2009/10 Assessment of Clearing and Settlement Facilities in Australia 5.1 ASX Clear (formerly Australian Clearing House)


ASX Clear provides central counterparty services for a range of financial products traded on the ASX market, including cash equities,[1] pooled investment products, warrants, certain interest-rate products and equity- and commodity-related derivatives. Through a process known as novation, ASX Clear becomes counterparty to every eligible trade, managing the associated risk by applying a range of risk-management tools.

The rights and obligations of ASX Clear and its participants are set out in the ASX Clear Operating Rules and Procedures (referred to as the ACH Clearing Rules prior to August 2010). Under section 822B of the Corporations Act, these rules constitute a contract under seal between ASX Clear and each of its participants, and between participants. The netting arrangements contained in the ASX Clear Operating Rules and Procedures are further protected under Part 5 of the Payment Systems and Netting Act 1998. A change to the ASX Clear rule book to clarify the protections afforded by the Payment Systems and Netting Act was made in 2009/10.

ASX Clear applies three layers of risk-management protections:

  • Participation requirements and ongoing monitoring: ASX Clear participants clearing cash equities or options are required to hold at least $2 million in ‘core capital’.[2] Starting 1 July 2010, this requirement was increased to $5 million. ASX intends to further increase the requirement to $10 million over time. Minimum capital requirements, while imperfect, provide a broad measure of the financial standing of a participant and offer comfort that a participant has adequate resources to withstand an unexpected shock, perhaps arising from operational or risk-control failings.
  • Margining and other collateralisation of exposures by participants: Margins are routinely collected from participants in respect of derivatives exposures, but not currently for cash equities. Where exceptionally large or concentrated exposures in either derivatives or cash equities are identified through capital stress testing, calls are made under the Contributions and Additional Cover (CAC) regime. The margins and other collateral posted by a defaulting participant would be drawn on first by ASX Clear in the event of their default.[3]
  • The maintenance of pooled risk resources: Finally, ASX Clear has access to pooled risk resources of $550 million to meet losses arising from a participant default in extreme but plausible market conditions. Of these additional resources, $250 million are fully paid up and comprise $3.5 million of own equity, $71.5 million paid into a restricted capital reserve from the National Guarantee Fund (NGF) in 2005, and subordinated loans provided by ASXCC, which in turn are funded by a subordinated loan from ASX Limited ($75 million) and a principal-reducing [4] loan from a commercial bank ($100 million). (Under certain conditions, this latter loan also has provision for use to cover loss arising from an investment counterparty default.) These funds are supplemented by ‘emergency assessments’ of up to $300 million, which can be levied on surviving participants in the event of a participant default.

At the end of the assessment period, ASX Clear had 54 participants, including 23 Australian brokers, 20 subsidiaries of foreign banks and brokers, eight subsidiaries of Australian banks, and three specialist clearers. Five participants resigned during the period, while one new participant and one new specialist clearer joined.

Assessment of Developments in 2009/10

Over the assessment period, ASX Clear continued to develop its risk and operating framework. Among the most notable developments, ASX Clear:

  • changed the composition of its pooled risk resources for use in case of loss arising from a clearing participant default. (Part of these resources may, under certain conditions, now also be used to cover loss arising from investment counterparty default.);
  • is developing a proposal to margin ASX Clear's cash equities positions; and
  • implemented a number of changes arising from its detailed reviews of participant-monitoring arrangements and default-management processes.

There have also been developments arising from the prospect of AMOs entering the Australian market. Over the period, ASX announced the development of the TAS, that will allow trades executed on AMOs' platforms to be cleared and settled through ASX Clear and ASX Settlement respectively. Finally, during the period some changes were made to ASX's enterprise-wide governance arrangements, which cover ASX Clear.

Adequacy of ASX Clear's risk resources

The risk resources available to ASX Clear to meet losses arising in the event of participant default comprise any margin or other collateral collected from the defaulting participant, and ASX Clear's pooled risk resources. Having risen significantly between 2005 and 2007, the aggregate value of ASX Clear's pooled risk resources has remained at $550 million over the past three years (Graph 4).

