2015/16 Assessment of ASX Clearing and Settlement Facilities A2.2 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.

Austraclear has objective and transparent participation requirements set out in its Regulations and Procedures (SSF Standard 15.1). These include minimum capital and other financial requirements, as well as operational arrangements 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).

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 Austraclear's Regulations and Procedures. ASX has an internal policy and supporting standards that summarise the minimum requirements placed on participants under the Regulations and Procedures (see SSF Standard 15.2), and document the responsibilities of the CS Boards, SRPC and relevant executives for ensuring these requirements are met and periodically reviewed. 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. LCH.C Ltd, a UK-based CCP licensed as a CS facility in Australia, is as a Special Purpose (Exchange) Participant in Austraclear (see SSF Standard 17.1).

At the end of June 2016, Austraclear had 855 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.

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 as a participant.

The Austraclear Regulations also set out specific participation requirements for Collateral Managers. These include detailed operational reliability and business continuity requirements, which reflect the potential critical functionality of such infrastructure. In addition to the standard participant requirements outlined above, 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.

Additional requirements that apply to participants that are Foreign Currency Settlement Banks are described under SSF Standard 8.3.

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's arrangements for monitoring and enforcing compliance with its Regulations are published on the ASX public website. Under these, Austraclear has wide-ranging 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 ASX Compliance for formal disciplinary action.