2015/16 Assessment of ASX Clearing and Settlement Facilities A2.1 ASX Settlement Standard 7: Settlement finality

A securities settlement facility should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, a securities settlement facility should provide final settlement intraday or in real time.

ASX Settlement defines the point at which settlement is final in its Operating Rules, and finality is protected by the approval of its netting arrangements under Part 3 of the PSNA. Money settlements linked to securities transfers in ASX Settlement occur in RITS. The finality of interbank obligations arising from its settlements is protected by the approval of RITS under Part 2 of the same legislation (SSF Standard 7.1). Final settlement occurs each day in a single multilateral net batch on a DvP Model 3 basis (SSF Standard 7.2). ASX Settlement defines clear cut-off times for the cancellation of payment or transfer instructions (SSF Standard 7.3).

ASX Settlement's arrangements for ensuring finality of settlements are described in further detail under the following sub-standards.

7.1 A securities settlement facility's rules and procedures should clearly define the point at which settlement is final.

The point at which settlement is final is defined in the ASX Settlement Operating Rules and Procedures. Settlement of securities transfers is final once ASX Settlement has recorded the transfers of securities in the settlement accounts of participants.

To protect the legal certainty of the finality of its settlement process, ASX Settlement has obtained approval for its netting arrangements under Part 3 of the PSNA (see SSF Standard 1.2). In addition, money settlements between commercial settlement banks (known as Payment Providers) as part of the multilateral net batch fall within the scope of the approval of RITS as an RTGS system under Part 2 of the PSNA. With this approval, a payment executed in RITS at any time on the day on which a RITS participant enters external administration has the same standing as if the participant had gone into external administration on the next day. Accordingly, in the event of insolvency all transactions settled on the day of the insolvency are irrevocable and cannot be unwound.

In May 2016, the Resilience Act amended the PSNA to provide additional legal certainty for RTGS, such as Austraclear, and netting arrangements, such as those operated by ASX Settlement, 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 that were entered into by a participant prior to its entry into any form of external administration (see Standard 1.5).

7.2 The securities settlement facility should complete final settlement no later than the end of the value date, and preferably intraday or in real time, to reduce settlement risk. A securities settlement facility should consider adopting real-time gross settlement (RTGS) or multiple batch processing during the settlement day.

Settlement of securities transactions in ASX Settlement occurs on a DvP Model 3 basis in a single net batch on the settlement day (value date). This involves the simultaneous transfer of net payment and net securities obligations between buyers and sellers at the end of the settlement cycle (see SSF Standard 10). Failed settlements are removed from the multilateral net batch via the CHESS back-out algorithm (for a securities shortfall), and rescheduled for settlement on the next day (see SSF Standard 10.2).

ASX Settlement has also developed the functionality to settle securities transactions on a DvP Model 1 basis (by individual line of stock) via its CHESS RTGS service. The functionality is not currently used by any settlement participants. Due to the netting efficiencies inherent in settling on a DvP Model 3 basis via a single batch, ASX Settlement currently has no plans to increase the frequency of batch settlement beyond once per day.

7.3 A securities settlement facility should clearly define the point after which unsettled payments, transfer instructions or other obligations may not be revoked by a participant.

Participants have until settlement cut-off (typically 11.30 am) on the day of settlement to remove payment or transfer instructions from the settlement batch.