8 5.0 96.4a Market share data excludes inhouse transactionsnote: non AuD cross currency swaps were surveyed for the first time in 2011-12.


2009-10 95.4

2010-11 85.7

2011-12 89.3

2012-13 85.8

2013-14 96.4a Market share data excludes inhouse transactionsnote: non AuD cross currency swaps were surveyed for the first time in 2011-12.

Interest rate and cross currency Swaps Trading concentration



Forward rate Agreements Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds



AUD

2009-10 832,698 715,501 2,042,536 3,975 8,000 2,446 0 182,473 3,787,629

2010-11 1,390,206 802,722 1,564,432 2,249 2,510 2,567 0 250,887 4,015,573

2011-12 1,295,869 1,381,494 1,142,343 395,224 2,000 2,415 600 89,329 4,309,274

2012-13 1,445,226 1,069,249 728,068 54,704 2,965 2,477 0 152,859 3,455,548

2013-14 599,621 889,481 550,962 55,987 18,250 700 1,055 96,694 2,212,749

% change (58.5) (16.8) (24.3) 2.3 515.5 (71.7) na (36.7) (36.0)

USD

2009-10 128,923 322,747 52,973 0 0 0 0 108,573 613,216

2010-11 165,739 227,517 70,431 28 0 0 0 97,096 560,811

2011-12 124,737 428,959 35,593 15,897 0 120 0 90,793 696,099

2012-13 149,259 325,964 62,744 7,383 0 0 56 403,645 949,052

2013-14 19,262 81,240 67,542 7,898 1,031 0 0 205,186 382,161

% change (87.1) (75.1) 7.6 7.0 na na (100.0) (49.2) (59.7)

nZD

2009-10 21,546 40,983 7,464 221 0 0 0 9,836 80,050

2010-11 96,859 101,741 773,357 177 0 0 0 48,282 1,020,416

2011-12 60,118 147,683 859,716 387 0 0 701 19,139 1,087,744

2012-13 125,427 112,817 1,079,307 14,665 2,889 0 0 38,200 1,373,306

2013-14 28,454 130,056 1,038,034 10,577 2,443 343 0 28,513 1,238,421

% change (77.3) 15.3 (3.8) (27.9) (15.4) na na (25.4) (9.8)

oTher

2009-10 11,864 16,196 2,675 0 0 0 0 7,272 38,007

2010-11 22,458 13,481 2,172 0 0 0 0 221,864 259,975

2011-12 27,702 55,105 20 0 0 0 0 8,322 91,149

2012-13 21,078 76,618 3,548 0 0 0 0 57,979 159,224

2013-14 74 1,862 1,202 0 0 0 0 56,619 59,757

% change (99.6) (97.6) (66.1) na na na na (2.3) (62.5)

SUB ToTAL (non AUD)

2009-10 162,333 379,926 63,112 221 0 0 0 125,682 731,274

2010-11 285,056 342,740 845,960 205 0 0 0 367,242 1,841,203

2011-12 212,557 631,747 895,329 16,284 0 120 701 118,254 1,874,992

2012-13 295,764 515,400 1,145,599 22,049 2,889 0 56 499,824 2,481,582

2013-14 47,791 213,158 1,106,779 18,475 3,474 343 0 290,318 1,680,338

% change (83.8) (58.6) (3.4) (16.2) 20.2 na (100.0) (41.9) (32.3)

ToTAL

2009-10 995,031 1,095,427 2,105,648 4,196 8,000 2,446 0 308,154 4,518,902

2010-11 1,675,262 1,145,462 2,410,392 2,454 2,510 2,567 0 618,129 5,856,776

2011-12 1,508,427 2,013,240 2,037,672 411,508 2,000 2,535 1,301 207,583 6,184,266

2012-13 1,740,990 1,584,649 1,873,667 76,753 5,854 2,477 56 652,683 5,937,129

2013-14 647,411 1,102,639 1,657,741 74,463 21,724 1,043 1,055 387,012 3,893,087

% change (62.8) (30.4) (11.5) (3.0) 271.1 (57.9) 1768.3 (40.7) (34.4)note: turnover or outstandings reported in non-AuD amounts was converted to AuD using the rBA daily average exchange rate from July 2013 to June 2014



1 40.0 40.0

2 24.4 64.4

3 11.9 76.3

4 11.6 88.0

5 8.7 96.7

6 1.6 98.3

7 1.6 99.9



2009-10 92.5

2010-11 89.8

2011-12 97.7

2012-13 92.3


Forward rate Agreements Trading concentration




0

100

200

300

400

500

600

AUD

billio

n

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13


Bond Options1%

Caps/Floors11%

Swaptions88%



Other Banks22%




12%


interest rate options Aggregate turnover in interest rate options increased 19% over 2013-14, against a backdrop of a stable official cash rate and a relatively stable interest rate swap curve compared to prior years. The bulk of the trading was in swaptions, which saw turnover increase 20%, with caps/floors also gaining, notwithstanding the sense that corporates were less inclined to hedge given the relative stability of the markets. Over-the-counter (OTC) bond option volumes declined, albeit from a low base.

The main story over the year was a steady fall in implied volatilities across the surface. 1y1y swaption volatility fell from around 90 basis points to 55 basis points. 5y5y swaption volatility fell from 90 basis points to 77 basis points. These declines were roughly in line with the changes in realised volatility over the period.

Market liquidity and integrity was strong over the year with good transparency and orderly pricing being a key feature. Greater than 90% of interbank transactions are now executed on a forward premium basis, with the resulting swap at expiry being nominated to clear on one of the three established exchanges (LCH, CME, ASX). OTC derivative reform continues apace with stricter rules on reporting of trades with US counterparties being instituted over the year. These changes have been adopted with relative ease by the AUD interest rate option (IRO) market. The next major step will be when AUD IROs themselves become clearable. n


Interest rate options Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds



BonD oPTIonS

2009-10 0 195 589 2,169 320 12 0 120 3,405

2010-11 0 261 292 3,411 214 550 200 915 5,843

2011-12 0 200 100 3,784 45 200 0 3,947 8,276

2012-13 0 0 1,800 4,430 0 900 50 2 7,182

2013-14 0 0 0 1,580 0 1,850 0 845 4,275

% change na na (100.0) (64.3) na 105.6 (100.0) 42151.8 (40.5)

cAPS / FLoorS

2009-10 4,890 8,362 40,328 50,502 8,500 0 0 34,431 147,013

2010-11 981 13,056 7,696 4,285 0 0 0 29,020 55,038

2011-12 5,381 15,561 10,737 5,952 0 0 0 21,936 59,567

2012-13 5,226 25,678 1,836 672 2,300 0 0 17,521 53,233

2013-14 4,165 8,814 9,791 8,112 2,100 0 0 28,733 61,716

% change (20.3) (65.7) 433.3 1107.2 (8.7) na na 64.0 15.9

SWAPTIonS

2009-10 18,518 31,724 120,604 11,766 9,724 1,100 0 34,699 228,135

2010-11 34,679 68,469 122,245 32,917 22,494 3,085 0 25,171 309,060

2011-12 66,551 149,909 50,067 55,619 71,949 470 0 53,394 447,959

2012-13 75,848 91,940 51,075 62,694 66,213 1,140 100 65,874 414,884

2013-14 82,429 114,609 70,162 64,160 62,580 70 0 104,724 498,734

% change 8.7 24.7 37.4 2.3 (5.5) (93.9) (100.0) 59.0 20.2

ToTAL

2009-10 23,408 40,281 161,522 64,437 18,544 1,112 0 69,250 378,554

2010-11 35,659 81,786 130,233 40,613 22,708 3,635 200 55,106 369,940

2011-12 71,931 165,671 60,904 65,355 71,994 670 0 79,277 515,802

2012-13 81,074 117,618 54,711 67,796 68,513 2,040 150 83,396 475,298

2013-14 86,594 123,423 79,953 73,852 64,680 1,920 0 134,302 564,725

% change 6.8 4.9 46.1 8.9 (5.6) (5.9) (100.0) 61.0 18.8


1 27.1 27.1

2 24.5 51.6

3 13.7 65.3

4 10.0 75.3

5 9.4 84.8

6 7.0 91.8



2009-10 99.6

2010-11 98.8

2011-12 100.0

2012-13 100.0


Interest rate options Trading concentration

interest rAte options


Credit Derivatives There were three key events that impacted credit spreads over the course of 2013-14. In each instance, the event caused initial widening in credit spreads, followed by stabilisation and even tightening of spreads thereafter.

