2012/13 Assessment of ASX Clearing and Settlement Facilities B1.1 ASX Clear

Standard 13: Segregation and Portability

A central counterparty should have rules and procedures that enable the segregation of positions of a participant's customers and the collateral provided to the central counterparty with respect to those positions.

Rating: Observed

ASX Clear offers three types of account structure: individual client segregation for options and futures; omnibus segregation with net margining for futures; and commingled house/client accounts for cash market transactions (CCP Standard 13.2). Individual client segregation for options and futures provides protection to customers against the default of both their clearing participant and a fellow client, and supports transfer to another clearing participant in such a scenario. Omnibus segregation offers an appropriate degree of protection to customers against the default of their clearing participant, but makes achieving transfer to another participant unlikely in the event of such a default. The commingled account structure for cash market transactions also makes achieving transfer to another participant difficult in the event of a default, and does not offer customers the protections of segregation (CCP Standards 13.1, 13.3). ASX Clear is currently consulting on options to change its account structure to offer a greater degree of segregation for cash market accounts. ASX Clear has publicly disclosed its current segregation and portability arrangements, including the current obstacles to portability (CCP Standard 13.4).

The Bank notes the following steps that ASX Clear should take to meet the requirements of CCP Standards 13.1, 13.2 and 13.3, which come into effect on 31 March 2014:

  • Complete development and commence implementation of arrangements for client account segregation in its cash equities clearing service.

Based on this information, and noting that CCP Standards 13.1, 13.2 and 13.3 are not yet in force, the Bank's assessment is that ASX Clear has observed the requirements of CCP Standard 13 during the 2012/13 Assessment period. ASX Clear's progress towards implementing segregation and portability requirements is described under the following sub-standards.

13.1 A central counterparty should, at a minimum, have segregation and portability arrangements that effectively protect a participant's customers' positions and related collateral from the default or insolvency of that participant. If the central counterparty additionally offers protection of such customer positions and collateral against the concurrent default of the participant and a fellow customer, the central counterparty should take steps to ensure that such protection is effective.

CCP Standard 13.1 comes into effect on 31 March 2014.

ASX Clear has the capacity to transfer (port) participants' customers' (also known as ‘clients’) positions and collateral under its Operating Rules. During the Assessment period, an amendment to Part 5 of the PSNA removed a legal impediment to portability, by allowing a CCP to transfer client collateral of a defaulting participant as provided for by its Operating Rules without the need to seek approval from the participant's external administrator. ASX Clear maintains segregated account structures for its options and futures products (see CCP Standard 13.2). However, its commingled house/client account for cash market transactions does not offer clients the protections of segregation.

ASX released a consultation paper in July 2013 in which it asked stakeholders to consider and provide feedback on the existing single house account structure. In this publication, ASX discussed two further options: a client omnibus and an individually segregated client account structure. ASX views these options as potential solutions to ensure that ASX Clear meets the new regulatory requirements. These potential solutions could either replace or be provided as additional choices to the existing structure for participants and their clients.

13.2 A central counterparty should employ an account structure that enables it readily to identify positions of a participant's customers and to segregate related collateral. A central counterparty should maintain customer positions and collateral in individual customer accounts or in omnibus customer accounts, or equivalent.

CCP Standard 13.2 comes into effect on 31 March 2014.

Currently, ASX Clear offers individual client segregation for options and a choice of individual client segregation or omnibus segregation for futures transactions. However, ASX Clear does not offer a segregated account structure for cash market transactions. ASX Clear is consulting on possible changes to account structures for cash market transactions that would provide segregation between client and house positions and collateral.

13.3 To the extent reasonably practicable under prevailing law, a central counterparty should structure its portability arrangements in a way that makes it highly likely that the positions and collateral of a defaulting participant's customers will be transferred to one or more other participants.

CCP Standard 13.3 comes into effect on 31 March 2014.

Although ASX Clear has the power under its Operating Rules to transfer client positions and collateral following a participant default, legal and operational impediments have made it unlikely that such a transfer could be achieved. The PSNA amendments referred to in CCP Standard 13.1 have now removed an important legal impediment to portability. However, the commingled account structure used for cash market transactions creates practical difficulties for achieving portability. The commingled account structure makes it difficult to identify client positions, and even if positions could be identified, since house and client positions are margined on a net basis across the commingled account, there is unlikely to be sufficient collateral at the CCP to achieve the fully collateralised transfer of individual client positions to alternative clearing participants. However, even under a segregated account structure the scope for transfer of cash market positions would be limited due to the short (three-day) equity settlement cycle

13.4 A central counterparty should disclose its rules, policies and procedures relating to the segregation of a participant's customers' positions and related collateral. In particular, the central counterparty should disclose whether customer collateral is segregated on an individual or omnibus basis. In addition, a central counterparty should disclose any constraints, such as legal or operational constraints, that may impair its ability to segregate or port a participant's customers' positions and related collateral.

Current arrangements for segregation and portability are defined in the ASX Clear Operating Rules and Procedures. ASX has also published a public overview of clearing participant default arrangements, which outlines the current operational constraints to portability and the implications of different account structures.

In addition, ASX has publicly discussed current and proposed segregation and portability arrangements for derivatives transactions in an October 2012 consultation paper. Its July 2013 consultation paper discusses arrangements for cash market transactions cleared in ASX Clear, and ASX is expected to continue the dialogue with participants and other stakeholders on these arrangements over coming months. In particular, the July 2013 consultation paper outlines the practical difficulties associated with achieving portability for cash market transactions within the three-day equity settlement cycle.