2010/11 Assessment of Clearing and Settlement Facilities in Australia 5.3 ASX Settlement


ASX Settlement operates the securities settlement facility for cash equities and warrants traded on the ASX market.

ASX Settlement operates within a sound legal framework, based on its Operating Rules and Procedures. Under section 822B of the Corporations Act, these rules constitute a contract under seal between ASX Settlement and each of its participants, as well as between participants. Among other things, the rules set out the rights and obligations of ASX Settlement and each of its participants, including in the event of default or suspension. ASX Settlement's netting arrangements are approved under Part 3 of the Payment Systems and Netting Act. This provides certainty for the netting process in the event of the insolvency of an ASX Settlement participant or a payment provider.

ASX Settlement's securities settlement system is CHESS. Settlement risk in CHESS is mitigated by the use of a Model 3 delivery-versus-payment (DVP) mechanism, whereby settlement of securities transfers and associated cash payments occurs in a multilateral net batch at around noon each day, with interbank cash payments made across ES accounts in the Reserve Bank's real-time gross settlement (RTGS) system, the Reserve Bank Information and Transfer System (RITS). Securities title is updated upon confirmation of cash settlement from RITS.

Improvements to the Batch-settlement Model

The Reserve Bank's Review of Settlement Practices for Australian Equities recommended a number of potential enhancements to the functioning of the batch-settlement model following the significant delays to the completion of settlement in January 2008. In September 2009, after consultation with industry participants, ASX announced that it would implement a number of improvements. As part of this, since 6 September 2010 ASX has eliminated netting between house and client margin payments. As a result, margin flows are a little higher. ASX reports that the transition to separate gross settlement was smooth.

ASX plans to implement the following:

  • Amendments to the LEPO expiry settlement process. ASX plans to implement a permanent solution to manage the risk around the LEPO expiry by settling securities delivered at expiry at the prevailing stock price, rather than the nominal $0.01 option strike price, as part of its cash equity margining project.[1]
  • Amendments to the formal agreements between payment providers and ASX Settlement. ASX has been engaging with the Australian Payments Clearing Association to align the minimum standards for payment providers (i.e. those settling payment obligations on behalf of settlement participants) in these agreements with current market practice.[2] ASX is focusing on reducing the authorisation time frame, and increasing certainty around the rollover to the next day of any payments not completed by a particular time.
  • An earlier deadline for the back out of settlement obligations. ASX Settlement is reviewing its Operating Rules and Procedures to ensure that, in the event that a payment provider is unwilling or unable to authorise a settlement obligation by the earlier deadline, ASX can back out settlement obligations (although some flexibility will be retained in the event of operational problems). Had such an earlier prescribed deadline been in place in January 2008, the back out of the troubled participant's settlement obligations and the recalculation of the batch could have been accelerated, reducing the overall length of the settlement delay, and mitigating the uncertainty that affected the market at large.
  • Increasing ASX Settlement's powers to facilitate same-day settlement of backed-out settlement obligations. Since the incidence of batch recalculation could increase once an earlier deadline for the back out of settlement obligations has been imposed, ASX Settlement is considering seeking rules-based powers to require and facilitate the intraday settlement of certain backed-out settlement obligations. This proposal is being considered as part of a broader review of current settlement models.

The Reserve Bank will continue to monitor developments in this area in the next assessment period.

Operational Performance

ASX Settlement's key system, CHESS, achieved a high level of operational reliability during the period, with one outage; availability over the year was 99.96 per cent. There was one minor operational incident involving CHESS during the assessment period. The incident related to an issue with the core switch, resulting in some unsuccessful logins. ASX responded by switching CHESS to the backup site, resulting in a 30 minute outage. ASX extended settlement cut off by 30 minutes and there were no delays to settlements or increases in failures of settlements. Capacity utilisation averaged 15 per cent during the assessment period, peaking at 20 per cent, both of which were lower than in 2009/10, reflecting an increase in the capacity of CHESS over the year. Accordingly, ASX Settlement met both its targets of minimum availability of 99.8 per cent and capacity of 100 per cent above peak utilisation.

ASX conducts business continuity tests of its key systems over two-year cycles. Testing was conducted for CHESS in March 2011, as part of the formal testing program for 2010 and 2011. This testing did not reveal any problems.

Trade Acceptance Service

As discussed in Section 5.1 of this Assessment, ASX published standards and pricing options for the TAS in May 2011, which will allow trades executed on AMOs' platforms to be cleared and settled through ASX Clear and ASX Settlement respectively.


It is the Reserve Bank's assessment that ASX Settlement complied with the Financial Stability Standard for Securities Settlement Facilities during the assessment period.

The Reserve Bank welcomes the enhancements to ASX Settlement's settlement arrangements, including eliminating netting between house and client margin payments. The Reserve Bank encourages ASX Settlement to implement the other identified enhancements as soon as practicable and will monitor progress over the period ahead.


ASX has implemented a temporary solution involving ASX Clear withholding all outward margin payments until it has been confirmed that the CHESS batch has settled. [1]

Current market practice is outlined in the following participant bulletin: <https://www.asxonline.com/intradoc-cgi/groups/clearing_and_settlement/documents/communications/asx_027540.pdf>. [2]