The US Federal Reserve’s deliberations on tapering (i.e. widening back of quantitative easing) in 2013 had the initial impact of causing panic in the market as participants were initially caught off guard by the move. This had the impact of a significant widening in credit spreads while US Treasuries sold off. However, after further clarity and direction was provided by the Fed in September, the market actually rallied strongly when tapering began.

Concerns over a potential hard landing in China or instability in their financial system at the start of 2014 drove spreads wider again, particularly in those companies extensively involved with China, such as the mining sector. However, measures taken by China to address financial stability concerns helped in easing ongoing fears and settled the market.

Towards the end of the year, the conflict in Eastern Europe also had the impact of causing generic spreads to widen, and some specific names as well. However, this effect has also dissipated over the last few months, although it is an ongoing issue.

However, it is fair to say that credit spreads have been relatively stable, particularly in comparison to the last few years, as global financial crisis effects are not as prevalent. Consequently, turnover has remained relatively stable over the year as well.

The physical market has experienced increased depth over the past year, which assists the credit derivative market. There has been a large number of first-time issuers coming to the Australian market and more longer term issues as well. Participation from offshore issuers has also strengthened. Nevertheless, liquidity is still an issue in this market, and in particular the relatively small number of market-making participants. The concentration of market share in a small number of participants remains a concern.

Looking forward, the market should continue to develop with more issuers and tenors in Australia. We may see the high-yield market develop further in the next year as well. However, liquidity in the secondary market will continue to be an issue. n


0

50

100

150

200

250

300

350

400

450

AUD

billio

n

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13


Single NameCredit Default Swaps28%

Credit Indices72%



Other Banks17%




11%



global credit Derivatives Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds



SIngLe nAMe creDIT DeFAULT SWAPS

2009-10 18,500 29,372 25,072 1,829 2,370 1,555 57 44,665 123,420

2010-11 29,866 44,380 21,753 4,874 4,551 1,879 10 17,742 125,055

2011-12 20,005 48,299 29,680 2,503 3,608 585 0 12,609 117,290

2012-13 6,537 17,631 5,823 7,541 4,622 1,243 0 4,756 48,153

2013-14 11,115 12,759 10,719 3,320 10,850 248 174 15,951 65,136

% change 70.0 (27.6) 84.1 (56.0) 134.8 (80.0) na 235.4 35.3

ToTAL rATe oF reTUrn SWAPS

2009-10 19 39 0 39 0 0 0 266 363

2010-11 0 0 0 0 0 0 0 0 0

2011-12 10 95 0 0 0 0 0 115 220

2012-13 97 0 292 0 0 0 0 0 389

2013-14 0 0 0 0 0 0 0 0 0

% change (100.0) na (100.0) na na na na na (100.0)

creDIT InDIceS

2009-10 21,962 35,927 66,318 1,775 4,088 1,759 443 24,402 156,674

2010-11 36,777 78,707 59,586 1,738 2,093 1,661 0 15,040 195,603

2011-12 35,018 121,479 104,266 3,648 3,382 1,133 0 11,790 280,714

2012-13 15,889 56,567 70,782 3,619 4,454 1,372 0 27,383 180,066

2013-14 19,303 26,125 58,504 4,610 14,819 205 0 40,986 164,551

% change 21.5 (53.8) (17.3) 27.4 232.7 (85.1) na 49.7 (8.6)

ToTAL

2009-10 40,481 65,338 91,390 3,643 6,458 3,314 500 69,334 280,457

2010-11 66,643 123,086 81,339 6,612 6,644 3,540 10 32,783 320,657

2011-12 55,033 169,873 133,945 6,151 6,990 1,718 0 24,514 398,224

2012-13 22,523 74,198 76,897 11,160 9,076 2,615 0 32,139 228,608

2013-14 30,417 38,884 69,224 7,931 25,668 453 174 56,936 229,687

% change 35.1 (47.6) (10.0) (28.9) 182.8 (82.7) na 77.2 0.5

note: turnover or outstandings reported in non-AuD amounts was converted to AuD using the rBA daily average exchange rate from July 2013 to June 2014

creDit DerivAtives


Australian credit Derivatives Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds



SIngLe nAMe creDIT DeFAULT SWAPS

2009-10 16,608 26,177 24,614 1,829 2,367 1,555 57 43,497 116,704

2010-11 27,713 39,072 19,182 4,384 3,984 1,858 10 12,498 108,702

2011-12 18,854 42,280 26,208 2,474 3,561 585 0 11,371 105,334

2012-13 6,326 16,875 5,614 7,282 4,622 1,243 0 4,147 46,108

2013-14 10,705 11,940 10,511 2,619 10,810 248 174 15,644 62,651

% change 69.2 (29.2) 87.2 (64.0) 133.9 (80.0) na 277.3 35.9

ToTAL rATe oF reTUrn SWAPS

2009-10 10 19 0 0 0 0 0 266 295

2010-11 0 0 0 0 0 0 0 0 0

2011-12 10 95 0 0 0 0 0 115 220

2012-13 97 0 292 0 0 0 0 0 389

2013-14 0 0 0 0 0 0 0 0 0

% change (100.0) na (100.0) na na na na na (100.0)

creDIT InDIceS

2009-10 19,458 24,791 47,490 1,775 4,088 1,759 443 21,776 121,580

2010-11 29,446 42,800 37,126 1,737 2,068 1,661 0 10,071 124,908

2011-12 29,188 67,893 53,292 3,558 3,382 1,133 0 10,079 168,524

2012-13 10,373 28,293 39,952 3,555 4,399 1,211 0 1,987 89,771

2013-14 14,219 14,349 38,690 4,543 13,191 153 0 16,209 101,355

% change 37.1 (49.3) (3.2) 27.8 199.8 (87.3) na 715.7 12.9

ToTAL

2009-10 36,076 50,987 72,104 3,604 6,455 3,314 500 65,539 238,579

2010-11 57,159 81,872 56,308 6,121 6,052 3,520 10 22,568 233,611

2011-12 48,052 110,268 79,500 6,032 6,943 1,718 0 21,566 274,079

2012-13 16,796 45,169 45,858 10,836 9,021 2,454 0 6,134 136,268

2013-14 24,924 26,290 49,201 7,162 24,001 402 174 31,852 164,005

% change 48.4 (41.8) 7.3 (33.9) 166.1 (83.6) na 419.3 20.4

note: turnover or outstandings reported in non-AuD amounts was converted to AuD using the rBA daily average exchange rate from July 2013 to June 2014


1 73.9 73.9

2 13.8 87.7

3 4.8 92.5

4 2.9 95.3

5 2.3 97.6

6 1.4 99.0



2009-10 98.7

2010-11 99.7

2011-12 100.0

2012-13 100.0


credit Derivatives Trading concentration



10

15

20

25

30

35

40

45

50

AUD

trillio

n

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13


AUD Spot10%

Non-AUD Spot16%

AUD Forward4%

Non-AUD Forward2%

AUD Swap 37%

Non-AUD Swap31%

Figure 3: CurrenCY opTions Turnover bY CurrenCY pair

AUD/USD61%

AUD/JPY 7%

AUD/GBP 1%AUD/NZD 4%

AUD/EURO 2% AUD Other 1%

USD/JPY 10%

USD/GBP 1%

USD/NZD 7%

USD/EURO 5% USD Other 1%

Foreign exchange and Currency options The broad narrative in global FX markets gradually changed from mid-2013 into 2014. Earlier in 2013, the mere mention by then-chairman of the US Federal Reserve (Fed), Ben Bernanke, of the prospect of a reduction in quantitative easing (QE) was enough to spark steep rises in global yields and heavy losses for most currencies against the US dollar, particularly in emerging markets. However, the US dollar ended up benefiting little from the belated commencement of QE ‘tapering’. The Fed opted not to taper in September as a US government shutdown loomed and another political battle seemed assured over raising the debt ceiling in October. In December 2013, once these issues had been resolved, the Fed started a process of reducing QE by $10 billion per meeting from the $85 billion per month pace that had prevailed for the previous 12 months.

