REVIEW OF SETTLEMENT PRACTICES FOR AUSTRALIAN EQUITIES – MAY 2008

Attachment 2: Clearing and Settlement Arrangements for ASX Trades

Clearing and Settlement Arrangements for ASX Trades Once a trade has been executed on the ASX market an instruction is sent to CHESS (Step 1). The trade is novated to ACH in real time and the relevant clearing and settlement participants notified of the trade (Step 2). At T+1, CHESS generates a single net batch instruction reflecting the net position of each participant’s novated trades in each line of stock (Step 3). Between T+1 and T+3 participants can also instruct CHESS to include additional non-novated (off-market) trades in the batch on T+3 (Step 4).21

By 8.00 am on settlement day, ASTC notifies each participant of its net cash and securities settlement obligations. Participants have until 10.30 am to negotiate additional off-market trades to ‘prime’ their securities accounts for settlement. After the cut-off for new instructions, participants’ settlement banks are requested to authorise net funding demands. Once all cash authorisations are received, the resulting interbank obligations are settled via RITS, typically by around noon (Step 5). Participants’ securities positions are then updated at ASTC and participants are notified that the delivery-versus-payment transfer has been completed (Step 6).

At the end of the day, ASTC sends a report of securities holdings to the shares registry (Step 7).

Figure 1

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Footnote

21. Free-of-payment transfers of securities may also be instructed outside of the batch. (back to text)