ASX Clear's risk resources comprise $250 million of paid-up resources and $300 million of committed promissory resources. During the 2008/09 assessment period, the paid-up component increased by $100 million following a decision to replace default insurance arrangements with a fully drawn down subordinated loan facility from a commercial bank. This was prompted by the downgrade of ASX Clear's provider of default insurance. There was a further change to the composition of paid-up resources during the 2009/10 assessment period, following the transfer of responsibility for funding the central counterparties' risk resources to ASXCC. In December 2009, the $100 million commercial bank loan facility was replaced with a subordinated principal-reducing intra-group loan from ASXCC of the same value. This is a fully drawn facility which in turn is funded by a bank loan facility to ASXCC. It is discussed in more detail in the following section.

ASX Clear calls for CAC whenever a participant's projected stress-test losses on its cash equity and derivatives positions exceed a STEL. Starting 1 October 2009, ASX Clear intro-duced a regime where STELs are linked to participants' Internal Credit Ratings (ICRs). Previously, ASX Clear set the STEL at $150 million for all participants (taking into account any margin already posted).[5] Highly rated (i.e., A− and B−rated) participants are eligible for discounts on the additional collateral called.[6] Similar arrangements have been in place at ASX Clear (Futures) for some time. The Reserve Bank welcomes the implementation of this regime, as it provides a means to manage ASX Clear's exposures to lesser-rated participants.

Comparison of projected stress-test losses with the level of available risk resources offers some guidance as to the resilience of the central counterparty to a participant default in extreme market conditions (Graph 5).[7] During the assessment period, there were two days on which a single participant's stress-test exceeded its ICR-based STEL. CAC was called, notwithstanding that stress-test exposures did not exceed the paid-up component of risk resources. Like previous periods, this excess was at quarter end, reflecting large cash equity trades associated with the quarterly expiry of equity index futures contracts.[8]

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. This guidance considers the size, frequency, duration and distribution across participants of the additional collateral calls. The Reserve Bank welcomes the documentation of this guidance. As noted in the 2008/09 Assessment, there are shortcomings to relying too heavily on variable calls for additional collateral, particularly given lags in the calculation and settlement of such calls.

ASXCC and composition of risk resources

In 2008 ASX created a new corporate entity, ASXCC, which sits between ASX Limited and the two central counterparties in the corporate structure. It is intended that ASXCC will manage the investment of all assets held by ASX Clear and ASX Clear (Futures) (including margins and other risk resources), and also take over the central counterparties' funding and capital-management processes. This section discusses arrangements for both ASX Clear and ASX Clear (Futures) in order to avoid subsequent repetition.

ASXCC has taken over subordinated loans to ASX Clear (for $75 million) and ASX Clear (Futures) (for $70 million) from ASX Limited and SFE Corporation respectively; ASX Limited now provides loans to ASXCC, which in turn lends to the two central counterparties. These funds would be called upon in the event of a clearing participant default after use of the central counterparties' own capital. Previously, the next tier of default resources to be called was, for ASX Clear, a $100 million subordinated loan from a commercial bank, and for ASX Clear (Futures), a $150 million insurance agreement. These arrangements have now been replaced by a $250 million loan facility ASXCC has with a commercial bank that funds further subordinated loans to the central counterparties.

The new arrangement through ASXCC has a number of advantages over previous arrangements. It is fully drawn (from December 2009), compared with ASX Clear (Futures)' previous insurance arrangement, which was dependent on the legal robustness of the claim and the financial capacity of the insurer. In terms of reliability, this arrangement is equivalent to ASX Clear's previous loan facility from a commercial bank, which was also fully drawn. Unlike the previous facility, however, this facility is principal-reducing (i.e., a drawdown in accordance with the terms of the agreement would not need to be repaid). Further, this facility has, under certain conditions, provision for use to cover loss arising from investment counterparty default; both ASX Clear and ASX Clear (Futures)' previous arrangements covered only loss arising from a participant default.