The US dollar was quite mixed in the weeks following the confirmation of Fed tapering. There was no broad wave of USD demand although selected currencies did struggle at times. Reserve Bank of Australia (RBA) Governor, Glenn Stevens, noted in March 2014 that investors had not fled from risk indiscriminately, rather that they had drawn distinctions between alternative classes of investment and the differing outlook across countries.

Bouts of weakness in emerging market (EM) currencies such as the Argentine peso, Turkish lira and Russian ruble appeared to be justified to at least some degree by poor domestic fundamentals. In contrast, currencies supported by improving economies, such as the British pound and New Zealand dollar, posted healthy gains against the US dollar.

The Australian dollar meanwhile extended its 2013 sell-off to under 0.87 in late January 2014, its weakest level since 2010. However, sustained recovery began in early February when EM markets improved and the RBA moved to a neutral bias on the cash rate. The AUD, like many other major currencies strengthened against the US dollar into Q2 2014 as US yields were capped by the US economy’s struggles with a severe winter and other headwinds. The US 10 year Treasury note for instance mostly traded around 2.60–2.80% from February to April, compared to yields above 3.00% in early January.

Aggregate FX volumes in Australia increased marginally to $42.9 trillion; currency options volumes declined 15%. AUD spot volumes fell 5%, while AUD forward and AUD swap volumes increased 20% and 7% respectively. The upswing in turnover from 2012 to early 2013 was driven largely by anticipation of the Bank of Japan’s aggressive new monetary policy, which was announced in April 2013 and has not been significantly altered since. Price action outside EMs has become more subdued.

Measures of FX volatility remain low, consistent with the overall relative stability in FX volumes. Over the remainder of 2014 there are numerous potential factors that could boost volatility and FX turnover, including possible further stimulus from the Bank of Japan and/or the European Central Bank, and geopolitical risk such as the Ukraine crisis. n


Foreign exchange Annual Turnover Summary (AUD billion)

survey Year with local financial institutions with overseas financial institutions with non-financial institutions Total

AUD SPoT

2009-10 1,025 2,881 1,311 5,217

2010-11 855 2,833 1,208 4,896

2011-12 778 2,941 1,229 4,949

2012-13 774 2,687 851 4,312

2013-14 747 2,896 455 4,099

% change (3.5) 7.8 (46.5) (4.9)

non AUD SPoT

2009-10 765 7,753 945 9,463

2010-11 880 5,651 425 6,957

2011-12 804 4,891 199 5,895

2012-13 853 5,715 192 6,759

2013-14 788 5,746 177 6,712

% change (7.5) 0.6 (7.7) (0.7)

AUD ForWArD

2009-10 459 466 246 1,172

2010-11 498 520 310 1,328

2011-12 523 501 410 1,434

2012-13 605 468 509 1,581

2013-14 840 554 506 1,900

% change 39.0 18.3 (0.5) 20.2

non AUD ForWArD

2009-10 135 521 43 700

2010-11 171 694 81 946

2011-12 173 551 84 808

2012-13 171 635 127 932

2013-14 177 580 126 883

% change 3.6 (8.6) (0.7) (5.3)

AUD SWAP

2009-10 3,912 8,399 431 12,742

2010-11 3,878 11,928 574 16,380

2011-12 4,149 10,012 827 14,988

2012-13 3,418 10,611 728 14,757

2013-14 4,232 11,164 406 15,803

% change 23.8 5.2 (44.3) 7.1

non AUD SWAP

2009-10 2,872 8,901 369 12,142

2010-11 2,725 10,864 422 14,011

2011-12 1,465 9,811 573 11,850

2012-13 1,599 11,607 855 14,061

2013-14 1,349 11,761 406 13,517

% change (15.6) 1.3 (52.5) (3.9)

cont..


currency options Annual Turnover Summary (AUD million)

survey Yearsurvey



Managershedge Funds



cUrrency oPTIonS (AUD Leg)

2009-10 55,784 254,152 113,133 4,180 14,091 1,110 653 86,279 529,382

2010-11 53,538 202,463 89,307 19,468 2,121 1,895 19 100,607 469,418

2011-12 47,783 205,216 168,017 12,846 2,032 594 294 140,884 577,666

2012-13 68,547 301,978 321,284 36,035 5,245 119 0 289,584 1,022,792

2013-14 48,673 225,411 259,364 35,083 4,373 172 0 253,805 826,881

% change (29.0) (25.4) (19.3) (2.6) (16.6) 44.2 na (12.4) (19.2)

cUrrency oPTIonS (no AUD Leg)a

2009-10 10,870 97,245 34,730 2,183 5,535 352 1,079 24,271 176,265

2010-11 23,262 139,317 67,678 9,153 1,896 93 1,608 17,661 260,668

2011-12 21,235 181,767 118,085 4,688 2,648 56 1,689 19,543 349,711

2012-13 17,116 100,178 80,984 8,896 706 0 2,202 41,349 251,431

2013-14 15,562 102,409 77,966 13,078 415 0 0 46,643 256,075

% change (9.1) 2.2 (3.7) 47.0 (41.2) na (100.0) 12.8 1.8

ToTAL

2009-10 66,654 351,398 147,863 6,363 19,626 1,462 1,732 110,550 705,648

2010-11 76,799 341,780 156,985 28,621 4,017 1,988 1,627 118,268 730,085

2011-12 69,018 386,983 286,102 17,534 4,680 650 1,983 160,427 927,377

2012-13 85,664 402,155 402,268 44,931 5,951 119 2,202 330,933 1,274,223

2013-14 64,235 327,820 337,330 48,162 4,788 172 0 300,448 1,082,955

% change (25.0) (18.5) (16.1) 7.2 (19.5) 44.2 (100.0) (9.2) (15.0)

a turnover for currency with no AuD leg was collected in usD and converted to AuD using an average end of month exchange rates as reported by the rBA.

Foreign exchange Annual Turnover Summary (AUD billion)...cont’

survey Year with local financial institutions with overseas financial institutions with non-financial institutions Total

ToTAL

2009-10 9,169 28,922 3,345 41,436

2010-11 9,007 32,491 3,019 44,517

2011-12 7,893 28,708 3,322 39,923

2012-13 7,419 31,721 3,262 42,403

2013-14 8,135 32,702 2,077 42,914

% change 9.6 3.1 (36.3) 1.2

FX data is supplied by the rBA


1 44.0 44.0

2 22.0 66.0

3 14.1 80.1

4 10.0 90.2



2009-10 99.7

2010-11 98.9

2011-12 100.0

2012-13 100.0


currency options Trading concentration

ForeiGn eXcHAnGe AnD currency options


During 2013-14, the electricity market was again impacted by uncertainty regarding carbon pricing and in particular the prospect of the retrospective repeal of the carbon pricing mechanism. The combination of this uncertainly coupled with continued decline in demand had an adverse impact upon liquidity. Consequently, turnover fell over the course of the year in over-the counter contracts, offset by increases in exchange traded contracts..

