2009/10 Assessment of Clearing and Settlement Facilities in Australia 5.2 ASX Clear (Futures) (formerly SFE Clearing Corporation)


ASX Clear (Futures) provides central counterparty services for derivatives traded on the ASX 24 market.

ASX Clear (Futures) operates within a sound legal framework, based on its Operating Rules and Procedures (referred to as the SFECC Clearing Rules prior to August 2010). Under section 822B of the Corporations Act, these rules constitute a contract under seal between ASX Clear (Futures) and each of its participants, and between participants. Among other things, the rules set out the rights and obligations of ASX Clear (Futures) and each of its participants in respect of ASX Clear (Futures)' provision of central counterparty services. The netting arrangements contained in the ASX Clear (Futures) Operating Rules and Procedures are further protected under Part 5 of the Payment Systems and Netting Act. A change to the ASX Clear (Futures) rule book to clarify the protections afforded by the Payment Systems and Netting Act was made in 2009/10.

Given the concentration of counterparty risk in a central counterparty, effective risk-management processes are crucial. ASX Clear (Futures) manages the risk associated with the potential for a participant default through a range of measures:

  • Participation requirements and ongoing monitoring: ASX Clear (Futures) participants are required to hold at least $5 million in net tangible assets (NTAs). Over time, ASX Clear (Futures) plans to implement a further increase in this NTA requirement to $10 million, with a higher requirement for those clearing for third parties.
  • Margining and other collateralisation of exposures by participants: ASX Clear (Futures) levies margin on all derivatives products to cover any losses potentially arising should a participant default in normal market conditions. ASX Clear (Futures) also calls for Additional Initial Margins (AIMs) from participants when individually large or concentrated exposures are identified through capital stress testing.
  • The maintenance of pooled risk resources: Should margin and other collateral collected from a defaulting participant prove insufficient to meet its obligations, ASX Clear (Futures) has access to pooled risk resources in a Clearing Guarantee Fund (CGF). The aggregate value of the CGF is currently $400 million, calibrated to ensure coverage in extreme but plausible market conditions. The CGF comprises: $30 million in ASX Clear (Futures)' own capital; a $70 million subordinated loan from ASXCC, in turn funded by a subordinated loan from ASX Limited; participant commitments of $150 million, of which $30 million is promissory; and a subordinated loan from ASXCC of $150 million, in turn funded by a principal-reducing loan from a commercial bank (i.e., any loss in excess of that covered by prior ranking default resources reduces the amount of principal to be repaid by the same amount), which replaced ASX Clear (Futures)' default insurance agreement as of December 2009. (This latter loan also has, under certain conditions, provision for use to cover loss arising from an investment counterparty default.)

At the end of June 2010, ASX Clear (Futures) had 15 participants, predominantly large foreign banks and their subsidiaries.

Assessment of Developments in 2009/10

Projects to improve ASX Clear (Futures)' risk and operating frameworks were ongoing in 2009/10. These included improvements to participant-monitoring arrangements, a review of default-management processes and an update of ASX's Business Continuity Management Policy. Some changes were also made to components of ASX Clear (Futures)' risk management framework, including the replacement of the insurance component of ASX Clear (Futures)' pooled risk resources with a subordinated loan from ASXCC. Refinements were also made to parameters in margin setting calculations and stress test scenarios. Finally, during the period some changes were made to ASX's governance arrangements, which cover ASX Clear (Futures).

ASX Clear (Futures)' risk resources

The risk resources available to ASX Clear (Futures) to meet losses arising in the event of a participant default comprise any initial margin or other collateral (e.g., AIMs) collected from the defaulting participant, and pooled risk resources held in the CGF.

ASX Clear (Futures) calculates total initial margin requirements across each participant's portfolio using the OMX RIVA version of the internationally accepted SPAN methodology. Margin setting policy (i.e., the means by which SPAN parameters are used and determined) is reviewed annually; following this year's review, several minor amendments were made.

Preparations are underway for the replacement of the current RIVA SPAN methodology with CME SPAN. The CME SPAN methodology is widely regarded as international best practice, and its introduction is expected to improve risk estimation and attribution at ASX Clear (Futures). As discussed in Section 5.1, its introduction is also part of broader efforts to harmonise the operations of the two central counterparties.

The size of the CGF (i.e., ASX Clear (Futures)' risk resources) was unchanged throughout the assessment period, at $400 million, although its composition was altered. The $150 million default insurance component was replaced with a subordinated loan from ASXCC (Graph 6). The decision to replace the insurance component was made in mid 2009 following the downgrade of the credit rating of the insurer to BBB−. The actual replacement occurred in December 2009 when funding for the ASXCC loan facility was finalised via a commercial bank loan. This loan is principal-reducing and available to cover loss arising from a participant default and, under certain conditions, loss arising from an investment counterparty default. For further details see ‘ASXCC and composition of risk resources’ in Section 5.1.

In order to reduce its reliance on the default insurance prior to its replacement, in July 2009 ASX Clear (Futures) temporarily reduced the STELs of A− and B−rated participants to exclude the value of the insurance. This meant that these participants would be called for AIMs at a lower threshold projected stress-test loss. STELs were returned to their previous levels in early January 2010, following execution of the ASXCC loan agreement in December 2009. There were no breaches of STELs during the year, and therefore no AIMs were collected.

As noted in Section 5.1, during the assessment period ASX documented guidance on the circumstances in which it would consider an increase to the central counterparties' fixed risk resources, rather than relying on additional collateral.

