12 chapters with 53 sections
Australia's derivatives market is integral to its financial system, with activity concentrated in Sydney as the largest financial centre in Australia and the headquarter for many major financial institutions as well as the Australian Securities Exchange (ASX). It supports a variety of derivatives, with the key asset classes being equities, interest rates, credit, commodities (including agricultural products such as wheat and wool, metals and energy products) and foreign exchange. Participants include institutional investors, banks, corporations and hedge funds. Over-thecounter (OTC) derivatives dominate the market, alongside exchange-traded derivatives which are traded on platforms like the ASX.
Organised futures trading began in Australia with the Sydney Futures Exchange (SFE) in 1960, initially established to provide wool hedging facilities for the domestic industry. This commodity-focused foundation expanded significantly when the Australian Options Market launched in 1976, marking the market's evolution into financial derivatives. The transformation accelerated with the introduction of financial futures, commencing in 1979 with 90-day bank bills, followed by Share Price Index (SPI) futures in 1983 and bond futures in 1984. The floating of the Australian dollar in December 1983 proved a watershed moment, creating new currency and interest rate risks that drove substantial growth in derivatives trading as market participants sought hedging instruments. This period of rapid development culminated in the formation of the ASX in 1987 through state exchange amalgamation, which subsequently demutualised in 1996, listed on its own market in 1998, and merged with the SFE in 2006 to create an integrated securities and derivatives platform. Market crises have profoundly shaped the Australian derivatives landscape. The October 1987 crash saw SPI volumes collapse to just 10 per cent of pre-crash levels, whilst the 2008-09 financial crisis triggered even more fundamental changes, leading to G20 Pittsburgh Summit commitments that drove comprehensive reform of OTC derivatives markets globally, including in Australia. Following the G20 commitments, 2013 amendments to the Corporations Act enabled mandatory reporting and clearing obligations, with central clearing mandated in 2015 for interest rate derivatives in Australian dollars and four major global currencies for internationally active dealers. Parallel to these regulatory developments, technological transformation revolutionised market structure. The ASX launched electronic trading through its Stock Exchange Automated Trading System (SEATS) in 1987, completing full conversion by 1990, whilst the Sydney Futures Exchange's SYCOM system, introduced in 1989 as the world's first after-hours electronic trading platform, became the sole trading mechanism by 1999. By 2001, Australia had achieved complete electronic trading across all exchange-traded equities and derivatives. This technological shift accompanied a fundamental change in product mix, with financial futures replacing commodities to comprise over 90 per cent of turnover by 1987, establishing core products including SPI 200 futures, bank bill futures, and bond futures that remain central to the market today.
