2015/16 Assessment of ASX Clearing and Settlement Facilities A2.1 ASX Settlement Standard 1: Legal basis

A securities settlement facility should have a well-founded, clear, transparent and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.

ASX Settlement is a separate legal entity within the ASX Group that solely provides settlement and related depository services (SSF Standard 1.1). ASX Settlement's legal basis is founded on clear and understandable rules that operate within the framework of relevant laws and regulations (SSF Standards 1.2, 1.3). The certainty of this legal basis in relevant jurisdictions is reinforced by supporting legislation, including the approval of ASX Settlement's netting arrangements under the PSNA, and is subject to periodic review by ASX Legal (SSF Standards 1.2, 1.5). ASX Settlement has publicly outlined the key features of its legal basis on its website, and from time to time, for information, may provide legal opinions to participants or other stakeholders in respect of the legal basis of significant new services (SSF Standard 1.4). ASX has not identified any material risks arising from potential conflicts of law relating to the operations of ASX Settlement (SSF Standard 1.6).

In May 2016, Parliament passed the Resilience Act. Among other things, this Act amended the PSNA to provide additional legal certainty for netting arrangements that have been approved under the PSNA, such as ASX Settlement (CCP Standard 1.5).

The legal basis of ASX Settlement is described in further detail under the following sub-standards.

1.1 A securities settlement facility should be a legal entity which is separate from other entities that may expose it to risks unrelated to those arising from its function as a securities settlement facility.

ASX Settlement is a wholly owned subsidiary of ASX Settlement Corporation Limited, which is itself a wholly owned subsidiary of ASX Limited. As a separate legal entity, ASX Settlement's securities settlement activities are separate from the activities conducted by ASX's other CS facilities and the rest of the ASX Group, notwithstanding the sharing of operational resources across multiple entities within the group.

ASX Settlement's services are limited to: settlement services for the ASX market; settlement arrangements for AMOs through the TAS; a DvP settlement service for transactions in non-ASX-listed securities undertaken on trading platforms operated by ALMOs through the Settlement Facilitation Service; and the mFund Settlement Service for subscriptions and redemption transactions in unlisted managed funds. Accordingly, ASX Settlement does not provide any services that have a distinct profile from, or pose additional risks to, its activity of operating a SSF.

1.2 The legal basis should provide a high degree of certainty for each material aspect of a securities settlement facility's activities in all relevant jurisdictions.

Legal basis

ASX Settlement's settlement and netting arrangements for transactions entered into by its participants require a high degree of legal certainty. Key components of the legal framework under which the SSF operates are:

  • ASX Settlement holds a CS facility licence under Part 7.3 of the Corporations Act 2001. This licence is administered by ASIC in consultation with the Bank. The Minister acts as ultimate decision-maker on licensing matters, although this responsibility has been delegated to authorised ASIC officers since April 2016.
  • ASX Settlement has defined Operating Rules and Procedures. Under section 822B of the Corporations Act, these Operating Rules have effect as a contract under seal between: ASX Settlement and each of its participants and issuers; each participant and each other participant; and each participant and each issuer. The Operating Rules and Procedures set out the rights and obligations of participants and ASX Settlement, including in the event of default or suspension.
  • The netting arrangements contained in ASX Settlement's Operating Rules are protected as an ‘approved netting arrangement’ under Part 3 of the PSNA, and the finality of money settlements is supported by the approval of RITS as an RTGS system under Part 2 of the PSNA (see SSF Standard 1.5).
  • ASX Settlement is a ‘prescribed CS facility’ for the purposes of Part 7.11, Division 4, of the Corporations Act. Section 1074D of the Corporations Act protects the validity of the transfer of a financial product effected through a prescribed CS facility in accordance with that facility's Operating Rules. Section 10 of the ASX Settlement Operating Rules specifies when transactions are taken to be settled.

The legal basis of ASX Settlement's activities is reviewed by ASX Legal whenever there are material amendments to the Operating Rules or Procedures. Two such reviews occurred for ASX Settlement during the Assessment period.

Rights and interests

The rights and interests of ASX Settlement, its participants and, where relevant, its participants' customers in securities held in CHESS are defined in ASX Settlement's Operating Rules and Procedures (see SSF Standard 9).

1.3 A securities settlement facility should have rules, procedures and contracts that are clear, understandable and consistent with relevant laws and regulations.

Section 822A of the Corporations Act establishes a framework to prescribe the matters that must be dealt with in the Operating Rules and those that may instead be considered under the Procedures. Operating Rule changes are subject to a Ministerial disallowance process, although the Minister's role in this process has been delegated to authorised ASIC officers since April 2016.[3]

ASX Settlement's Operating Rules and Procedures are published on the ASX public website and the Customer Portal, ASX's restricted participant website. These documents are supplemented with explanatory material to support participants' (and prospective participants') understanding of the risks they face through participation in the system. In addition to the Operating Rules and Procedures, publicly available material includes high-level descriptions of ASX Settlement's operations and settlement process, business continuity arrangements and the CCP default management framework (as it applies to participants that also participate in ASX Clear). Participants have access to additional manuals, reports and explanatory notes covering such topics as the application process for new participants, compliance, technical and operational details, and fees.