Looking ahead, the removal of the carbon pricing mechanism is likely to have a positive impact upon liquidity, in particular with respect to futures contracts, although uncertainties remain with respect to a future possible emissions trading scheme. These uncertainties have the potential to dampen liquidity, particularly in longer dated contracts. In this context, the AFMA Carbon Addendum will continue to be valuable in managing future carbon price uncertainty. The sale process for generation assets in New South Wales and impending sale in Queensland could impact negatively on liquidity if it leads to further vertical integration of generation and retail. n


02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-130

100

200

300

400

500

600

700

800

900

Milli

on m

egaw

att h

ours

ASX Total - Electricity

Figure 2: sTaTe annuaL Turnover

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-130

50

100

150

200

250

Milli

on m

egaw

att h

ours

NSW VIC SA QLD

electricity

Figure 3: eXChange TraDeD Turnover bY proDuCT

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-13

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

Trad

ed Vo

lumes

(meg

awat

t hou

rs)

Average Rate Options Financial Options Month Futures Caps

Calendar Options Quarterly Options Quarterly Futures

Figure 4: 2012-13 & 2013-14 Turnover bY insTruMenT

2013-2014

2012-2013

Caps13%

Swaps78%

Swaptions6%

Collars and Asian Options3%

Other Options8%

Swaptions8%

Caps4%

Swaps79%

Collars and Asian Option1%s


electricity Annual Turnover Summary (megawatt hours)

survey Year generators retailers intermediaries other Total ≤ 12 months (%) > 12 months (%)

SWAPS

2009-10 54,591,445 58,917,668 37,716,340 11,549,882 162,775,335 82 17.5

2010-11 55,495,212 45,339,753 53,164,419 7,795,126 161,794,510 86.5 13.5

2011-12 41,823,620 50,847,189 60,137,201 0 152,808,010 93.1 6.9

2012-13 106,386,757 98,303,627 24,004,474 205,230 228,900,088 61.3 38.7

2013-14 73,734,278 61,595,315 52,016,882 7,960,988 195,307,462 68.5 31.5

% change (30.7) (37.3) 116.7 3779.1 (14.7)

cAPS

2009-10 15,137,089 12,868,469 1,146,720 2,038,830 31,191,108 78 21.7

2010-11 58,743,193 20,277,730 1,432,040 3,697,875 84,150,838 18.9 81.1

2011-12 4,529,727 5,593,927 3,308,004 0 13,431,658 99.2 0.8

2012-13 8,400,609 3,935,266 296,040 90,000 12,721,915 79.2 20.8

2013-14 11,930,012 8,557,454 1,074,813 11,645,160 33,207,439 39.0 61.0

% change 42.0 117.5 263.1 12839.1 161.0

SWAPTIonS

2009-10 3,409,800 1,781,171 951,420 4,817,400 10,959,791 77 23.3

2010-11 2,304,520 788,400 0 4,996,920 8,089,840 88.2 11.8

2011-12 4,461,480 3,706,620 49,219,824 0 57,387,924 95.9 4.1

2012-13 14,961,600 5,830,380 2,338,440 0 23,130,420 33.2 66.8

2013-14 5,756,900 3,588,500 827,400 3,585,000 13,757,800 42.2 57.8

% change (61.5) (38.5) (64.6) na (40.5)

coLLArS AnD ASIAn oPTIonS

2009-10 142,200 0 887,400 0 1,029,600 100 0.0

2010-11 175,180 7,651,104 195,840 0 8,022,124 100.0 0.0

2011-12 322,140 1,042,740 1,122,360 0 2,487,240 100.0 0.0

2012-13 2,603,160 629,145 1,025,955 0 4,258,260 96.8 3.2

2013-14 3,360,420 2,237,025 1,681,500 300,000 7,578,945 94.2 5.8

% change 29.1 255.6 63.9 na 78.0

oTher oPTIonS

2009-10 197,460 14,859,720 0 0 15,057,180 5 94.8

2010-11 110,040 49,105,800 320,400 3,002,496 52,538,736 6.4 93.6

2011-12 552,600 336,000 27,300 0 915,900 60.6 39.4

2012-13 11,212,440 10,956,000 0 0 22,168,440 1.0 99.0

2013-14 799,020 109,500 0 0 908,520 100.0 0.0

% change (92.9) (99.0) na na (95.9)

ToTAL

2009-10 73,477,994 88,427,027 40,701,880 18,406,112 221,013,013 78 22.0

2010-11 116,828,145 123,162,787 55,112,699 19,492,417 314,596,048 55.4 44.6

2011-12 51,689,567 61,526,475 113,814,689 0 227,030,731 94.1 5.9

2012-13 143,564,566 119,654,417 27,664,909 295,230 291,179,122 55.8 44.2

2013-14 95,580,630 76,087,794 55,600,595 23,491,148 250,760,166 64.0 36.0

% change (33.4) (36.4) 101.0 7856.9 (13.9)

electricity


ASx energy, ASx electricity Traded volumes (megawatt hours)

survey Year Futures Quarterly options average rate

optionsa Calendar options Financial options Caps Total

2009-10 258,787,929 211,425 na 104,879,280 na 35,018,496 398,897,130

2010-11 322,631,835 73,200 na 160,075,200 na 65,861,904 548,642,139

2011-12 253,121,325 na na 139,738,464 na 44,045,112 436,904,901

2012-13 192,093,153 na na 93,337,800 7,621,200 48,643,080 341,695,233

2013-14 200,404,656 na 8,590,248 80,597,400 54,583,584 42,522,840 386,698,728

% change 4.3 na na (13.6) 616.2 (12.6) 13.2

Data is supplied by AsX energya Average rate options first listed in 2013

Market rank % Market share % Cumulative share

1 20.2 20.2

2 19.9 40.1

3 15.3 55.5

4 11.8 67.3

5 9.7 77.0

6 8.1 85.1

7 6.3 91.3

8 4.5 95.8

Top 8 respondents % Market share

2009-10 79.2

2010-11 90.9

2011-12 91.1

2012-13 92.0

2013-14 95.8

electricity Trading concentration

electricity Liquidity ratio (megawatt hours)

survey Year neM system Demanda Turnover ratio

2009-10 195,336,797 619,910,143 3.2

2010-11 192,295,774 863,238,186 4.5

2011-12 188,952,811 663,935,631 3.5

2012-13 183,727,278 632,874,555 3.4

2013-14 178,614,319 587,177,866 3.3a neM system Demand data is supplied by AsX


environmental productsBoth state and federal environmental schemes have continued to face significant regulatory risk, which has created uncertainty in these markets. Due to this uncertainty, these markets have generally suffered from a lack of trading activity. This is evident in that total traded volume year-on-year has decreased significantly, thus resulting in reduced liquidity. Broker trade volume for the year was down about 25% from 2013 to 2014.

The Large-Scale Renewable Energy market has been on a downtrend recently. The government has been undertaking a review of the renewable energy target (RET) (large and small-scale) in 2014. This review comes less than two years after the last review and is related to the federal government’s focus on reducing consumer electricity costs.

Consequently, regulatory uncertainty has increased in this market. Many future projects have been frozen at the project-approval stage and building works delayed until the outcome of the 2014 review is clearer.

The spot Small-Scale Renewable Technology market has been trading within $1.50 of the Clearing House price ($40) and has traded as high as $39.40. This is mostly due to the balance between supply and demand being very tight. As a result, traded volume for the year is down considerably.

The Queensland Gas Scheme closed at the end of the 2013 compliance year, with no further Gas Electricity Certificates (GECs) creation or liability after this time.

The Victoria Energy Efficiency Target is going through an economic valuation of its products and services by the state government. This has created more regulatory risk in a fragile market. The results of the review should be announced in the second half of 2014.The New South Wales Energy Savings Scheme is yet another scheme facing regulatory risk by experiencing a state review.