Cash received under the facility is invested in accordance with ASX Clear and ASX Clear (Futures)' treasury investment mandates, which specify high-quality assets and a minimum liquidity requirement calibrated with reference to liquidity needs both in the normal course and in the event of default. Thus in terms of liquidity, the facility is superior to ASX Clear (Futures)' previous default insurance since the funds would be realisable at short notice, whereas an insurance claim (even if robust) could take some time. On the basis of liquidity, the arrangement is similar to ASX Clear's previous loan facility, funds from which were required to be invested according to the central counterparty's treasury investment policy.

Risk management controls consultation

In October 2009, ASX released a market consultation paper seeking feedback from stakeholders on options for strengthening the risk management controls of ASX Clear. As part of the consultation process, ASX undertook a comprehensive review of ASX Clear's risk control framework with respect to domestic market conditions and international emerging best practice. The review concluded that while ASX Clear's risk controls are robust and have historically served the market well, there was scope to further enhance the risk control framework to meet future market challenges and international best practice.

ASX set out, and sought stakeholder feedback on, two potential enhancements to ASX Clear's risk controls: the introduction of routine margining by ASX Clear in the cash equity market; and clearing participant contributions to a mutualised guarantee (default) fund. Both of these controls ensure that the first financial resources used to cover losses are those of the defaulter, providing incentives for clearing participants to manage the risks they bring to the central counterparty.

ASX set out for consideration two margining alternatives: a ‘futures-style’ margining approach, which measures (and calls) daily margin requirements based on current positions; and a ‘look-back’ approach, which averages margin over a historical period. ASX also outlined a potential mutualised guarantee fund methodology, which would be apportioned between clearing participants based on risk. ASX also noted that segregation of house and client accounts for cash equities positions would facilitate protection of client margin in the event of a participant default. (Account segregation currently occurs only for derivatives trades at ASX Clear and ASX Clear (Futures).)

Feedback from market participants and industry bodies indicated greatest support for futures-style margining; ASX is now developing a proposal based on this model. In June 2010 ASX released a consultation paper that sought further feedback from clearing participants and interested stakeholders on how to optimise and refine the margining model. ASX is particularly concerned with minimising swings in margin requirements, proposing to account for the settlement of the next day's transactions in margin calculations,[9] and prolong margining in the options market for exercised exchange traded options (rather than margin these in the cash equity market). Based on industry feedback, ASX does not at this stage plan to implement a mutualised default fund. Account segregation is also not being pursued at this stage, with the costs of doing so judged to outweigh the benefits. ASX expects that the specific details of the margining arrangements will be finalised in the second half of 2010, with implementation possibly occurring in late 2011.

The Reserve Bank welcomes ASX Clear's proposed introduction of margining in the cash equity market. In the 2008/09 Assessment, the Reserve Bank set out the strong case for margining of cash equities – it provides participants with incentives to manage the risk they bring to the central counterparty, and reduces reliance on pooled risk resources, use of which in the event of a participant default may carry reputational costs.

Furthermore, margining (or an equivalent collateralisation of potential losses in normal market conditions) of cash equities is the usual practice in overseas markets: introducing it at ASX Clear will bring it more into line with international best practice. In the previous Assessment the Reserve Bank also noted that segregation of house and client accounts in ASX Clear would be consistent with international best practice and assist in the management of a clearing participant default. Nevertheless, the Reserve Bank accepts ASX's judgement that, at this stage, the costs of account segregation would outweigh the benefits. However, should the CPSS-IOSCO review of international standards currently underway result in account segregation being recommended or required, it will be appropriate for this issue to be revisited.

