Assessment of ASX Clearing and Settlement Facilities Appendix B: Background Information

B.1 ASX Group Structure

There are two types of CS facilities operated by the ASX Group:

  • CCPs. A CCP acts as the buyer to every seller, and the seller to every buyer in a market. It does so by interposing itself as the legal counterparty to all purchases and sales via a process known as novation. These arrangements provide substantial benefits to participants in terms of counterparty risk management as well as greater opportunities for netting of obligations. At the same time, however, they result in a significant concentration of risk in the CCP. This risk can crystallise if a participant defaults on its obligations to the CCP, since the CCP must continue to meet its obligations to all of the non-defaulting participants. The ASX CCPs manage this risk in a number of ways, including through participation requirements, margin collection, the maintenance of pooled resources and loss allocation arrangements (see Appendix B.3).
  • SSFs. An SSF provides for the final settlement of securities transactions. Settlement involves transfer of the title to the security, as well as the transfer of cash. These functions are linked via appropriate delivery-versus-payment (DvP) arrangements incorporated within the settlement process.

The ASX Group operates two CCPs and two SSFs:

  • ASX Clear provides CCP services for ASX-quoted cash equities, debt products and warrants traded on the ASX and Chi-X Australia Pty Ltd (Chi-X) markets, equity-related derivatives traded on the ASX market and Chi-X-quoted warrants traded on Chi-X.
  • ASX Clear (Futures) provides CCP services for futures and options on interest rate, equity, energy and commodity products traded on the ASX 24 market, as well as AUD-denominated OTC IRD.
  • ASX Settlement provides SSF services for ASX-listed cash equities, debt products and warrants traded on the ASX and Chi-X markets. Under the Settlement Facilitation Service, ASX Settlement also provides settlement services for transactions in non-ASX-listed securities undertaken on trading platforms operated by Approved Listing Market Operators (ALMOs); these include the National Stock Exchange of Australia (NSX), IR Plus Securities Exchange Ltd (IR Plus) and the Sydney Stock Exchange Limited (SSX).
  • Austraclear provides settlement and depository services for debt securities, including government bonds. It also provides settlement services for derivatives traded on the ASX 24 market and for margin payments in ASX Clear and ASX Clear (Futures).

Each of the ASX facilities holds a CS facility licence, and each CCP and SSF is required under the Corporations Act to comply with the relevant FSS determined by the Bank (i.e. the CCP Standards and SSF Standards, respectively) and to do all other things necessary to reduce systemic risk (see Appendix B.2).

ASX Limited is the ultimate parent company of the four CS facilities (Figure 1: ASX Group Structure) and is listed on the ASX market. The ASX Limited Board is responsible for overseeing the processes for identifying significant risks to ASX and ensuring that appropriate policies, as well as adequate control, monitoring and reporting mechanisms, are in place. In addition, ASX Limited's Board assigns certain responsibilities to subsidiaries within the group, including the boards of the four CS facilities (the CS Boards). The CS Boards are responsible for managing the particular clearing and settlement risks faced by each respective CS facility, including through compliance with the FSS. The CS Boards are subject to common governance arrangements with high-level objectives set out in the CS Boards' Charter. There are five directors that serve on all four CS Boards; one additional director serves on both the ASX Clear and ASX Settlement Boards and three additional directors serve on both the ASX Clear (Futures) and Austraclear Boards.

In the ASX corporate structure, the two CCPs – ASX Clear and ASX Clear (Futures) – are subsidiaries of ASXCC. ASXCC is the holding company for, and manages the financial resources of, the two CCPs. It invests these resources according to a treasury investment policy and investment mandate approved by the CS Boards. The two SSFs – ASX Settlement and Austraclear – are subsidiaries of ASX Settlement Corporation Limited. ASXCC and ASX Settlement Corporation Limited are in turn subsidiaries of the ASX Group's parent entity, ASX Limited. ASX Limited is the licensed operator of the ASX market, which provides a trading platform for ASX-quoted securities and equity derivatives. Another subsidiary, Australian Securities Exchange Limited, is the licensed operator of the ASX 24 market, an exchange for futures products.

In delivering their services, the CS facilities rely on group-wide operational and compliance resources that reside in ASX Operations Pty Limited (ASX Operations) and ASX Compliance Pty Limited (ASX Compliance), which are a wholly owned subsidiary of ASX Limited.

  • ASX Operations provides most operational resources required by the CS facilities, including resources to enable ASX Compliance Pty Limited (ASX Compliance) to perform its services.
  • ASX Compliance provides compliance services to the licensed entities of the ASX Group, including monitoring and enforcing participants' compliance with the Operating Rules of the CS facilities.

ASX has adopted a group-wide organisational structure to manage the business operations of its various entities, including the CS facilities. Its business units are organised into nine main groups:

  • Office of the Chief Executive Officer (CEO)
  • Risk
  • Operations
  • Technology
  • Business Development
  • ASX Compliance
  • Office of General Counsel and Company Secretariat, Regulatory Policy and Regulatory Assurance
  • Finance
  • Human Resources.

