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

Standard 18: Disclosure of Rules, Key Policies and Procedures, and Market Data

A securities settlement facility 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 securities settlement facility. All relevant rules and key policies and procedures should be publicly disclosed.

Rating: Broadly observed

ASX Settlement 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 (SSF Standard 18.1). This includes information regarding the general descriptions of system design and the roles of ASX Settlement and its participants (SSF Standards 18.2, 18.3). ASX Settlement 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 (SSF 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 (SSF Standard 18.5).

The Bank notes the following steps that ASX Settlement should take to fully observe SSF Standard 18:

  • Publish an expanded Disclosure Framework document, in a form consistent with that prescribed by CPSS-IOSCO, setting out in detail how ASX Settlement meets the requirements of each of the Principles (SSF Standard 18.5).

ASX Settlement 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 Settlement has broadly observed the requirements of SSF Standard 18 during the 2012/13 Assessment period. ASX Settlement's disclosure of rules, key policies and procedures, and market data is described in further detail under the following sub-standards.

18.1 A securities settlement facility 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 SSF Standards 1.4, 2.2, 11.3, 13.4, 15.2 and 15.3).

ASX Settlement's Operating Rules and Procedures form the basis of all material aspects of the SSF's service to participants. The Operating Rules are disclosed on ASX's public website.[1] The Rules are also posted on ASX's participant website, along with procedures relevant to participants.

To assist participants in their understanding of the risks of participating in ASX Settlement, and for the information of other interested stakeholders, ASX publishes a range of additional material on its public website. Information specific to ASX Settlement includes information about participant requirements, trade and settlement monitoring systems, known software release issues and change requests, 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 SSF Standards 1.4, 2.2, 11.3, 13.4, 15.2 and 15.3.

18.2 A securities settlement facility should disclose clear descriptions of the system's design and operations, as well as the securities settlement facility's and participants' rights and obligations, so that participants can assess the risks they would incur by participating in the securities settlement facility (see SSF Standards 2.8 and 8.5).

General descriptions of ASX Settlement's system designs and operations are detailed in the ‘Disclosure Framework’ document, available on ASX's public website (see SSF 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.

18.3 A securities settlement facility should provide all necessary and appropriate documentation and training to facilitate participants' understanding of the securities settlement facility's rules, policies and procedures and the risks they face from participating in the securities settlement facility.

All applicants for participation in ASX Settlement 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 Settlement has completed an initial assessment of an application, the applicant is also invited to attend formal ‘on boarding’ meetings with the Compliance 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.

ASX Settlement requires that participants ‘tag’ settlement instructions submitted to CHESS that are related to securities lending, and participants must disclose outstanding positions, both borrowed and lent. ASX publishes aggregate securities lending data on its website daily, enabling participants to better understand the risks associated with these activities.

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 (see SSF Standard 14.5). Examples of matters that might raise concerns are if a participant had increased settlement fail rates or had a high frequency of technical connectivity issues. If the matter is serious, ASX may require that for the participant remediate the weakness. Alternatively ASX may impose conditions on participation, require that the participant appoint an independent expert to assist with the remediation task.

18.4 A securities settlement facility should complete regularly and disclose publicly responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures. A securities settlement facility 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.


Available at <http://www.asxgroup.com.au/asx-clear-futures-operating-rules-and-waivers.htm>. [1]

Available at <http://www.asxgroup.com.au/media/pfmi_disclosure_framework.pdf>. [2]