There is a clear process for changing ASX Settlement's Operating Rules and Procedures. Proposed rule changes may be submitted informally to ASIC. In consultation with the Bank, ASIC considers the proposed changes and advises ASX of any regulatory concerns. Once such concerns are satisfactorily addressed, ASIC invites formal submission of the proposed Operating Rule changes, which triggers a 28-day ‘disallowance’ period (referred to above), during which the Minister may choose to disallow the Operating Rule changes. The Minister or delegate must consider a number of factors when deciding whether to disallow Operating Rule changes, including whether the proposed changes are consistent with the public interest. In addition, the Minister or delegate must ensure that there has been adequate consultation with the Bank when deciding whether to disallow Operating Rule changes, and consider any advice and recommendations from the Bank and ASIC staff.[4] If changes to the Operating Rules are not disallowed by the Minister or delegate, they are notified to participants via the ASX website.

1.4 A securities settlement facility should be able to articulate the legal basis for its activities to the Reserve Bank and other relevant authorities, participants and, where relevant, participants' customers, in a clear and understandable way.

The legal basis for the activities of ASX Settlement and the protection afforded by the approval of the facility's netting arrangements under the PSNA (see also SSF Standard 1.5) are described on ASX's public website in its Disclosure Framework document, which sets out in detail how each CS facility meets the requirements of each Principle within the PFMI developed by CPMI and IOSCO (see SSF Standard 18.4).[5]

On behalf of each licensed entity within the ASX Group, including all CS facilities, ASX Limited submits an Annual Group Licence Report to ASIC and the Bank. This report sets out the legal basis for the CS facilities' activities under their licence obligations, and is used by ASIC in the preparation of ASIC's Market Assessment Report for the ASX Group.

ASX Settlement may seek independent legal opinions on relevant legal matters relating to significant new services, including any implications that their introduction may have for the legal basis of existing functionality. These opinions may, in some circumstances, be shared with participants or other stakeholders for their information, particularly to demonstrate that new Operating Rules will have the intended legal effect.

1.5 A securities settlement facility should have rules, procedures and contracts that are enforceable in all relevant jurisdictions. There should be a high degree of certainty that actions taken by the securities settlement facility under such rules and procedures will not be voided, reversed or subject to stays, including in the event that the securities settlement facility enters into external administration or that one or more of its participants or a settlement bank defaults or is suspended.

Settlement finality

The finality of ASX Settlement's settlement process, which is established in the ASX Settlement Operating Rules, is protected by:

  • the approval of its netting arrangements under Part 3 of the PSNA; this approval aims to protect netting in accordance with ASX Settlement's Rules and Procedures from the risk that, in the event a participant entered external administration, a court could reverse the multilateral net settlement (see SSF Standard 7.1)
  • the approval of RITS as an RTGS system under Part 2 of the PSNA (see SSF Standard 8); this approval protects payments from being voided in the case of a Payment Provider entering external administration
  • its designation as a ‘prescribed CS facility’ for the purposes of Part 7.11, Division 4 of the Corporations Act, in relation to the transfer of financial products effected through the settlement facility.

In May 2016, Parliament passed the Resilience Act. The Resilience Act amends the PSNA to provide additional legal certainty for netting arrangements, such as ASX Settlement, and RTGS systems, such as RITS, that have been approved under the PSNA. The amendments facilitate the ongoing participation by institutions in ‘non-terminal’ external administration (e.g. statutory management) by clarifying that the protections under the PSNA continue to apply.

The amendments also extend the netting protection to cover any transfer of property to discharge a net obligation in netting arrangements governed by the rules of a CS facility. This will enhance the finality protections given to the settlement of transactions in ASX Settlement that were entered into by a participant prior to its entry into any form of external administration or after its entry into ‘non-terminal’ external administration.

Enforceability of rules under external administration

ASX Legal has analysed the legal enforceability of ASX Settlement's Operating Rules should the SSF enter into external administration, and has identified no material legal risk to enforceability.

1.6 A securities settlement facility conducting business in multiple jurisdictions should identify and mitigate the risks arising from any potential conflicts of law across jurisdictions. A securities settlement facility should provide the Reserve Bank with a legal opinion that demonstrates the enforceability of its rules and addresses relevant conflicts of law across the jurisdictions in which it operates. This should be reviewed on a periodic basis or when material changes occur that may have an impact on the opinion, and updated where appropriate.

Although ASX Settlement's operations are based in Australia, participants of ASX Settlement include subsidiaries and branches of entities that are domiciled in foreign countries. ASX Settlement's Operating Rules are governed by Australian law and require that all of its participants submit to the non-exclusive jurisdiction of New South Wales courts. ASX Legal's analysis of potential conflicts of law across jurisdictions has identified no material legal risks.


While the Minister has delegated responsibility for certain decisions under Chapter 7 of the Corporations Act to authorised ASIC officers, the Minister may still exercise the powers delegated by ‘calling up’ the matter. [3]

For more information see ‘Guidelines for the Exercise of Powers Delegated to ASIC under Chapter 7 of the Corporations Act 2001’, available at: <http://treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2016/Guidelines%20for%20the%20exercise%20of%20powers%20delegated%20to%20ASIC/Downloads/PDF/Guidelines_ASIC_ch7.ashx>. [4]

Available at <http://www.asx.com.au/documents/asx-compliance/pfmi-disclosure-framework.pdf>. Prior to 1 September 2014, CPMI was known as the Committee on Payment and Settlement Systems (CPSS). [5]