The CRO, who heads the Risk group, is responsible for providing executive oversight of ASX's Clearing Risk Policy Framework, which documents the formal structure for the development, governance and review of policy and standards for the CCPs. Similarly, the Chief Operating Officer (COO), who heads the Operations group, is responsible for providing executive oversight of ASX's Settlement Risk Policy Framework, which sets out a similar structure for the SSFs. The Risk and Operations groups contain a number of departments that play key roles in the management of risks faced by the CS facilities:

  • CRQD is responsible for the development of clearing risk management systems, and maintaining and validating CCP risk and pricing models.
  • Clearing Risk Policy and Management (CRPM) develops, maintains and implements CCP policies and standards, and maintains effective procedures for carrying out those policies and standards.
  • Post Trade and Issuer Services Operations develops, maintains and implements SSF policies and standards, and maintains effective procedures for carrying out those policies and standards.
  • Enterprise Risk is responsible for enterprise-wide risk management, including general business risk.
  • Internal Audit conducts risk-based reviews of internal controls and procedures across ASX. Internal Audit reports to the Audit and Risk Committee and the Managing Director and CEO for audit purposes and to the CRO for administrative purposes only.

ASX's Clearing Risk Policy Framework also sets out roles for a number of internal forums that bring together decision-makers and experts from departments across the group:

  • CALCO advises on changes to clearing risk policies and standards related to capital, liquidity and balance sheet management.
  • Clearing and Settlement Operations, Risk and Compliance Committee (CSORC) shares information on material changes to clearing and settlement policy with significant compliance and/or operational implications.
  • Risk Quantification Working Group (RQWG) is responsible for quantitative risk management matters, including the review and application of quantitative risk policies and the Model Validation Framework, including oversight of model governance and the outcomes and recommendations of regular reviews of margining and stress test outcomes and recommendations.
  • Default Management and Recovery Steering Group (DMRSG) provides oversight of the CCP's DMRF.

The CSORC also has a role in ASX's Settlement Risk Policy Framework. This Framework sets out roles for two additional internal committees:

  • Settlement Risk Policy Committee (SRPC) – reviews policies and standards prior to submission to the CS Boards.
  • Participant Incident Response Committee (PIRC) – responsible for monitoring and managing material participant incidents, including any non-compliance with participant obligations, settlement default, operational failure or an event which might result in the participant becoming an externally administered body corporate or an insolvent under administration, and, in the case of a clearing participant, escalating potential default events to the Default Management Committee (DMC).

Information on the executive management of ASX is available on its website.[35] ASX made a number of changes to its executive management during the Assessment period:

  • In August 2016, a new Managing Director and CEO, Dominic Stevens, was appointed.
  • ASX's former CRO, Alan Bardwell, resigned on 10 February. The new CRO, Hamish Treleaven, joined ASX on 1 March.
  • ASX's former Chief Information Officer (CIO), Tim Thurman, resigned on 24 March. The new CIO, Dan Chesterman, joined ASX on 4 September.
  • ASX's Group General Counsel & Company Secretary and Group Executive Corporate Affairs, Amanda Harkness, resigned in July 2017.
  • A new position of Chief Strategy Officer was created in March. This role reports directly to the CEO and is responsible for coordinating ASX's strategies and ensuring consistent delivery of the strategies across business functions. Blair Beaton was appointed to the role on 1 March.

B.2 Regulatory Environment

The Corporations Act establishes conditions for the licensing and operation of CS facilities in Australia and gives ASIC and the Bank powers and responsibilities relating to these facilities. These powers are exercised under the governance of ASIC's Commission and the Bank's Payments System Board, respectively. The regulators' respective roles are defined in the Corporations Act.

  • The Bank is responsible for determining standards (the FSS) for the purposes of ensuring that CS facility licensees conduct their affairs in a way that causes or promotes overall stability in the Australian financial system, and for assessing how well a licensee is complying with its obligation under the Corporations Act, to the extent that it is reasonably practicable to do so, to comply with these standards and do all other things necessary to reduce systemic risk.
  • ASIC is responsible for assessing the extent to which CS facility licensees comply with all other obligations of a CS facility licensee arising under the Corporations Act, including notably the obligation, to the extent that it is reasonably practicable, to do all things necessary to ensure that the CS facility's services are provided in a fair and effective way.

The Bank has determined two sets of FSS relevant to its oversight of CS facilities: the CCP Standards and SSF Standards.