Australian Carbon Credit Units will now be abolished due to the repeal of the carbon tax in July 2014. n

Figure 1: ToTaL reCs annuaL Turnover

02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 FY13-1412-130

10

20

30

40

50

60

70

80

Milli

on ce

rtic

ates

Figure 2: ToTaL reCs Turnover bY insTruMenT perioD

201340%

201510%

20163%

201447%

Figure 3: Large sCaLe generaTion CerTiFiCaTe Turnover bY insTruMenT perioD

201313%

201436%

201536%

201613%

2017+2%

Figure 4: sMaLL sCaLe TeChnoLogY CerTiFiCaTe Turnover bY insTruMenT perioD

201349%

201450%

20151%

Figure 5: gas CerTiFiCaTes annuaL Turnover

0.00000

2.00000

4.00000

6.00000

8.00000

10.00000

2009-10 2010-11 2011-12 2012-13 2013-14

Milli

on ce

rti�c

ates

Tran

sacte

d


Total renewable energy certificates Annual Turnover Summary 2013-14 (certificates)

instruments eligible producer Liable party intermediaries Total

2013

Forwards 4,641,742 534,985 2,226,251 7,402,978

options 0 75,000 0 75,000

sub total 4,641,742 609,985 2,226,251 7,477,978

2014

Forwards 4,098,986 1,173,303 2,598,525 7,870,813

options 205,000 155,002 425,009 785,011

sub total 4,303,986 1,328,305 3,023,534 8,655,824

2015

Forwards 200,006 107,503 395,006 702,515

options 190,000 290,001 625,003 1,105,004

sub total 390,006 397,504 1,020,009 1,807,519

2016

Forwards 150,000 0 95,000 245,000

options 175,000 75,000 125,003 375,003

sub total 325,000 75,000 220,003 620,003

2017+

Forwards 66,000 0 10,000 76,000

options 0 0 0 0

sub total 66,000 0 10,000 76,000

ToTAL recS

Forwards 9,156,734 1,815,791 5,324,781 16,297,306

options 570,000 595,003 1,175,015 2,340,018

total 9,726,734 2,410,794 6,499,796 18,637,324

Market rank % Market share % Cumulative share

1 37.4 37.4

2 25.5 62.9

3 17.6 80.5

4 9.5 90.0


2009-10 86.5

2010-11 89.3

2011-12 93.4

2012-13 86.3

2013-14 90.0a Large and small scale RECs combined

renewable energy certificates Trading concentration

Total renewable energy certificates Annual Turnover Summary (certificates)

survey Year eligible producer Liable party intermediaries Total

2009-10 7,712,653 5,040,791 8,736,038 21,489,482

2010-11 32,562,638 9,916,500 4,869,075 47,348,213

2011-12 32,503,717 9,804,744 19,429,597 61,738,057

2012-13 20,668,565 26,768,857 30,356,781 77,794,203

2013-14 9,726,734 2,410,794 6,499,796 18,637,324

% change (52.9) (91.0) (78.6) (76.0)


gas electricity certificates Annual Turnover Summary 2013-14 (certificates)

instruments eligible producer Liable party intermediaries Total

2013

Forwards 0 223,048 0 223,048

options 0 0 0 0

sub total 0 223,048 0 223,048

2014

Forwards 0 0 0 0

options 0 0 0 0

sub total 0 0 0 0

2015

Forwards 0 0 0 0

options 0 0 0 0

sub total 0 0 0 0

2016

Forwards 0 0 0 0

options 0 0 0 0

sub total 0 0 0 0

2017 +

Forwards 0 0 0 0

options 0 0 0 0

sub total 0 0 0 0

ToTAL gAS

Forwards 0 223,048 0 223,048

options 0 0 0 0

total 0 223,048 0 223,048

gas electricity certificates Annual Turnover Summary (certificates)

survey Year eligible producer Liable party intermediaries Total

2009-10 1,027,500 1,013,994 322,500 2,363,994

2010-11 7,404,740 1,134,744 0 8,539,484

2011-12 842,000 598,950 0 1,440,950

2012-13 826,250 1,089,707 709,069 2,625,026

2013-14 0 223,048 0 223,048

% change (100.0) (79.5) (100.0) (91.5)

environMentAl proDucts


Primary Market Activity

new capital raisings for cash (AUD million)

survey Year Floats rights placement Calls options employee Drp sp plans other*Total Cash raisings

% of average Market cCap

2009-10 11,460 23,182 23,120 683 138 2,300 10,186 5,474 4 76,547 5.8%

2010-11 29,387 7,362 8,952 119 251 1,856 7,768 1,123 6,314 63,132 4.6%

2011-12 10,187 8,060 12,234 9 275 2,118 9,327 535 1 42,745 3.5%

2012-13 9,908 3,952 18,663 50 390 1,904 6,939 548 0 42,355 3.2%

2013-14 27,659 7,699 18,394 1 210 1,177 4,593 1,304 0 61,037 4.0%

% change 179.2 94.8 (1.4) (98.0) (46.2) (38.2) (33.8) 138.0 44.1* includes privatisations and prospectusesData may not add properly due to rounding

companies Listed on ASx at 30 June 2014

survey Yearno. of Companies with Quoted

securitiesMarket Capitalisation of all

Listed equitiesDomestic Companies with

Quoted equitiesMarket Capitalisation with

Listed Domestic equitiesMarket value of average

Domestic Company

2009-10 1,975 1,341,797 1,893 1,253,711 662

2010-11 2,034 1,445,469 1,941 1,348,534 695

2011-12 2,012 1,270,579 1,916 1,185,936 619

2012-13 1,989 1,495,715 1,888 1,347,186 714

2013-14 1,991 1,633,536 1,891 1,551,594 821

% change 0.1 9.2 0.2 15.2 15.0

Secondary Market Activity

equity Trading on ASx

survey Yearnumber of shares

(million)annual value (auD million) Trades(‘000)

average Daily Trades

average Daily value (auD million)

2009-10 659,424 1,359,304 132,250 522,729 5,373

2010-11 670,096 1,339,140 144,321 570,440 5,293

2011-12 510,530 1,185,327 165,806 655,359 4,685

2012-13 415,121 1,045,952 174,750 693,454 4,151

2013-14 398,708 1,008,897 181,861 718,817 3,988

% change (4.0) (3.5) 4.1 3.7 (3.9)

exchange Traded Market Data


Turnover as % of Average Market cap (AUD billion)

survey Year equity Turnover average Domestic Market Cap % Liquidity

2009-10 1,359 1,325 103

2010-11 1,339 1,383 97

2011-12 1,185 1,230 96

2012-13 1,046 1,341 78

2013-14 1,009 1,517 67

% change (3.5) 13.1 (14.7)

equity Derivatives

equity Derivatives contract volume (‘000)

survey Year Call Tradesa put Tradesa Total Contractsa spi 200® Futures spi 200® options

2009-10 11,977 9,677 21,654 9,738 352

2010-11 27,316 19,932 47,248 10,506 379

2011-12b 94,755 69,143 163,898 11,811 477

2012-13 90,937 66,356 157,293 10,259 349

2013-14 72,031 52,561 124,592 9,715 473

% change (20.8) (20.8) (20.8) (5.3) 35.6a includes stock options, cash index options and leposb in May 2011 contract sizes for etos were converted from 1000 to 100.

equity Derivatives Turnover by notional value (AUD billion)

survey Year stock options Cash index optionsa Lepos spi 200® Futures spi 200® options

2009-10 297.0 197.0 10.4 1,099 40

2010-11 352.0 314.0 14.5 1,206 44

2011-12 337.4 474.2 4.5 1,222 50

2012-13 313.1 538.7 10.6 1,169 40

2013-14 273.5 409.7 13.8 1,280 62

% change (12.6) (23.9) 30.2 9.5 55.5a includes cash index lepos

Warrants: no. of Issues, Turnover by number of Trades and contract value

survey Year number of issues Trades ('000) Contract value (auD million)

2009-10 2,226 485 5,987

2010-11 2,409 282 2,948

2011-12 4,743 333 3,630

2012-13 5,140 319 3,758

2013-14 3,564 350 3,815

% change (30.7) 9.7 1.5

Data from previous years has been reviewed and some figures have been adjusted.

eXcHAnGe trADeD MArket DAtA


Notio

nal v

alue (

AUD

billio

n)

Cash Equity Turnover SPI 200® Futures Turnover Futures to Cash ratio

-10%

10%

30%

50%

70%

90%

110%

130%

150%

0

200

400

600

800

1,000

1,200

1,400

1,600

2009-10 2010-11 2011-12 2012-13 2013-14

SPI 2

00® F

utur

es /

Cash

Equit

y Tur

nove

r Rat

io

cash equity turnover has decreased slightly over the past 5 years while spi 200® Futures notional value turnover has increased.As a result there is a longer term trend for an increasing Futures to cash turnover ratio.

