2012/13 Assessment of ASX Clearing and Settlement Facilities B2.1 ASX Settlement

Standard 7: Settlement Finality

A securities settlement facility should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, a securities settlement facility should provide final settlement intraday or in real time.

Rating: Observed

ASX Settlement defines the point at which settlement is final in its Operating Rules, and finality is ensured by its approval under Part 3 of the PSNA. The finality of interbank obligations arising from its settlements is protected by the approval of RITS under Part 2 of the same legislation (SSF Standard 7.1). Final settlement occurs each day in a single multilateral net batch on a DvP model 3 basis (SSF Standard 7.2). ASX Settlement defines clear cut-off times for the cancellation of payment or transfer instructions (SSF Standard 7.3).

Based on this information, the Bank's assessment is that ASX Settlement has observed the requirements of SSF Standard 7 during the 2012/13 Assessment period. ASX Settlement's arrangements for ensuring finality of settlements are described in further detail under the following sub-standards.

7.1 A securities settlement facility's rules and procedures should clearly define the point at which settlement is final.

The point at which settlement is final is defined in the ASX Settlement Operating Rules and Procedures. Settlement of securities transfers is final once ASX Settlement has recorded the transfers of securities in the settlement accounts of participants.

The finality of ASX Settlement's settlement process is ensured by its approval under Part 3 of the PSNA. In addition, the payments between Payment Providers as part of the multilateral net batch are protected by virtue of the approval of RITS as an RTGS system under Part 2 of the PSNA. This approval protects payments from being voided in the case of a Payment Provider entering external administration.

7.2 The securities settlement facility should complete final settlement no later than the end of the value date, and preferably intraday or in real time, to reduce settlement risk. A securities settlement facility should consider adopting real-time gross settlement (RTGS) or multiple batch processing during the settlement day.

Settlement of securities transactions in ASX Settlement occurs on a DvP model 3 basis in a single net batch on the settlement day (value date). This involves the simultaneous transfer of net payment and net securities obligations between buyers and sellers at the end of the settlement cycle (See SSF Standard 10).

ASX Settlement has also developed the functionality to settle securities transactions on a DvP model 1 basis (by individual line of stock) via its CHESS RTGS service. However, this service is not currently in use by any participants due to the relative netting efficiencies inherent in settling on a DvP model 3 basis via a single batch. For the same reason, ASX Settlement currently has no plans to increase the frequency of batch settlement beyond once per day. However, ASX will continue to keep a move to more frequent settlement under review.

7.3 A securities settlement facility should clearly define the point after which unsettled payments, transfer instructions or other obligations may not be revoked by a participant.

Participants have until settlement cut-off (typically 10.30 am) on the day of settlement to remove payment or transfer instructions from the settlement batch.