2012/13 Assessment of ASX Clearing and Settlement Facilities B1.2 ASX Clear (Futures)

Standard 8: Settlement Finality

A central counterparty should ensure clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, a central counterparty should facilitate final settlement intraday or in real time.

Rating: Observed

The vast majority of ASX Clear (Futures) settlements involve AUD cash payments between participants and the CCP for the purposes of margin payments and the settlement of cash-settled derivatives contracts. Each day, ASX Clear (Futures) calculates the net obligations of each of its participants. Those participants with a net obligation to the CCP are required to make payments to ASX Clear (Futures) by 11.00 am, for both AUD and NZD-denominated contracts. Once these payments have been received, ASX Clear (Futures) makes payments to those participants with a net obligation from the CCP. AUD cash settlements occur via Austraclear, with interbank obligations settled on a real-time gross settlement (RTGS) basis across ESAs at the Reserve Bank of Australia, via RITS.

In some cases, the settlement of derivatives contracts cleared by ASX Clear (Futures) involves the transfer of a security or physical asset, with a corresponding transfer of cash. For each type of security or asset, ASX Clear (Futures)' arrangements ensure that delivery occurs if, and only if, payment occurs. For 90-day bank bill futures, ASX Clear (Futures) utilises the standard settlement process in Austraclear. For grain and wool contracts, delivery is via commodity warehouses, with ASX Clear (Futures) retaining title documentation until payment has been made.

ASX Clear (Futures) also accepts as collateral for initial margin certain highly liquid debt securities, such as Australian Government securities, and cash collateral in NZD and a small number of other foreign currencies. ASX Clear (Futures) has accounts at Austraclear and NZClear, a securities settlement facility (SSF) owned and operated by the Reserve Bank of New Zealand, for settling AUD-and NZD-denominated collateral, respectively. Collateral denominated in other currencies is settled indirectly via relationships with private banks.

ASX Clear (Futures) defines the point at which settlement is final through contract specifications set out in its Operating Rules and Procedures, and those of ASX 24. The finality of its money settlements is further defined in the Austraclear and NZClear rules, supported by finality legislation in the relevant jurisdictions (CCP Standard 8.1). Contract specifications set out in ASX Clear (Futures)' and ASX 24's Operating Rules and Procedures also specify procedures and timetables for final settlement (CCP Standard 8.2). ASX Clear (Futures) does not allow settlement instructions that may be revoked (CCP Standard 8.3).

Based on this information, the Bank's assessment is that ASX Clear (Futures) has observed the requirements of CCP Standard 8 during the 2012/13 Assessment period. ASX Clear (Futures)' arrangements for ensuring finality of these settlements are described in further detail under the following sub-standards.

8.1 A central counterparty's rules and procedures should clearly define the point at which settlement is final.

The settlement of obligations in ASX Clear (Futures) is final according to the terms of ASX Clear (Futures)' and ASX 24's Operating Rules and Procedures, which set out contract specifications, including the means of settlement. For payments and securities obligations settled in Austraclear, settlement is final according to Austraclear's Regulations and Procedures and its approval under Part 2 of the PSNA. This approval protects the finality of payments made through Austraclear in the event of a participant entering external administration (see Appendix B2.2, SSF Standard 7.1). Any interbank transactions arising from these settlements are settled in real time across ESAs held with the Bank. Payments within this system are also final and irrevocable; this is again supported by the approval of RITS under Part 2 of the PSNA.

NZD obligations that are settled through NZClear are deemed final in accordance with its System Rules. In particular, NZClear System Rule 11.8 provides that final and irrevocable settlement occurs when requirements of a trade have been matched and the trade is recorded in the relevant accounts of the respective members. The NZClear settlement system has been declared a ‘designated settlement system’ for the purposes of Part 5C of the Reserve Bank of New Zealand Act 1989 (NZ), which establishes the validity and enforceability of the rules of a designated settlement system and the irrevocability of transactions settled through the system.

8.2 A central counterparty should ensure final settlement no later than the end of the value date, and preferably intraday or in real time, to reduce settlement risk.

The settlement of obligations in ASX Clear (Futures) is governed by ASX Clear (Futures)' and ASX 24's Operating Rules and Procedures. These set out contract specifications, which include settlement arrangements, with procedures and timetables.

Margin payments and settlement of cash-settled derivatives

The majority of settlements in ASX Clear (Futures) are cash settlements made on a net basis (as described above) for the purposes of regular margin payments and settlement of cash-settled derivatives. Over the Assessment period, all settlements of margin were in cash (AUD or foreign denominated). Initial and variation margin requirements are calculated overnight based on each day's closing contract prices, and are notified to participants by 6.00 am the next day for payment on that day. Should ASX Clear (Futures)' exposures change significantly during the day, initial and variation margin can be called intraday (see CCP Standard 6.1). Intraday margin payments must be paid in cash within two hours of the participant being notified. End-of-day and intraday margin is settled via Austraclear for AUD payments, and NZClear for NZD payments.

Settlement values for cash-settled derivatives are calculated according to contract specifications, generally on the last trading day, or within one or two days of the last trading day.[1] For example, for ASX SPI 200 Index Futures, ASX Clear (Futures) publishes the final settlement price of the contract on the first business day after expiry, with cash flows arising settled on the second business day after expiry (the value date for this contract). These cash flows in Austraclear or NZClear are settled with finality in real time, as are margin-related payments (see CCP Standard 8.1).

Physical delivery

With regard to deliverable contracts, ASX Clear (Futures)' arrangements for physical delivery are described under CCP Standard 10. It has procedures in place to ensure that margin of matched participants is not released until ASX can confirm that both participants have fulfilled their obligations. ASX Clear (Futures) also monitors and enforces compliance with delivery procedures.

The details of final settlement of deliverable contracts vary according to the contract specifications. For example, trading in the contract for 90-day bank accepted bills ceases on noon of the last trading day. This is followed by the exchange of reconciliation and advice notices between participants and the CCP, with final settlement of securities occurring in real time in Austraclear by 3 pm on the day after the last trading day (the value date for this contract).[2] The delivery period for wool contracts commences on the Friday before the last trading day, with real-time final cash settlement scheduled to occur on the day after delivery.

Options delivery

All options cleared by ASX Clear (Futures) either automatically exercise or are abandoned on expiry. In-the-money options will automatically exercise and the holder and writer of the options will receive their respective position in the underlying futures contract. All cash flows related to the exercise of options contracts are included in daily settlement flows (along with initial and variation margin payments). There are no up-front premium payments associated with the options over futures contracts that are cleared by ASX Clear (Futures).

8.3 A central counterparty should clearly define the point after which unsettled payments, transfer instructions or other obligations may not be revoked by a participant.

Participants are not able to submit payment or transfer instructions in ASX Clear (Futures) that may be revoked.


Three days for electricity contracts. [1]

The seller is required to enter the 90-day bank bill into Austraclear by 10 am. This must be matched by the buyer by 11 am and settled by 3 pm. [2]