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

Standard 15: Access and Participation Requirements

A securities settlement facility should have objective, risk-based and publicly disclosed criteria for participation, which permit fair and open access.

Rating: Observed

ASX Settlement has objective and transparent participation requirements set out in its Operating Rules and Procedures (SSF Standard 15.1). These requirements include financial requirements, as well as operational arrangements that are tailored to the specific activities of ASX Settlement (SSF Standard 15.2). ASX Settlement monitors participants' compliance with requirements on an ongoing basis, and has the authority to suspend or terminate participation or take other disciplinary or remedial action in the event of a breach of these requirements (SSF Standard 15.3).

Based on this information, the Bank's assessment is that ASX Settlement has observed the requirements of SSF Standard 15 during the 2012/13 Assessment period. ASX Settlement's access and participation requirements are described in further detail under the following sub-standards.

15.1 A securities settlement facility should allow for fair and open access to its services, including by direct and, where relevant, indirect participants and other FMIs, based on reasonable risk-related participation requirements.

ASX Settlement has objective and transparent participation requirements, which are publicly available and form part of its Operating Rules and Procedures. The Operating Rules and Procedures provide for an appeals process should an application for participation be rejected or a participant's access be terminated.

At the end of June 2013 ASX Settlement had 119 participants, of which 34 participants were temporary special-purpose participants set up to effect corporate actions.

15.2 A securities settlement facility's participation requirements should be justified in terms of the safety of the securities settlement facility and the markets it serves, be tailored to and commensurate with the securities settlement facility's specific risks, and be publicly disclosed. Subject to maintaining acceptable risk control standards, a securities settlement facility should endeavour to set requirements that have the least restrictive impact on access that circumstances permit.

ASX Settlement's participation requirements are designed to promote the safety and integrity of the SSF. They cover financial obligations, business and managerial requirements, operational resources and capabilities, and business continuity arrangements.

A settlement participant must post a settlement bond of $500,000, unless: it is subject to prudential supervision as an ADI; is an approved clearing facility or an AMO under ASX Settlement Operating Rules and Procedures; is a CS facility that complies with the FSS; or only acts as a Participant Bidder in a takeover. In addition, a sponsoring participant (i.e. a participant that also acts in ASX Settlement on behalf of non-participants) that is not covered by the National Guarantee Fund compensation arrangements (under the Corporations Act) must post a sponsorship bond of $500,000.

Performance and sponsorship bonds must be issued by an Australian bank or appropriately regulated insurance company. Funds held under a performance bond would be drawn upon by ASX Settlement in the event that the participant breached ASX Settlement rules. In a similar vein, funds held under a sponsorship bond would be drawn upon to meet any losses suffered by ASX Settlement, an issuer, or a holder sponsored by an ASX Settlement participant arising from a breach of the rules or other offence committed by the participant.

Under the Operating Rules and Procedures, the ASX Settlement Board must be satisfied that a potential participant has (or will have) the relevant managerial, operational and financial capacity and appropriate complementary business continuity arrangements in place to enable it to meet its ongoing obligations.

15.3 A securities settlement facility should monitor compliance with its participation requirements on an ongoing basis and have clearly defined and publicly disclosed procedures for facilitating the suspension and orderly exit of a participant that breaches, or no longer meets, the participation requirements.

ASX Settlement has wideranging powers to sanction its participants in order to preserve the integrity of the SSF. The ASX Settlement Operating Rules and Procedures allow it to suspend or terminate a participant from its facility in the event of a failure to comply with the Operating Rules and Procedures, or where a Payment Provider fails to authorise a participant's payment for interbank settlement. The action taken in the event of a breach will depend on a number of factors, including the participant's history of compliance and whether the breach implies negligence, incompetence or dishonesty. Where a breach has been identified and the participant has taken appropriate steps to rectify it, ASX Settlement will typically continue to monitor the participant closely for a period of time. Breaches are also referred to ASIC and, in most cases, are investigated by the Executive Office of ASX Compliance. Disciplinary action relating to rule breaches is brought before the ASX Compliance Officer.

ASX Settlement levies fees on participants that fail to meet securities delivery obligations on the scheduled settlement date. The fee is 0.1 per cent of the value of the settlement obligation, but with a minimum and maximum fee of $100 and $5,000, respectively. Participants are also required to close out any positions remaining unsettled on the fifth day after the trade date (i.e. two days after the scheduled settlement date). ASX Settlement also routinely benchmarks participants' settlement performance. Under this regime, a participant's compliance unit receives a ranking of its settlement performance (based on the value of its trades that have failed to settle) against its market group peers. In addition, under its Operating Rules, ASX Settlement is able to impose monetary penalties of up to $1 million on participants that it deems to be in violation of the Operating Rules.