Interest rate and energy Derivatives

Futures and options Turnover contract volume

survey Year 30 Day ib 90 Day bills 3 Year bonds 10 Year bonds electricity graina otherb Total exchangec

FUTUreS voLUMe

2009-10 3,691 16,538 30,196 11,274 145.1 386.1 9,753 71,597

2010-11 6,195 20,729 38,832 15,230 203.0 473.8 10,513 91,702

2011-12 5,334 21,652 42,499 17,216 170.9 432.5 11,836 98,992

2012-13 4,780 25,866 47,492 21,211 161.0 353.3 10,278 110,141

2013-14 3,517 25,903 47,886 25,520 157.0 181.3 9,720 112,884

% change (26.4) 0.1 0.8 20.3 (2.5) (48.7) (5.4) 2.5

oPTIonS voLUMe

2009-10 0 37 2,459 6 12.3 1.7 352 2,866

2010-11 0 52 4,105 8 18.3 10.0 379 4,562

2011-12 0 25 2,354 3 15.9 12.9 477 2,886

2012-13 0 7 3,882 20 11.5 6.9 349 4,276

2013-14 0 4 3,466 25 19.9 1.5 474 3,990

% change 0.0 (43.3) (10.7) 25.9 73.0 (78.4) 36.0 (6.7)

ToTAL

2009-10 3,691 16,575 32,655 11,280 157.3 387.8 10,105 74,463

2010-11 6,195 20,781 42,937 15,238 221.3 483.2 10,892 96,264

2011-12 5,334 21,677 44,853 17,219 186.8 445.5 12,313 101,878

2012-13 4,780 25,873 51,374 21,231 172.5 360.2 10,626 114,417

2013-14 3,517 25,907 51,352 25,545 176.9 182.8 10,194 116,874

% change (26.4) 0.1 0.0 20.3 2.6 (49.2) (4.1) 2.1

Data does not include nZ dominated contractsa Where the exchange is that operated by Australian securities exchange ltdb AsX Grain Futures & options market was migrated to AsX 24 on 24.10.2011. the data listed is not included in the “total exchange” data.c other includes spi 200 Futures and options, Wool Futures and options and environmental contracts

spi 200® FuTures To Cash eQuiTY Turnover


Futures and options Turnover by contract value (AUD billion)

survey Year 30 Day ib 90 Day bills ir 3 Year bonds YT 10 Year bonds XT electricity graina otherb Total exchangec

FUTUreS voLUMe

2009-10 11,073 16,538 3,020 1,127 11.6 n.a. 1,117 32,887

2010-11 18,586 20,729 3,883 1,523 13.9 n.a. 1,224 45,959

2011-12 16,001 21,652 4,250 1,722 13.4 n.a. 1,248 44,887

2012-13 14,340 25,866 4,749 2,121 14.7 n.a. 1,215 48,308

2013-14 10,551 25,904 4,789 2,552 15.6 1.0 1,280 45,092

% change (26.4) 0.1 0.8 20.3 5.9 na 5.3 (6.7)

oPTIonS voLUMe

2009-10 0 37 246 1.0 4.3 na 39.7 328

2010-11 0 52 410 1.0 6.2 na 43.8 513

2011-12 0 25 235 0.3 7.3 na 50.4 318

2012-13 0 7 388 2.0 5.5 0.04 39.5 442

2013-14 0 4 347 2.5 6.0 0.01 62.1 421

% change 0.0 (43.3) (10.7) 25.9 8.4 (75) 57.4 (4.7)

ToTAL

2009-10 11,073 16,575 3,266 1,128 15.9 na 1,157 33,216

2010-11 18,586 20,781 4,293 1,524 20.1 na 1,268 46,472

2011-12 16,001 21,677 4,485 1,722 20.7 na 1,299 45,205

2012-13 14,340 25,873 5,137 2,123 20.2 0.0 1,255 48,750

2013-14 10,551 25,908 5,135 2,555 21.6 1.0 1,342 45,513

% change (26.4) 0.1 0.0 20.3 6.6 na 7.0 -6.6%a Where the exchange is that operated by Australian securities exchange ltdb AsX Grain Futures & options market was migrated to AsX 24 on 24.10.2011. the data listed is not included in the “total exchange” data.c other includes spi 200 Futures and options, Wool Futures and options and environmental contracts.Data from previous years has been reviewed and some figures have been adjusted.

Futures and options open Interest at 30 June 2014

survey Year 30 Day ib 90 Day bills ir 3 Year bonds YT 10 Year bonds XT electricity graina otherb Total exchangec

2009-10 271,465 662,475 577,552 334,255 65,536 89,395 446,657 2,357,940

2010-11 463,462 898,667 728,919 409,668 46,360 108,774 428,880 2,975,956

2011-12 200,978 697,579 429,792 374,093 43,421 52,974 436,731 2,235,568

2012-13 224,404 894,281 497,426 436,194 45,117 29,832 314,574 2,441,828

2013-14 170,400 935,972 731,156 598,736 55,729 19,418 314,841 2,826,252

% change (24.1) 4.7 47.0 37.3 23.5 (34.9) 0.1 15.7a Where the exchange is that operated by Australian securities exchange ltdb AsX Grain Futures & options market was migrated to AsX 24 on 24.10.2011. the data listed is not included in the “total exchange” data.c other includes spi 200 Futures and options, Wool Futures and options and environmental contracts.

eXcHAnGe trADeD MArket DAtA


Bonds and hybrids

survey Year number Market cap (a$ b) value (a$ m) volume Total trades (#)

AUSTrALIAn governMenT BonDS (AgBS)

2012-13 23 $277.5 $4.4 39,988 148

2013-14 26 $347.8 $53.8 481,172 1,173

% change 13.0 25.3 1116.1 1103.3 692.6

corPorATe BonDS – FIxeD rATe

2012-13 4 $0.3 $55.6 524,915 2,595

2013-14 4 $0.3 $39.8 382,501 1,612

% change 0.0 0.9 (28.4) (27.1) (37.9)

corPorATe BonDS – FLoATIng rATe (FrnS)

2012-13 24 $13.3 $3,172.7 32,424,382 145,631

2013-14 24 $14.6 $3,020.5 30,478,678 114,246

% change 0.0 9.6 (4.8) (6.0) (21.6)

PreFerence ShAreS

2012-13 33 $22.2 $4,878.6 44,784,403 245,594

2013-14 34 $26.3 $5,264.1 52,175,470 209,994

% change 3.0 18.8 7.9 16.5 (14.5)

converTIBLe noTeS

2012-13 17 $1.8 $357.4 14,109,567 20,837

2013-14 14 $1.8 $377.4 43,865,423 16,535

% change (17.6) 0.5 5.6 210.9 (20.6)

number and Market cap are as at 30 June. value, volume and number of trades are the totals for the financial year.


The Australian Financial Markets Report (AFMR) is produced by aggregating and analysing data submitted by the over-the-counter (OTC) market participant organisations as determined by the relevant AFMA Market Committees.

Integrity checks

Before publishing survey results, comprehensive analyses are undertaken to ensure data integrity, including checking for:

– variations from prior years in participant data (where available) and aggregated data

– comparative variations in trends of participant data consistency in aggregated data for individual markets through to summary results

– consistency with other data sources.

Data Sources

The bulk of the data is related to OTC markets. As no central repository of such data exists, an extensive survey of OTC market participants is conducted.

