27Counterparties to derivatives

27 Counterparties to derivatives

(1) A passport fund must not enter into a derivative that is to be cleared through a central clearing counterparty unless it is an assessed central clearing counterparty. (2) A passport fund must not enter into a derivative that is not cleared through a central clearing counterparty unless: (a) the counterparty to the derivative: (i) is subject to prudential supervision broadly under the guidelines of the Basel Committee on Banking Supervision by a financial supervisory authority in a principal place of business of the counterparty; or (ii) is both: (A) regulated by a regulatory authority that is a member or associate member of IOSCO; and (B) subject to obligations in relation to holding financial resources and having adequate arrangements to manage risk; and (b) where the counterparty to the derivative is a related party to the operator—there are adequate arrangements in place to manage conflicts of interest. (3) For these rules, a central clearing counterparty to a derivative is an assessed central clearing counterparty if: (a) it is regulated as a central clearing counterparty in an economy that is: (i) a participating economy; or (ii) a member of the Organisation for Economic Cooperation or Development; or (b) all of the following conditions are satisfied: (i) it is regulated as a central clearing counterparty in an IOSCO jurisdiction; (ii) the operator of the passport fund believes on reasonable grounds, having regard to independent sources of information, that there is very low risk of the central clearing counterparty defaulting in any of its obligations over the subsequent 5 year period; (iii) the operator of the passport fund has recorded in writing its reasons for holding that belief.