2015/16 Assessment of ASX Clearing and Settlement Facilities Appendix A2.1 ASX Settlement

A2 Financial Stability Standards for Securities Settlement Facilities

The SSF Standards are made up of 19 headline standards, each of which is accompanied by a number of more detailed sub-standards. In assessing whether a facility has met each of the SSF Standards, the Reserve Bank takes into account associated guidance.[1] The following provides details of how ASX Settlement and Austraclear observe each of the SSF Standards (including sub-standards). It also sets out the Bank's assessment of how well ASX Settlement and Austraclear have complied with each of the SSF Standards during the Assessment period, and provides recommendations for each of the SSFs to address relevant areas of concern and take steps to further strengthen their observance of the SSF Standards.[2]

A2.1 ASX Settlement

ASX Settlement is a wholly owned subsidiary of ASX Settlement Corporation Limited, itself a wholly owned subsidiary of ASX Limited (see ‘ASX Group Structure’ in Appendix A). ASX Settlement is an SSF that provides settlement services for the ASX market and, through ASX's TAS, access to settlement arrangements for AMOs such as Chi-X. Under the Settlement Facilitation Service, ASX Settlement also provides DvP settlement arrangements for transactions in non-ASX-listed securities undertaken on trading platforms operated by ALMOs; these include SSX, the NSX and SIM. ASX Settlement also provides for subscriptions and redemptions in unlisted managed funds through the mFund Settlement Service.

Summary of Ratings and Recommendations

The following table summarises the Bank's 2015/16 Assessment of ASX Settlement against the FSS using the rating system set out in the Principles for Financial Market Infrastructures: Disclosure framework and assessment methodology. The table includes the recommendations made by the Bank for ASX Settlement to observe or continue observing the requirements under the FSS, as well as recommendations to further strengthen ASX Settlement's observance of the FSS.

Table 13: ASX Settlement Ratings and Recommendations
Standard Rating Recommendation
1. Legal basis Observed  
2. Governance Observed  
3. Framework for the comprehensive management of risks Observed ASX Settlement is encouraged to continue to refine the documentation of its recovery plans, including considering further elaborating: stress scenarios; communications procedures; the methodology for determining critical services; how structural weaknesses are identified and addressed; and links to other FMIs.
4. Credit risk Not applicable  
5. Collateral Not applicable  
6. Liquidity risk Observed  
7. Settlement finality Observed  
8. Money settlements Observed  
9. Central securities depositories Observed  
10. Exchange-of-value settlement systems Observed  
11. Participant default rules and procedures Observed In order to continue to observe SSF Standard 11, ASX Settlement should carry out further work to enhance its DMF documentation, including the documents that set out the specific procedures to be followed in the event of default of an ASX Settlement participant or Payment Provider. In particular, these documents should provide guidance on the discretionary decisions that may need to be taken by the PIRC and other relevant parties, including elaborating on relevant factors for consideration in making these decisions.

ASX Settlement should formalise the review of its default management procedures within ASX's broader framework for testing and review of the DMF.

ASX Settlement should carry out its plans to enhance participant and client education and communication regarding its default management arrangements. As part of this, ASX Settlement should extend the scope of its Guidance Note on the suspension and termination of ASX Settlement participants to explain the potential implications of the default of a participant or Payment Provider on other ASX participants, and develop an accessible information note on the ASX Settlement back-out algorithm. Any disclosures should be easily accessible, preferably in a centralised location.

In developing its new system for clearing and settlement of cash market securities, ASX Settlement should ensure that any default management processes are clearly documented, and that the effectiveness of these processes can be tested and reviewed on an ongoing basis.

ASX Settlement should continue enhancing its approach to the testing and review of its default management arrangements. Such enhancements should include increasing the complexity and scope of the ASX default management fire drills. ASX Settlement should also ensure that these fire drills involve all relevant internal stakeholders and committees, and test the interaction between all relevant stakeholders.

As part of the annual ASX default management fire drills, consideration should be given to the implications of the default of an ASX Settlement participant or Payment Provider for other ASX CS facilities.

ASX Settlement is encouraged to complete its review of the DMF and finalise planned enhancements to the relevant documents, including the SSF default procedures documents.
12. General business risk Observed ASX Settlement is encouraged to review its assumptions in respect of the reliability and timeliness of payments under its insurance policies in calculating its general business risk capital.
13. Custody and investment risks Not applicable  
14. Operational risk Observed In order to continue to observe SSF Standard 14, ASX Settlement should review its cyber risk management arrangements in light of forthcoming CPMI-IOSCO guidance on cyber resilience for FMIs. As part of this review, ASX Settlement should:
  • consider developing participant requirements in the area of cyber resilience, liaising as appropriate with the Bank and other relevant authorities
  • develop concrete plans to improve its capability to meet the two-hour recovery time objective following an extreme cyber attack.
ASX Settlement will also need to review its operational arrangements in light of the proposed special resolution regime for FMIs in Australia, once the regime has been finalised. In particular, ASX Settlement will need to ensure that its operations are organised in such a way as to facilitate effective crisis management actions under that regime.

ASX Settlement is encouraged to continue to invest in the ongoing maintenance and smooth functioning of the CHESS system in the transition to its replacement system, ensuring that it continues to meet the needs of users and that it continues to support stability in the financial system. ASX is also encouraged to invest in appropriate contingency arrangements, to ensure the timely implementation of an alternative CHESS replacement system should the decision be taken not to proceed with the DLT solution.
15. Access and participation requirements Observed  
16. Tiered participation arrangements Observed  
17. FMI links Observed  
18. Disclosure of rules, key policies and procedures, and market data Observed  
19. Regulatory reporting Observed  


The standards and guidance are available at <http://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/standards/securities-settlement-facilities/2012/>. [1]

For an explanation of the Bank's Assessment approach and the ratings scale used, see the introduction to Appendix A. [2]