Twenty seven participants submitted 106 data surveys including Foreign Exchange data as provided to the Reserve Bank of Australia. Data relating to exchange-traded financial products was provided by the Australian Securities Exchange (ASX) and Chi-X Australia.

Sources of Data Utilised

Financial Market Data Source

–– Over-the-Counter (except FX)–– Equities and Futures –– Foreign Exchange

–– Respondent surveys–– Australian Securities Exchange–– Reserve Bank of Australia

Survey respondents and coverageThe 2014 survey covers the period 1 July 2013 to 30 June 2014.

Two important points should be noted regarding the survey coverage. The first relates to the types of transactions included and the second to respondent selection.

First, the survey reports transactions:

–– dealt, risk managed and settled by offices in Australia (Australian booking entity)

–– dealt and risk managed by offices in Australia but settled by offices offshore (offshore booking entity)

–– dealt by offices offshore but risk managed and settled by offices in Australia (Australian booking entity)

–– dealt and settled by offices in Australia but risk managed by offices offshore (Australian booking entity)

The survey excludes transactions:

–– dealt and settled by offices offshore but risk managed by offices in Australia (offshore booking entity)

–– dealt and risk managed by offices offshore but settled by offices in Australia (Australian booking entity)

–– dealt, risk managed and settled by offices offshore (offshore booking entity).

Second, to provide the best possible picture of the state of Australian OTC markets, the survey aims to capture the vast majority of activity in each market. This is achieved in two related ways:

1. Participants in each survey were determined by the relevant AFMA Market Committee, thus ensuring all major participants in that market were included. Appendix B is a summary of respondents.

2. Provided at least one party to any transaction is a survey respondent, it will be captured. Although transactions between non respondents are not captured, their magnitude is considered not to be significant given the process of respondent selection. The market concentration data presented in each section also supports this assumption. Transactions between survey respondents are aggregated separately and double counting is thus avoided. n

Methodology

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to find out how Maroon Analytics is able to help your organisation, please contact Ben Watson at [email protected] or visit our website at www.maroonanalytics.com

AppenDiX A


resp

onde

nts

(17)

Gov

ernm

ent

Deb

t

secu

ritie

s

(11)

non

-Gov

.

Deb

t

secu

ritie

s

(8)

neg

otia

ble

&

tran

sfer

able

inst

rum

ents

(13)

rep

urch

ase

Agre

emen

ts

(9)

swap

s

(10)

Forw

ard

rate

Agre

emen

ts

(8)

inte

rest

rate

opt

ions

(8)

cred

it

Der

ivat

ives

(7)

curr

ency

opt

ions

(5)

An

Z Ba

nkin

g G

roup

lim

ited

üü

üü

üü

üü

ü

Bank

of Q

ueen

slan

d li

mite

dü

Bnp

parib

asü

üü

üü

ü

citi

üü

üü

üü

ü

com

mon

wea

lth B

ank

of A

ustr

alia

üü

üü

üü

üü

ü

Deu

tsch

e Ba

nk A

Gü

üü

üü

üü

ü

HsB

c Ba

nk A

ustr

alia

lim

ited

üü

inG

Ban

k (A

ustr

alia

) lim

ited

ü

Jp M

orga

n ch

ase

Bank

, n.A

.ü

üü

üü

üü

üü

Mor

gan

stan

ley

Aust

ralia

lim

ited

üü

nat

iona

l Aus

tral

ia B

ank

lim

ited

üü

üü

üü

üü

ü

nom

ura

Aust

ralia

lim

ited

ü

rabo

bank

ned

erla

nd (A

ustr

alia

Bra

nch)

ü

roya

l Ban

k of

can

ada

ü

sunc

orp

Met

way

ltd

ü

uBs

AG

Aus

tral

ia B

ranc

hü

üü

Wes

tpac

Ban

king

cor

pora

tion

üü

üü

üü

üü

ü

survey respondentsover-the-counter Markets

AppenDiX B


energy Markets

respondents

(11)

electricity

(11)

environmental products

(7)

AGl energy limited ü ü

AnZ Banking Group ü

energy Australia ü ü

ergon energy corporation limited ü

erM power ü ü

intergen (Australia) pty ltd ü

Macquarie Group limited ü

origin energy ü ü

snowy Hydro ü ü

stanwell ü ü

Westpac Banking corporation ü ü

AppenDiX B


The surveys for each OTC market covered a range of activity attributes. Data was collected on turnover, number of transactions, outstandings, maturity and brokered activity by instrument type and counterparty.

Counterparty types, instruments and other survey attributes are defined below.

counterparty Definitions

counterpArty type survey DeFinitions

survey respondents those organisations identified in Appendix B.

other Banks non survey respondents who are Authorised Deposit-taking institutions classified as banks (Australian owned, Foreign subsidiary or

Branches of Foreign Banks licensed under the commonwealth Banking Act 1959) and regulated by AprA.

in-house internal trading desks and internal divisions, both onshore and offshore.

Funds Managers –

traditional

life offices, other insurance companies, superannuation Funds and other nominee and trust structures.

Funds Managers –

Hedge Funds/ctAs

Hedge Funds and commodity trading Advisors.

Government commonwealth and state Governments, reserve Bank of Australia and central Borrowing Authorities, including semi-government bodies

and the Australian office of Financial Management

offshore central Banks Foreign central Banks and oecD foreign government sponsored authorities and instrumentalities.

offshore counterparties organisations located in a country other than Australia, including branches and subsidiaries of survey respondent organisations.

Brokers Market participants which do not take positions but bring together two counterparties to a transaction.

retailers entities whose predominant business is selling electricity.

Generators entities whose predominant business is producing electricity.

eligible producers entities able to create renewable energy certificates (recs), nsW Greenhouse Abatement certificates (nGAcs) or Gas electricity

certificates (Gecs) from accredited forms of activity under the applicable scheme rules.

liable parties entities required to surrender recs/nGAcs/Gecs to the appropriate regulatory body.

intermediaries entities undertaking electricity/recs/nGAcs/Gecs transactions that are not retailers, Generators, eligible producers or liable parties.

other counterparties counterparties not identified in the above categories.

Definitions of InstrumentsinstruMent DeFinition

governMenT DeBT SecUrITIeS

commonwealth Government Bonds interest bearing bonds that are debt obligations of the commonwealth Government.

state Government Bonds interest bearing state Government bonds (e.g. nsW tcorp) that are issued by states and territories.

Foreign Government Bonds interest bearing bonds (denominated in any currency) that are issued by foreign sovereigns, supranationals or government agencies.

survey Design

AppenDiX c


instruMent DeFinition

non-governMenT DeBT SecUrITIeS

corporate securities interest bearing obligations issued by a corporation.

Bank securities interest bearing obligations (negotiable certificates of deposit and transferable certificates of deposit) issued by an Authorised Deposit-taking institution (Australian owned Banks, Foreign subsidiary or Branches of Foreign Banks licensed under the commonwealth Banking Act 1959 and regulated by AprA).

Bank securities commonwealth Guaranteed interest bearing bonds issued by an Authorised Deposit-taking institution with the support of a commonwealth Government guarantee.

Mortgage Backed securities residential Mortgage Backed securities (rMBs) and commercial Mortgage Backed securities (cMBs). Australian rMBs are securitised prime and non-prime residential mortgages. cMBs reference a commercial mortgage loan pool.

other Asset Backed securities (ABs) securities collateralised by assets other than mortgage loans, for example, receivables derived from motor vehicle loans, credit cards, personal loans and royalties.

offshore AuD issues Australian eurobonds that are sold offshore and denominated in Australian currency (e.g. ‘uridashi’ issuance).

Foreign non Government issues kangaroo bonds (or notes) that are issued in the Australian domestic market by foreign non-government borrowers.

covered Bonds covered bonds are debt securities backed by cash flows from mortgages and remain on the issuer’s consolidated balance sheet.

negoTIABLe AnD TrAnSFerABLe InSTrUMenTS

treasury notes notes issued by the commonwealth of Australia.

semi Government paper state Government, Defence Housing Authority, civil Aviation Authority, Federal Airports corporation and other government instrumentalities’ paper.