Derivatives margins: system capabilities

ASX Clear is in the process of enhancing its system capabilities to make intraday margin calls in response to sizeable intraday changes in participants' positions; previously intraday calls could only be made on the basis of changes in prices. In past Assessments the Reserve Bank has encouraged ASX Clear to pursue this functionality, and welcomes its ongoing work in this area. This system enhancement is one part of ASX Clear's Derivatives Intraday Risk Quantification project (DIRQ). The DIRQ project also involves the migration of margin-setting calculations from an outsourced system, the Theoretical Intermarket Margin System (TIMS), to ASX Clear's in-house Derivatives Clearing System (DCS). Nevertheless, the algorithm in DCS used to calculate margin will be based on its TIMS counterpart. Longer term, ASX intends to replace both central counterparties' derivatives margining systems with the CME version of the Standard Portfolio Analysis of Risk (SPAN) margining system, as discussed under ‘Harmonisation and linking of central counterparties’ below.[10]

Participation requirements

Starting 1 July 2010, ASX Clear's minimum ‘core capital’ requirement for Direct Participants increased from $2 million to $5 million (and $10 million for General Participants, which may act as third-party clearers). Most clearing participants affected by these changes have chosen to inject capital; others have chosen to use third-party clearers. One participant has chosen to clear trades through its parent, who meets the minimum capital requirements.

ASX Clear is proposing to further increase the minimum capital requirement to $10 million from 1 January 2012. As noted in the 2008/09 Assessment, the Reserve Bank and ASIC view depth in the third-party clearing market as a precondition for ASX Clear's plans to further increase capital requirements. During the assessment period there was one new entrant into the third-party clearing market, Penson Financial Services. It is expected that ASX will consider developments in the third-party clearing market in making decisions regarding further increases in the minimum capital requirement; ASIC and the Reserve Bank will monitor these developments.

Participant monitoring

Monitoring of clearing participants is predominantly conducted by two units within ASX: ASX Compliance Pty Limited (formerly ASX Markets Supervision Pty Limited) (ASX Compliance),[11] a separate subsidiary with its own board; and Clearing Risk Management,[12] which covers both central counterparties. The monitoring, assessment and investigation of matters relating to financial requirements are dealt with by the Capital Monitoring unit of ASX Compliance. Clearing Risk Management focuses more on day-to-day participant activity and monitors risk profiles, open positions and settlement of obligations to the central counterparties. It is also responsible for determining and reviewing participants' ICRs, drawing on information provided by participants in their returns to ASX Compliance.

It was noted in last year's Assessment that during 2008/09 ASX reviewed a number of aspects of its capital- and liquidity-monitoring arrangements and had set in train a number of projects to deliver enhancements. These workstreams continued in 2009/10, with some finalised during the year:

  • A new system for the lodgement of participants' capital returns was implemented for end May 2010 returns.
  • Spot checks were conducted on the accuracy of participants' financial returns. Individual spot checks were typically triggered by two or more historical inaccuracies in a participant's returns, while industry-wide checks were undertaken to look at multiple participants' compliance with a specific aspect of the capital rules.
  • A self-assessment program was developed for participants to ensure that they are completing the returns appropriate for the range of business activities that they undertake and will be rolled out after the Capital Monitoring education sessions are conducted in the second half of 2010.
  • The pro forma auditor's report, that provides an audit opinion on a participant's financial return, was reviewed. ASX's proposed changes have been circulated to the four major accounting firms for their feedback.
  • ASX appointed an external consultant to undertake research on regulatory capital requirements in place in a number of other jurisdictions. The consultant's report is being reviewed by ASX management to assess whether any changes should be made to ASX's rules.

Effective participant monitoring is crucial to a central counterparty's ability to measure and assess the risks brought to it by its participants. The Reserve Bank welcomes the improvements that have been made to ASX's participant-monitoring framework.

Transfer of supervisory responsibilities to ASIC

In August 2010 ASIC took over responsibility for supervising real-time trading on Australia's domestic licensed markets. Previously, this function was performed by ASX Compliance for the ASX and ASX 24 markets. This reform of supervisory arrangements was first announced in August 2009 by the Minister. With ASIC as the whole-of-market supervisor, streamlined and complete supervision of trading on the market is ensured should new trading platforms enter the Australian market.

