Reporting Form SRF 310.2

Derivative Financial Instruments

Instruction Guide

Completion of SRF 310.2 Derivative Financial Instruments

This form must be completed on an annual basis by all trustees of Small APRA Funds (SAFs) and Single Member Approved Deposit Funds (SMADFs).

Trustees of superannuation entities that invest only in PSTs are not required to complete SRF 310.1 Selected Disclosure of Investments or SRF 310.2 Derivative Financial Instruments in respect of the superannuation entity. These forms can be left blank as D2A recognises blanks as zeros; however they are still required to be submitted as part of the annual return. Trustees of superannuation entities holding Investments in PSTs that have a value of more than 5% of total assets, will be required to report on SRF 320.0 Exposure Concentrations.

If a superannuation entity has no items to disclose, the form can be left blank as D2A recognises blanks as zeros; however it is still required to be submitted as part of the annual return.

Note: All forms included in the SRF 300 series should be submitted together as an annual return, not individually as separate forms.

Purpose

This form collects information on derivative financial instrument exposure of a superannuation entity. The information requested in this form is required by APRA.

Lodgement and validation of SRF 310.2 Derivative Financial Instruments

Lodgement and authentication codes

This form must be completed and lodged to APRA by a corporate or natural ‘person’ (trustee director or administrator), and not by the superannuation entity as the entity is not a ‘person’.

Once SRF 310.2 Derivative Financial Instruments has been completed and submitted to APRA, an authentication code is generated in D2A from information entered into the form. The authentication code and date submitted appear in the footer of each page of the return (‘return’ equates to all 8 forms). Any change of information entered or resubmission of the return will result in a change to the authentication code. The authentication codes and date submitted should be used by auditors to determine that the four forms audited (SRF 300.0 Statement of Financial Performance, SRF 310.0 Statement of Financial Position, SRF 320.0 Exposure Concentrations and SRF 330.0 Transactions with Associated Parties) have been submitted.

A receipt indicating successful lodgement of the return will be provided via email. There may be a slight delay in a receipt being provided if the submission is made in the last week of October. Do not resubmit your return however, as the receipt will be generated.

Validation and calculation of totals

When data is entered into the form, the total balances (in the greyed out cells) will not be calculated automatically. The total items will only calculate when the form is validated. Clicking on the word 'validate' in the top left hand corner of the screen and selecting ‘OK’ will result in the total items being calculated and the validation rules appearing for review.

There are three types of validation rules as follows:

1. Warnings: Confirmation rules – this rule requires the user to provide confirmation that the data entered into an item is correct, for example that a negative number is correct and should not be positive. To provide confirmation the user should click the confirm box and provide a brief description in support of the item.

Note: Descriptions entered for warnings may not always appear if the return is validated more than once. There is no need to re-enter the description as D2A has saved this description and the comments will be lodged with the return.

2. Error: Mandatory rules – this indicates an error in an item, for example a description and a value must be included in a table. These errors must be corrected before the return can be lodged.

3. Cross form validations – this also indicates an error and must be corrected before the return can be lodged, for example Totals disclosed in SRF 310.1 Selected Disclosure of Investments must agree with the investments reported in item 3 ‘Investments’ on SRF 310.0 Statement of Financial Position.

General guidance for completion of SRF 310.2 Derivative Financial Instruments

Important!

Report all disclosures rounded to the nearest thousand dollars. Do not use decimal numbers i.e. when dividing the value to obtain a rounded balance to the nearest thousand dollars, ensure that the figure is whole.

Important!

There is no materiality limit applied to the disclosure of amounts within SRF 310.2 Derivative Financial Instruments. All balances must be recorded. Amounts cannot be omitted based on materiality levels. Each superannuation entity should use its own judgement in grouping items into meaningful categories (where applicable).

Important!

Zeros are not required where there is no dollar value for an item. If there is no balance for an item, leave it blank, as D2A recognises blanks as zeros.

Scope

Include

• For the purpose of this form only include derivative financial instruments acquired directly by the superannuation entity (i.e. as part of an in-house investment management).

Exclude

• Investments held in the form of an external individually managed mandate/portfolio or discretely managed portfolio (i.e. the superannuation entity is not required to look at the underlying investments in investment vehicles to ascertain the derivatives exposure); and
• Derivatives investments held indirectly through an investment manager, for example derivatives which form part of the investments of a wholesale trust or Pooled Super Trust in which the superannuation entity invests.

