Document ID: chunk:federal_register_of_legislation:F2022L01578:front:0:p18
Version: federal_register_of_legislation:F2022L01578
Segment Type: other
Provision Reference: 
Character Range: 48129–51407

a scope and frequency that reflects:
(a)          the nature and extent of its non-centrally cleared derivative activity;
(b)          the materiality and complexity of the risks it faces;
(c)          global regulatory standards imposed on similar institutions for similar transactions; and
(d)          market practice and industry protocols in the relevant derivative markets.

Portfolio compression
84.         An APRA covered entity must establish and implement policies and procedures to regularly assess and, to the extent appropriate, conduct portfolio compression.
85.         On either a bilateral or multilateral basis, portfolio compression must seek to replace economically-equivalent transactions by decreasing the number of transactions and/or the notional value of a portfolio.
86.         An APRA covered entity must conduct portfolio compression with a scope and frequency that reflects:
(a)          the nature and extent of its non-centrally cleared derivative activity;
(b)          the materiality and complexity of the risks it faces;
(c)          global regulatory standards imposed on similar institutions for similar transactions; and
(d)          market practice and industry protocols in the relevant derivative markets.

Valuation processes
87.         An APRA covered entity must agree with its covered counterparties and clearly document the process for determining the value of each non-centrally cleared derivative transaction at any time from the execution of the transaction to the termination, maturity, or expiration thereof, for the purpose of exchanging margin. Valuation processes must be reasonably designed to minimise the likelihood of disputes.
88.         All agreements on valuation process must be documented in the trading relationship documentation or trade confirmation.
89.         Valuation determinations must be based on economically similar transactions or other objective criteria. Documentation must include an alternative process or approach by which counterparties will determine the value of the non-centrally cleared derivative transaction in the event of the unavailability or other failure of any inputs required to value the transaction.
90.         An APRA covered entity must perform periodic review of the agreed upon valuation process to take into account changes in market conditions. An APRA covered entity must establish and implement policies and procedures for updating any such changes as a result of a review.

Dispute resolution
91.         An APRA covered entity must establish and implement policies and procedures designed to ensure rigorous and robust dispute resolution procedures are agreed with its covered counterparties prior to or contemporaneously with executing a non-centrally cleared derivative transaction. The dispute resolution procedures must address the mechanism or process for determining when discrepancies in material terms or valuations should be considered disputes as well as how such disputes should be resolved as soon as practicable.
92.         The dispute resolution mechanism or process must include the escalation of material disputes to senior management. The dispute resolution mechanism or process must include escalation to the Board where the dispute is considered