The transfer of supervisory responsibilities to ASIC has not had any material effect on the central counterparties' arrangements for monitoring clearing participants. However, the ASX Operating Rules and ASX 24 Operating Rules (formerly the ASX Market Rules and SFE Operating Rules respectively) have been rewritten to exclude requirements related to market integrity, which are now covered by a separate set of rules supervised by ASIC. There have also been minor changes to the rules of the central counterparties and securities settlement facilities as a result of the transfer of market supervision.

Default management work

As reported in the 2008/09 Assessment, ASX is undertaking ongoing work to enhance default-management processes for both ASX Clear and ASX Clear (Futures). The work 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.

In the initial phase of the work, ASX identified three stages in the default management process: establishment of a default (identification of a trigger event and declaration of a default); close out of a defaulter's positions (for instance, whether and how to liquidate, hedge or transfer positions); and funding any losses arising in the close-out process (or indeed returning surplus funds to a liquidator).

To identify the ways in which information management at each stage of the process could be improved, ASX conducted default management ‘fire drills’ during the year. The three events considered in the drills were the default of: an ASX Clear (Futures) participant; an ASX Clear participant; and an ASX Clear cash-market-only participant. The outcomes of these drills were used to guide refinements to the format and content of the data available to the central counterparties during a default, and minor updates to the written default-management procedures. ASX plans to conduct more of these drills in the future, but will widen the involvement beyond the central counterparties to include its legal team and ASX Compliance.

ASX also formalised arrangements with the broker it will use in each market to conduct any on-market operations that are necessary in the second stage of the default management process (i.e., the close-out of positions). The second stage of the default management process may also involve the transfer of the defaulting participant's client derivatives positions; this is not possible for unsettled cash equities transactions primarily because of legal and practical issues that ASX continues to work through.

Harmonisation and linking of central counterparty activity

Since the merger of the Australian Stock Exchange and SFE Corporation in 2006, ASX Clear and ASX Clear (Futures) have continued to operate as separate central counterparties. As noted in last year's Assessment, in December 2008 ASX released a consultation document seeking feedback on several specific initiatives aimed at harmonising and linking the activities of the two central counterparties, with a view to taking advantage of potential efficiencies.

Having considered the responses, ASX outlined in September 2009 the initiatives that it would progress.[13] These included the migration of the margining methodology at both central counterparties to CME SPAN. This project involves first bringing ASX Clear's margining system, TIMS, into ASX's in-house DCS before it and ASX Clear (Futures)' margining system, RIVA SPAN, are replaced with CME SPAN. The initial stage of the project involving TIMS is part of the DIRQ project, and is scheduled for completion in late 2010. The introduction of CME SPAN at both central counterparties is expected to occur in 2011.

Upon the implementation of CME SPAN, ASX will look to introduce margin offsets between the two central counterparties. ASX also consulted with clearing participants during the year on the possibility of an interim solution for offsets between the SPI equity index futures contract cleared by ASX Clear (Futures) and the equity index options contract cleared by ASX Clear. However, most clearing participants were of the view that the benefits of an interim solution would not outweigh the operational costs of implementing it.

Finally, ASX plans to widen the definition of a clearing participant's ‘house’ derivatives business at ASX Clear in line with that used by ASX Clear (Futures). The definition currently used by ASX Clear refers to transactions of the clearing participant legal entity only, whereas the definition used by ASX Clear (Futures) better reflects contemporary corporate structures by also referring to transactions of related parties of the clearing participant. Widening the definition at ASX Clear will improve risk attribution by fully segregating house (i.e., redefined to include proprietary transactions of related entities) and client business. It will also assist the development of margin offsets between the central counterparties. The definition change is planned, subject to regulatory clearance, to occur after the introduction of CME SPAN, with timing dependent on progress on margin offset arrangements.

The Reserve Bank welcomes these practical measures and encourages ASX to, where sensible, further harmonise the risk management practices of the two central counterparties and to continue to evolve the rulebooks of the central counterparties to reflect current risk management practices and expectations.