Bank paper Bank accepted bills and negotiable certificates of deposits of banks licensed under the Banking Act.

corporate paper commercial bills and promissory notes.

Foreign Government paper paper issued by foreign sovereigns, supranationals or government agencies in any currency.

recIProcAL PUrchASe AgreeMenTS

commonwealth Government Bonds Bonds where interest is paid at a predetermined and unchanging rate for a specified period. interest bearing bonds that are debt obligations of the commonwealth Government.

state Government Bonds state-Government bonds (e.g. nsW tcorp) that are issued by states and territories.

other Government Bonds Foreign Government bonds (e.g. supranationals).

corporate and Bank Bonds long-term instruments including bonds and Floating rate notes.

treasury notes includes notes issued by the reserve Bank of Australia.

semi-Government promissory notes includes state Government instruments and Defence Housing Authority, civil Aviation Authority, Federal Airports corporation and other government instrumentalities’ paper.

corporate and Bank paper short-term money market instruments including bank bills, certificates of deposits and promissory notes.

residential Mortgage Backed securities residential Mortgage Backed securities with maturities of greater than one year.

Asset Backed commercial paper Asset Backed commercial paper with maturities of less than one year.

SWAPS

Fixed AuD:Floating AuD one party makes fixed AuD interest payments and the other floating AuD.

Floating AuD:Floating AuD (basis swaps) Both parties make floating AuD interest payment.

Fixed AuD:non-AuD one party makes fixed AuD interest payments and the other fixed or floating non-AuD.

Floating AuD:non-AuD one party pays floating AuD interest payments and the other fixed or floating non-AuD.

non-AuD:non-AuD Both parties make non-AuD interest payment.

inflation-linked swaps one party make payments linked to the inflation rate and the other pays fixed.

overnight index swaps An exchange of a fixed for floating interest rate with a designated overnight index tied to the floating rate.

ForWArD rATe AgreeMenTS

Forward rate agreements (FrA) types include: AuD (in AuD), usD (in usD), Jpy (in Jpy), GBp (in GBp), euro (in eur), nZ (in nZD) and other (in usD).

InTereST rATe oPTIonS

Bond options Where the buyer has the right to buy (call option) or to sell (put option) a given bond at a specified rate on or before a specified future date.

swaptions Where the buyer has the right to enter into a swap on a future date at a predetermined fixed rate.

caps A series of options which places a ceiling on the level of interest on a floating rate borrowing. on prescribed reference dates, the seller will compensate the buyer if the settlement index is greater than the strike rate.

Floors A series of options which protects the buyer from a fall in interest rates below a specified rate. on prescribed reference dates, the seller will compensate the buyer if the settlement index is less than the strike rate.

AppenDiX c


instruMent DeFinition

creDIT DerIvATIveS

single name credit Default swaps one party pays a premium to transfer the credit risk of a single defined reference entity to a second party in return for a contingent payment should a defined credit event take place.

total rate-of-return (tror) swaps one party pays the positive credit and market performance on an underlying asset in return for receipt of a funding payment plus any negative credit and market performance on an underlying asset.

credit indices reference a portfolio of single name credit default swaps where the risk is additive rather than non-linear or correlated. it includes credit default swap indices.

cUrrency oPTIonS

currency pairs include: AuD/usD, AuD/Jpy, AuD/GBp, AuD/nZD, AuD/eur, all in AuD; and usD/Jpy, usD/GBp, usD/nZD, usD/eur and other all in usD.

ForeIgn exchAnge

local Financial institutions All financial institutions located in Australia including banks, currency funds, hedge funds and the reserve Bank of Australia.

overseas Financial institutions Foreign financial institutions.

non-Financial institutions institutions not identified above.

eLecTrIcITy

swaps the exchange of the difference between a fixed price per megawatt hour (MWh) of electric energy and a variable price that is referenced to the pool price, as determined by the market operator, in a stated reference node.

caps A series of options which places a ceiling on the pool price for electricity. the seller compensates the buyer, on the prescribed reference dates, if the pool price is greater than the strike rate.

swaptions (receiver’s/payer’s) the buyer of a call (put) swaption has the right, but not the obligation, to buy (sell) a swap on a future date at a predetermined fixed price. the fixed price of the swap is the strike price of the swaption.

collars and Asian options A series of options with a floating strike price which is determined according to the unweighted arithmetic mean of the relevant price for each calculation period between 0000 and 2400 in the calendar month, that is the calendar month in which the last calculation period with respect to the settlement date falls.

other options All other options not included in the above definitions.

envIronMenTAL ProDUcTS

Forwards the exchange of a specific quantity of recs, nGAcs or Gecs at a fixed price at pre-nominated delivery date.

options includes put and call options, swaptions, caps, floors and collars.

Definitions of Survey Attributessurvey terM survey DeFinition

turnover All sales and purchases, including both primary and secondary market, aggregated.

outstandings the amount of an instrument calculated by adding the absolute value of short and long positions as at 31 May 2012.

in the repurchase Agreements (repo) Market, outstandings is the gross value of all unexpired repurchase agreements, excluding any for-ward repo transactions. short and long positions are not netted. the value is calculated as the “face value” of the underlying stocks.

Maturity the remaining time until the final payment under the transaction. For options it is the expiry or exercise date.

Data Accuracy conventionsThe data in the market turnover summaries on pages 2-3 are rounded to the nearest AUD billion. Up to nine decimal places are carried forward in calculations. Thus, year-on-year percentage changes in the summary tables may not exactly match other table percentage changes due to rounding.

In addition, for all tables, percentage change and total calculations are based on the actual survey data collected rather than the aggregate numbers presented in the tables. Slight variations may occur due to rounding adjustments. n


The Australian Financial Markets Association (AFMA) was formed in 1986. Today we are the leading industry association promoting efficiency, integrity and professionalism in Australia’s financial markets – including the capital, credit, derivatives, foreign exchange and other specialist markets.

We have more than 130 members, from Australian and international banks, leading brokers, securities companies and state government treasury corporations to fund managers, energy traders and industry service providers. Our role is to provide a forum for industry leadership and to advance the interests of all these market participants.

Promoting best practice – AFMA promotes best practice in financial markets so they can continue to contribute to Australia’s

economic health. We do this by:

– Effectively managing Australia’s $78 trillion over-the-counter (OTC) markets;

– Developing widely accepted industry standards for transactional processing;

– Dealing with policy makers on effective regulation of Australia’s financial markets to inspire investors’ confidence; and

– Encouraging high standards of professional conduct through our professional development and accreditation programs.

our mission – advancing the interests of members – Promote Australia as a global centre for financial services;

– Help members grow their businesses and contribute to Australia’s economic wellbeing;

– Develop new markets for financial products;

– Encourage existing markets to reach their full potential;

– Lead and sustain effective management of OTC financial markets;

– Represent market participants in exchange-traded markets to ensure effective and efficient market processes and regulation;

– Encourage high standards of professional conduct;

– Develop individual expertise through professional development and accreditation programs; and

– Promote government policies and business conditions that support a strong financial sector.

enquiriesPhone: 02 9776 7900Email: [email protected] Box 3655 Sydney NSW 2001

Webwww.afma.com.au

about aFMa

ISSN 1444 7215

Disclaimer: Whilst every care has been taken by AFMA in preparing the content of this report, the content covered is not intended nor should it be relied upon as a

substitute for other appropriate professional advice, and AFMA will not be liable for errors or omissions in the content, or for any consequences resulting from any

errors or omissions, including any loss resulting from reliance on this content.

Copyright: © Australian Financial Markets Association – AFMR 2014. This report is subject to copyright. All or part of it can be reproduced for bona fide research or public

policy purposes with appropriate acknowledgement of the Australian Financial Markets Association.

GPO Box 3655 Sydney NSW 2001Telephone: + 61 2 9776 7900 Email: [email protected]

Australian Financial Markets Association

www.afma.com.au

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