Definitions for specific items

Exchange-traded derivatives contracts and over-the-counter derivatives

Exchange-traded contracts

These refer to derivative contracts that are transacted on recognised futures or options exchange (e.g. the Sydney Futures Exchange) and are subject to daily mark-to-market and margin payment. These contracts are transacted in standardised parcels. The clearing house effectively becomes the counterparty to all derivative positions.

'Over-The-Counter' derivative financial instruments (OTC)

These refer to derivative contracts that are not traded on a recognised exchange. Instead these contracts are transacted between individual counterparties (most commonly with a bank). The details of a derivative contract can be negotiated between the contracting parties. For OTC derivative contracts, the other party to the contract is the counterparty.

Derivative financial instruments

Derivatives expose superannuation entities to a full range of investment risks, even though in many cases there may be no, or only a small initial outlay. Superannuation entities should set aside capital to cover the investment risk of these transactions, particularly where derivatives are used for purposes other than hedging risk associated with the underlying position.

Derivatives are generally defined as those instruments/contracts, where the value is based on other products, and/or on prices associated with financial products. Derivative contracts involve:

• Future delivery, receipt or exchange of financial items such as cash or another derivative instrument; or
• Future exchange of real assets for financial items where the contract may be tradeable and has a market value.

The contracts can either be binding on both parties (e.g. as with a currency swap) or subject to the exercise by one party of a right contained within the contract (as with options).

Derivative products/contracts include but are not limited to the following:

• Equity warrants;

• Options (including call and put options; exchange-traded and over-the-counter options; interest-rate, bullion, commodity and equity options; warrants);

• Interest rate swaps;

• Cross-currency interest-rate swaps;

• Foreign exchange swaps;

• Foreign exchange forwards;

• Futures (i.e. bank bill, bond, equity); and

• Forward rate agreements.

Derivative products/contracts exclude the following:

• Derivative margin accounts, which hold deposits lodged with an exchange or clearing house as collateral to cover adverse movements in market prices. These balances are to be reported as investments under item 3.1. “Deposits, placements and debt securities” in SRF 110.0 Statement of Financial Position. However these amounts may qualify for reporting under item 6 of this form; and
• Repurchase/Resale agreements despite their similarity to Forward Rate Agreements and/or swaps.

Instruction guide for specific items

Explanation of columns

Report the Net market value of the items detailed (1) to (6) below under the relevant columns (split into market type):

• Interest rate contracts;
• Foreign exchange contracts;
• Equity contracts;
• Precious metal contracts (including gold);
• Other market related contracts; and
• Total

1. Exchange traded derivatives

Record the aggregate net market value for each contract type (i.e. Interest Rate Contracts, Equity Contracts).

2. Over-the-counter derivatives

This section of the form requires the reporting of the aggregate net market value of all over-the-counter derivative contract positions of the reporting superannuation entity.

3. Total derivative financial instruments

Represents the value reported for item 1 plus item 2. Total should agree to the sum of item 3.5 PLUS item 6 on SRF 310.0 Statement of Financial Position.

4. Total derivative financial instruments used to hedge underlying exposures of the entity

Report the total net market value of derivative financial instruments for each market contract type that are contracted by the superannuation entity for the purposes of hedging the price movement of underlying assets and liabilities of the superannuation entity.

5. Total derivative financial instruments classified into the following:

These refer to all derivative contracts both exchange-traded and over-the-counter contracts. Classify the net market value (as reported in item 3) for each market type into the following:

5.1. Warrants

A warrant is an option issued in the form of a security, usually written for a longer term. A warrant has the same function as an option: it provides the right to buy a specific amount of the underlying securities or shares, but is itself tradeable. Warrants are available in a range of types such as debt or equity.

5.2. Bought options

Report option positions where the superannuation entity has purchased an option position (i.e. a call or put option) and has the right but not the obligation to exercise the option against the writer and request delivery of the underlying security or cash settlement.

5.2.1. Call options

5.2.2. Put options

5.3. Written (sold) options

Report option positions where the superannuation entity has written/sold option positions (i.e. call or put options) and as a result has an obligation to deliver the underlying product or cash, if exercised by the holder of the option position, sold by the entity.

5.3.1. Call options

5.3.2. Put options

5.4. All other

Record the value of all other types of derivative products the superannuation entity has exposure to (other than those disclosed individually above in points 5.1 to 5.3.2).

6. Value of assets of the superannuation entity that are pledged to secure derivative positions

Report the value of money or asset (e.g. listed equity securities) that are pledged or lodged with an entity, to support the derivative positions/exposures of the superannuation entity.