Operational performance

ASX Clear's core system is DCS. Developments in respect of CHESS are considered in the assessment of ASX Settlement in Section 5.3. DCS experienced only one short outage during the assessment period, in the September quarter 2009, resulting in availability of virtually 100 per cent. The availability target for DCS is 99.8 per cent. Average capacity utilisation of DCS in 2009/10 remained at its 2008/09 level of 23 per cent, while peak utilisation was 60 per cent. In accordance with its capacity headroom policy, ASX will look to increase the capacity of DCS within the next 12 months such that peak utilisation does not exceed 50 per cent.

As well as monthly connectivity and procedural checks, ASX conducts business continuity tests of its key systems over two-year cycles. The business continuity testing program for 2010 and 2011 was finalised in early 2010, with DCS due to be tested in February 2011. The last test of DCS was conducted in September 2009, and did not reveal any problems.

ASX also updated its Business Continuity Management Policy during the year, with an emphasis on resilience, external providers and recovery objectives. Complementary work was done on business unit pandemic response plans and remote access testing. Under the requirements of the updated Policy, ASX will implement redundancy arrangements available within 24 hours for all four of its core systems at its backup site (currently only Austraclear's EXIGO system has full redundant systems in place). In addition, as noted in the previous assessment, ASX is in the process of implementing arrangements to have some operational staff at its backup site during business hours in order to facilitate rapid recovery in the event of a disruption, and staff familiarity with the site. Although located at the backup site, these staff would ordinarily remotely access systems at the main site. The Reserve Bank welcomes these improvements to ASX's business continuity arrangements in line with international best practice.

Trade acceptance service

A number of prospective market operators have expressed interest in establishing clearing and settlement arrangements through ASX Clear and ASX Settlement. In response ASX has announced the creation of a TAS, which will allow trades executed on AMOs' platforms to be cleared and settled through ASX Clear and ASX Settlement respectively.[14] The TAS will enable trades originating from AMOs to be submitted to CHESS, ASX's integrated clearing and settlement system for cash equities. Upon validation by CHESS, trades will be novated and netted on the same basis as trades originating from the ASX market.

In late December 2009, ASX wrote to the applicant market operators setting out details of the TAS. ASX will make the TAS available under a published set of contractual terms of service. Each AMO will be required to periodically certify that it has complied with the standards in the previous quarter. Any failure to comply must be notified immediately to ASX Clear and ASX Settlement, and may trigger suspension. This arrangement is similar to that required of ASX Clear clearing participants. The Reserve Bank cannot see any reason why the TAS, as currently proposed, would affect the compliance of ASX Clear and ASX Settlement with the relevant FSS.


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 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 replaced a $100 million commercial bank subordinated loan with a subordinated intra-group loan from ASXCC of the same value. This loan remains ultimately funded by a commercial bank loan facility, but is now principal-reducing and has, under certain conditions, provision for use to cover loss arising from 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.
  • Continued refinement to the risk framework: During 2009/10 ASX Clear replaced its uniform STELs with rating-based limits – exposures beyond these limits require additional collateral to be posted – thus allowing ASX Clear to better manage its exposures to lesser-rated participants. ASX Clear also announced system enhancements to allow intraday margin calls in respect of participants' derivatives positions (reflecting both price and position changes).
  • 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.
  • Review of default-management processes: 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.
  • Account segregation: The Reserve Bank accepts ASX Clear's judgement, informed by industry feedback, that the costs of segregating house and client accounts for cash equities positions would currently outweigh the benefits, but notes that should international standards be amended to recommend or require this, this issue should be revisited.

