2012/13 Assessment of ASX Clearing and Settlement Facilities B1.1 ASX Clear
Standard 20: Disclosure of Rules, Key Policies and Procedures, and Market Data
A central counterparty should have clear and comprehensive rules, policies and procedures and should provide sufficient information and data to enable participants to have an accurate understanding of the risks they incur by participating in the central counterparty. All relevant rules and key policies and procedures should be publicly disclosed.
Rating: Broadly observed
ASX Clear fully discloses its Operating Rules and Procedures to participants, and publicly discloses its rules and a range of additional relevant information on its risk management procedures (CCP Standard 20.1). This includes information regarding the process of novation, and general descriptions of system design and the roles of ASX Clear and its participants (CCP Standards 20.2, 20.3). ASX Clear provides new participants with comprehensive documentation, and verifies their understanding of their responsibilities as participants; existing participants are also provided with education on their obligations where required (CCP Standard 20.4). ASX has published a high-level Disclosure Framework document, but will be expected to expand on this over the next Assessment period (CCP Standard 20.5).
The Bank notes the following steps that ASX Clear should take to fully observe CCP Standard 20:
- Publish an expanded Disclosure Framework document, in a form consistent with that prescribed by CPSS-IOSCO, setting out in detail how ASX Clear meets the requirements of each of the Principles (CCP Standard 20.5).
ASX Clear is also encouraged to provide a central location on the ASX website linking to all information that is subject to disclosure requirements under the FSS. Currently this information is spread across a range of pages.
Based on this information, the Bank's assessment is that ASX Clear has broadly observed the requirements of CCP Standard 20 during the 2012/13 Assessment period. ASX Clear disclosure of rules, key policies and procedures, and market data is described in further detail under the following sub-standards.
20.1 A central counterparty should adopt clear and comprehensive rules, policies and procedures that are fully disclosed to participants. Relevant rules and key policies and procedures should also be publicly disclosed (including specific requirements relating to CCP Standards 1.4, 2.2, 12.3, 13.4, 15.4, 17.2 and 17.3).
ASX Clear's Operating Rules and Procedures form the basis of all material aspects of the CCP's service to participants. The Operating Rules and Procedures are disclosed on ASX's public website.[1] The Operating Rules and Procedures are also posted on ASX's participant website.
To assist participants in their understanding of the risks of participating in ASX Clear, and for the information of other interested stakeholders, ASX publishes a range of additional material on its public website. Information specific to ASX Clear includes information about risk management, default management, margins and capital-based position limits, and business continuity arrangements. More general information includes: the ASX Group's regulatory framework; requirements of the FSS; requirements of the Corporations Act for provision of services in a ‘fair and effective’ way; the ASX Group's other obligations under the Corporations Act; and ASX Group's compliance with the Principles. ASX also operates a dedicated website that discloses information relevant to the clearing and settlement of cash equities, to support its disclosure responsibilities under the Code of Practice.
Specific disclosure requirements are dealt with under CCP Standards 1.4, 2.2, 12.3, 13.4, 15.4, 17.2 and 17.3.
20.2 A central counterparty's rules, policies and procedures should clearly identify the nature and scope of the risk exposure assumed by the central counterparty, such as by novation, open offer or other similar legal devices. A central counterparty's rules, policies and procedures should clearly identify the point in the clearing process at which the central counterparty assumes the risk exposure.
ASX publishes on its public website an overview of how the CCPs would manage a clearing participant default, which includes information about the purpose of novation, the point at which novation occurs, and the scope of contractual arrangements. Section 12 of ASX Clear's Operating Rules sets out the arrangements for registration of market contracts, including the point at which a contract is considered to be registered and at which ASX Clear assumes the risk exposure of a trade for transactions on the ASX or Chi-X markets, or OTC equity options (see CCP Standard 1.5).
20.3 A central counterparty should disclose clear descriptions of the system's design and operations, as well as the central counterparty's and participants' rights and obligations, so that participants can assess the risks they would incur by participating in the central counterparty (see CCP Standards 2.8 and 9.5).
General descriptions of ASX Clear's system designs and operations are detailed in the ‘Disclosure Framework’ document, available on ASX's public website (see CCP Standard 20.5).[2] This document describes the ASX group structure, provides a general description of the CS facilities and their roles, system design and operations, outlines the legal and regulatory framework for clearing and settlement, and provides a high-level overview of steps taken by ASX to ensure compliance with the Principles and the corresponding FSS. ASX's public website also provides introductory information, including high-level descriptions of systems and operations, for each CS facility.
20.4 A central counterparty should provide all necessary and appropriate documentation and training to facilitate participants' understanding of the central counterparty's rules, policies and procedures and the risks they face from participating in the central counterparty.
All applicants for participation in ASX Clear are provided with a comprehensive application pack, which includes information regarding key requirements of the facilities. Applicants are provided with access to the Operating Rules, Procedures and Guidance Notes via the ASX website, as well as publicly available information about the facilities, services and participation requirements. When ASX Clear has completed an initial assessment of an application, the applicant is also invited to attend formal ‘on boarding’ meetings with the Compliance, Clearing Risk Management and Operations units to discuss key areas of importance for participants.
As part of the formal admission process, the applicant must provide supporting evidence demonstrating its capacity to comply with the rules. This is reviewed and discussed with the applicant prior to approving admission. For example, ASX Clear and ASX Settlement participants are required to have a management plan which outlines the governance, risk and compliance arrangements of the participant. When reviewing the submissions, ASX will make enquiries of participants about their risk assessments, the design of the controls to mitigate those risks, and the applicable supervisory arrangements.
Where ASX becomes aware of a participant demonstrating a lack of understanding of the Operating Rules and Procedures, or the risks of participation, ASX will generally work collaboratively with the participant to educate them on their obligations. ASX may become aware of issues through its normal risk monitoring activities or through its regular discussions with participants. Examples of matters that might raise concerns are if a participant was slow in making required payments, or had a high frequency of intraday margin calls. Steps available to ASX to address serious matters may include ASX calling for AIM or additional cover from that participant, requiring the participant to hold additional capital, requiring the participant to remediate the weakness, imposing conditions on participation; or requiring that the participant appoint an independent expert to assist with the remediation task (see also CCP Standard 16.6).
20.5 A central counterparty should complete regularly and disclose publicly responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures. A central counterparty also should, at a minimum, disclose basic risk and activity data, as directed by the Reserve Bank from time to time.
ASX has published a Disclosure Framework document that describes its approach to meeting the disclosure framework, including a summary of ASX's self-assessment of how its CS facilities meet the applicable principles. ASX will update this document to reflect information provided to the Bank through the annual Assessment process. This update will add more detail as to how the CS facilities meet the Principles and corresponding FSS. ASX plans to update the document at least annually or as necessary. The Bank will be monitoring how ASX elaborates on this disclosure document over the forthcoming Assessment period.