Comparison of projected stress-test losses with the level of available risk resources offers some guidance as to the resilience of ASX Clear (Futures) to a participant default in extreme market conditions. During 2009/10, the stress-test exposure of the participant with the highest projected loss was typically well below the value of the paid-up component of the CGF (Graph 7).[1] A temporary increase in exposures was observed in late March 2010 as the composition of one clearing participant's portfolio shifted, although they remained below the level of paid-up resources.

Several changes to stress test parameters were made during the year. In early August 2009 ASX Clear (Futures) reduced the ‘SPI 200 up’ scenario from 14.5 per cent to 9 per cent. This was effectively reversed in late May 2010, however, when growing volatility warranted a return to 14.5 per cent. The annual review of parameters occurred in October 2009 and resulted in marginal increases in the strength of seven scenarios and marginal decreases in the strength of four scenarios.[2]

Participant monitoring

Monitoring of clearing participants is predominantly conducted by two units within ASX: ASX Compliance, a separate subsidiary with its own board; and Clearing Risk Management, which is located within the central counterparties. As noted in last year's Assessment, during 2008/09 ASX reviewed a number of aspects of its capital- and liquidity-monitoring arrangements and set in train a number of projects to deliver enhancements to these arrangements. Section 5.1 provides more detail on participant monitoring and outlines the progress made on these projects during 2009/10.

ASX Clear (Futures) also took steps during the year to improve the quality of the open interest data reported by clearing participants.

Default management project

As reported in the 2008/09 Assessment, ASX is undertaking a project to enhance default-management processes for both ASX Clear and ASX Clear (Futures). The project focuses on managing the legal, operational and liquidity risks, and minimising the potential losses and spillovers that could arise in the event of a participant default. Section 5.1 outlines the progress made on this project during 2009/10.

Operational performance

ASX Clear (Futures)' core system is the SECUR system. SECUR recorded 100 per cent system availability in 2009/10, with average capacity utilisation of 26 per cent and peak utilisation of 66 per cent. This met the minimum availability target of 99.8 per cent, while in accordance with its capacity headroom policy ASX will look to increase the capacity of SECUR within the next 12 months such that peak utilisation does not exceed 50 per cent.

Since mid 2008 ASX Clear (Futures) has been responsible for first- and second-level operational support of SECUR. This includes business continuity arrangements, and computer system support not involving changes to system components or underlying source code. Previously this support was provided by NASDAQ OMX. Third-level and software support continues to be provided by NASDAQ OMX. A new agreement was finalised during the year to extend this support beyond 2013.

ASX conducts business continuity tests of its key systems over two-year cycles. The testing program for 2010 and 2011 was finalised in early 2010, with the next test of the SECUR system scheduled for late 2010; the previous test was conducted in late 2007 and revealed no problems.

As noted in Section 5.1, ASX also updated its Business Continuity Management Policy during the year and has planned improvements to its business continuity arrangements in line with international best practice.


ASX Clear and ASX Clear (Futures) have common governance arrangements that sit within ASX's enterprise-wide governance framework. During the year some changes were made to these arrangements, including to the composition of the boards of the CS facilities and to ASX's organisational structure. These developments are discussed in the detailed assessment of ASX's governance arrangements presented in Section 6.


It is the Reserve Bank's assessment that ASX Clear (Futures) complied with the Financial Stability Standard for Central Counterparties during the assessment period.

The Assessment highlights a number of important developments during the period under review. These include the following:

  • Changes to the composition of pooled risk resources: ASX Clear (Futures) replaced the $150 million insurance component of its CGF with a subordinated loan from ASXCC of the same size. As the loan is fully drawn, it has increased the value of ASX Clear (Futures)' paid-up risk resources. This loan is ultimately funded by a principal-reducing loan from a commercial bank that may be used in the event of a loss arising from either a participant default or, under certain circumstances, an investment counterparty default.
  • Triggers for an increase in fixed risk resources: ASX documented guidance on the circumstances in which it would consider an increase to the central counterparties' fixed risk resources, rather than relying on additional collateral, which may only be received with a delay. This guidance considers the size, frequency, duration and distribution across participants of the additional collateral calls.
  • Improvements to participant-monitoring arrangements: ASX implemented a number of changes to its capital- and liquidity-monitoring arrangements applicable to ASX Clear and ASX Clear (Futures) participants, including a new system for the lodgement of participants' capital returns.
  • Improvements to default-management arrangements: Following a number of default management ‘fire drills’, improvements have been made to information management in default situations at the central counterparties. ASX has also formalised arrangements with the broker it will use in each market to effect any necessary close-out of positions in a default situation. ASX continues to work through the legal issues associated with the default management process.

The Reserve Bank welcomes these improvements to ASX Clear (Futures)' risk and operating framework. As already noted in Section 5.1, the Assessment also identifies two areas where the Reserve Bank will monitor progress over the period ahead: the announced initiatives to harmonise and link the activities of the two central counterparties; and the planned improvements to ASX's Business Continuity Management Policy in line with international best practice.


The paid-up component of the CGF increased with the replacement of the insurance component with the fully-drawn subordinated loan from ASXCC. [1]

In July 2009 ASX Clear (Futures) also changed its stress-test scenario definitions to be expressed in percentage changes, rather than absolute price point changes, thus reducing the frequency of updates required to scenario definitions. [2]