The Assessment also identifies a number of areas for further attention during the forthcoming period. These include:

  • Routine margining of cash equities: The Reserve Bank welcomes ASX Clear's plans to introduce routine margining of cash equities and will remain in dialogue with ASX regarding the refinement and implementation of the proposal during the next assessment period.
  • Harmonisation and linking of central counterparty activity: The Reserve Bank welcomes the announcement of initiatives to harmonise and link the activities of the two central counterparties, including the migration of both central counterparties' margining systems to CME SPAN. The Reserve Bank will continue to monitor progress in these initiatives in 2010/11.
  • Participation requirements: ASX Clear proposes to further increase the minimum ‘core capital’ requirement to $10 million from 1 January 2012. It is expected that ASX will consider developments in the third-party clearing market in making decisions regarding further increases in the minimum capital requirement; ASIC and the Reserve Bank will monitor these developments.
  • Business continuity planning: ASX finalised its business continuity testing program for 2010 and 2011. ASX also reviewed and updated its Business Continuity Management Policy, with a number of improvements to arrangements planned in line with international best practice. The Reserve Bank welcomes these plans and will monitor their progress over the period ahead.


On 28 June 2010, ASX introduced a new trade execution facility and new order types for ASX-listed products. The new trade execution facility, called VolumeMatch, enables end-users to anonymously search for liquidity and execute orders greater than $1 million at a price derived from the central limit order book. The new order types, including hidden and iceberg orders, will be available on ASX's main trade execution facility, Intergrated Trading System (ITS), and will interact with other orders submitted to ITS. VolumeMatch trades and the new order types clear and settle on the same basis as other ASX trades. [1]

‘Core capital’ is defined by ASX to be the sum of: all paid-up ordinary share capital; all non-cumulative preference shares; all reserves, excluding revaluation reserves; and opening retained profits/losses, adjusted for current year movements. In addition, ASX Clear participants are subject to a risk-based requirement under which they must hold sufficient ‘liquid capital’ to cover counterparty risk, large exposure risk, position risk and operational risk. [2]

Margin, posted by a participant in respect of derivatives positions, is not a mutualised resource and is available only to cover the default of that participant. ‘Additional Cover’, is additional margin. ‘Contributions’, posted in respect of cash equities positions, are a mutualised resource and may be applied against the default of any participant. In due course, ASX Clear expects to introduce margining for cash equities positions, which could result in CAC calls in respect of either cash equities or derivatives positions being treated on a consistent margin-equivalent basis. [3]

Any loss in excess of that covered by prior-ranking default resources reduces the principal to be repaid by an equivalent amount. [4]

This was the fully paid up component of ASX Clear's pooled risk resources. [5]

These discounts are removed if the exponentially weighted moving average (EWMA) of SPI S&P/ASX 200 volatility is 20 per cent higher than historical volatility. [6]

ASX Clear regularly reviews stress test scenarios and amends them to reflect current market conditions. See Section A1.1 for details of changes to scenarios made during the assessment period. [7]

These positions are related to index-arbitrage transactions. Index arbitrage is a trading strategy which seeks to profit from a difference between the actual and theoretical spread between futures prices and prices in the underlying physical market. The trading strategy involves taking either a long futures position and selling stock, or taking a short futures position and buying stock. The gains from the trading strategy are realised when the futures position expires: the future position is liquidated and the stock is either bought (if stock had originally been sold) or sold (if the stock had originally been bought). The scale of these cash equity trades can cause spikes in ASX Clear participants' projected stress losses. [8]

ASX Clear will calculate participants' required margin both before and after the settlement of the next day's trades and call the larger of these two amounts. This will reduce the need for intraday margin calls, which may cause liquidity problems for some participants. [9]

ASX Clear (Futures) currently uses the RIVA version of the SPAN system. [10]

ASX Markets Supervision Pty Limited was renamed ASX Compliance in August 2010. [11]

Previously known as Clearing Risk Operations. [12]

The document ‘Delivering Efficiencies to the Marketplace through the Harmonisation and Linking of CCP Activities: The Way Forward’ may be found at: <http://www.asx.com.au/about/pdf/market_information_paper_delivering_efficiencies.pdf>. [13]

Details regarding ASX's TAS are available at: <http://www.asx.com.au/professionals/trade_acceptance_service/index.htm>. [14]