2012/13 Assessment of ASX Clearing and Settlement Facilities B2.2: Austraclear

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

Austraclear has objective and transparent participation requirements set out in its Regulations and Procedures (SSF Standard 15.1). These requirements include minimum capital and other financial requirements, as well as operational arrangements that are tailored to the specific activities of Austraclear, including additional requirements for special purpose participants that are collateral managers (SSF Standard 15.2). Austraclear 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 Austraclear has observed the requirements of SSF Standard 15 during the 2012/13 Assessment period. Austraclear'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.

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

The CCMS's access to Austraclear is via a non-exclusive ‘Special Purpose Participant (Collateral Manager)’ category of participation. There are no provisions in the Austraclear Regulations that prevent fair and open access to other entities that may seek to offer their services as a Collateral Manager.

At the end of June 2013, Austraclear had 786 participants.

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.

Austraclear's participation requirements are designed to promote the safety and integrity of the SSF. They cover operational capacity, financial standing and business continuity arrangements.

Participation requirements for Special Purpose Participants that are Collateral Managers are based on requirements for other categories of participants and may be justified in terms of the safety of Austraclear and the market it serves. Specific business continuity requirements for Collateral Managers reflect the potential critical functionality of such infrastructure.

Under the Regulations and Procedures, Austraclear 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. In addition, an applicant for special purpose participation as a Collateral Manager is required to have an Australian Financial Services Licence covering the activities that it will conduct as a Collateral Manager.

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.

Austraclear has wideranging powers to sanction its participants in order to preserve the integrity of the SSF. Austraclear may suspend or terminate a participant's authority to settle transactions in the event of a default, or in the event of a breach of the Regulations and Procedures that may have an adverse effect on the SSF. 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, Austraclear 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.