2006/07 Assessment of Clearing and Settlement Facilities in Australia 4. General Developments in the Clearing and Settlement Industry in 2006/07

The continued rapid growth in trading in Australian financial markets in 2006/07 saw the value of transactions processed by the four CS facilities also expand rapidly. Trading in equities and warrants on the ASX market increased by 35 per cent in 2006/07, to average $5.3 billion per day, while the notional value of equity derivatives traded on that market grew by 7 per cent to an average of $2 billion per day. The notional value of derivatives traded on the SFE market increased by 33 per cent in the year, to average $148 billion per day. Because debt securities are traded in an over-the-counter market, trading values are not directly observable, but settlements of debt securities through Austraclear averaged $34 billion per day in 2006/07, an increase of 36 per cent from 2005/06.

Around 70 per cent of cash equities trades are novated to the equities central counterparty, ACH. Netting within ACH reduced the central counterparty's exposure from each day's novated equities trades to an average of $450 million in 2006/07, an increase of 30 per cent from 2005/06. However, because equities typically settle three days after the trade date, ACH's cumulative exposures were higher. These averaged $950 million during 2006/07 – once again an increase of 30 per cent over the previous year.

Equities settlements through ASTC incorporate both trades novated to ACH and non-novated transactions. After netting, the average daily value of ASTC settlements was $525 million in 2006/07, 37 per cent higher than in 2005/06.

Quantification of the derivatives exposures managed through central counterparties is more difficult. The average volume of open derivatives contracts increased by 7 per cent during the year for ACH and by 40 per cent for SFECC. A more complete measure of the exposures managed is initial margins held by the central counterparty, which reflects both open interest and the central counterparty's assessment of the riskiness of individual contracts, as embodied in margin requirements. Initial margins held by ACH for ASX derivatives increased by 45 per cent, to average $503 million in 2006/07, while initial margins held by SFECC increased by 80 per cent, to an average of $3 billion.

Discussion of developments in the operations, risk management and legal framework of CS facilities is incorporated in individual assessments in the following section.