As licensees, the ASX CS facilities are required to provide the Bank with timely information on any material developments relevant to the services provided under its CS facility licence and its compliance with the FSS. The Bank also gathers information on the facilities through an open and ongoing dialogue with ASX staff, including through scheduled periodic meetings and ad hoc targeted meetings on specific topics.[36] Based on the information gathered, the Bank undertakes annual assessments of the ASX CS facilities.[37]

The ASX CCPs are recognised by the European Securities and Markets Authority (ESMA) as ‘third-country CCPs’. This allows the ASX CCPs to continue to provide clearing services to participants established in the European Union. ASX Clear (Futures) was also granted an exemption from registration as a Derivatives Clearing Organization (DCO) in the US. This exemption allows ASX Clear (Futures) to provide clearing services to US banks with respect to ‘proprietary’ swaps. The Bank and ASIC have established a memorandum of understanding (MoU) with each of ESMA and US Commodity and Futures Trading Commission (CFTC) which, among other things, supports cross-border cooperation and information sharing. The Bank has also issued a Supplementary interpretation of CCP Standards to facilitate the ASX CCPs recognition in the EU (see Appendix C).

The Bank also has an MoU with the Reserve Bank of New Zealand (RBNZ) which establishes cooperation arrangements relevant to ASX Clear (Futures)' existing activities in NZD-denominated products. RBNZ has also stated that ASX Clear (Futures) may be of systemic importance in New Zealand and may therefore be designated for oversight as an offshore FMI under the RBNZ's proposed new oversight regime for FMIs.[38]

B.3 Risk Management in the ASX Central Counterparties

CCPs are exposed to both credit and liquidity risks, primarily following the default of one or more participants. Credit risk is the risk that one or more counterparties will not fulfil their obligations to the CCP, resulting in a financial loss, while liquidity risk arises where the CCP is unable to meet its payments obligations at the time that they are due, even if it has the ability to do so in the future. ASX Clear and ASX Clear (Futures) manage the risks arising from a potential default in a number of ways, including through participation requirements, margin collection, the maintenance of prefunded pooled financial resources, recovery tools, and risk monitoring and compliance activities.

Participation requirements

Participants in each CCP must meet minimum capital requirements. While capital is only a proxy for the overall financial standing of a participant, minimum capital requirements offer comfort that a participant has adequate resources to withstand an unexpected shock, for example, arising from operational or risk-control failings.

  • ASX Clear requires direct participants that clear cash equities or derivatives to maintain at least $5 million in capital. ‘General participants’, which are able to clear on behalf of third-party participants, are subject to tiered capital requirements. A general participant must maintain $5 million in capital to support its own clearing activity and $5 million to support each third-party clearing relationship, up to a maximum of $20 million.
  • ASX Clear (Futures) requires participants that clear futures only to hold at least $5 million in NTA. Participants using the OTC derivatives clearing service must meet a higher minimum NTA (or Tier 1 Capital) requirement of $50 million.

The CCPs also impose CBPLs on participants' activity. Specifically, the ratio of initial margin requirements to liquid capital, NTA or Tier 1 Capital for participants is subject to an upper limit of three for both CCPs.[39] As discussed in Section 2.1.5, under certain conditions, banks and subsidiaries of banks or bank holding companies are not subject to a ratio-based capital position limit. Rather, these institutions' initial margin liabilities are subject to a fixed $1.5 billion aggregate limit.

During the Assessment period, ASX Clear introduced new requirements in respect of participants' liquidity risk management frameworks (see Section 2.1.5).

Prefunded financial resources

The CCPs cover their credit and liquidity exposures to their participants by collecting margin and maintaining a fixed quantity of prefunded pooled resources. The CCPs collect several types of margin.

  • Variation margin. Variation (or ‘mark-to-market’) margin is collected at least daily from participants with mark-to-market losses and, in the case of futures and OTC derivatives, paid out to the participants with mark-to-market gains.
  • Initial margin. Both CCPs routinely collect initial margin from participants to mitigate credit risk arising from potential changes in the market value of a defaulting participant's open positions between the last settlement of variation margin and the close-out of these positions by the CCP. The CCPs use statistical models to calculate initial margin, which vary by product type (see Section 3.1). To validate the adequacy of their initial margin models, the CCPs perform regular backtesting and sensitivity analysis (see Section 3.8).
  • AIM. The CCPs may also make calls for AIM when exceptionally large or concentrated exposures are identified, including through stress tests, or when predefined position limits are exceeded.

In addition to end-of-day margin calls, the CCPs call margin on an intraday basis when exposures due to changes in market value and the opening of new positions exceed predefined limits (see Section 3.6). Intraday margin calls for both CCPs would equal the total shortfall in initial margin, variation margin and AIM if triggered.

ASX requires that variation margin is posted in cash, while initial margin may also be posted in the form of cash or securities that ASX would be able to rapidly and reliably liquidate in the event of the participant's default. Specifically, ASX Clear accepts certain equity securities and exchange-traded funds as collateral, while ASX Clear (Futures) accepts certain Australian and US government bonds, as well as foreign currency denominated in EUR, GBP, JPY, NZD or USD. ASX applies haircuts to non-cash and foreign currency collateral to cover market risk on the liquidation of those assets.

An average of 47 per cent of margin requirements in ASX Clear and 96 per cent of AUD-denominated margin requirements in ASX Clear (Futures) were met in cash during the Assessment period. In ASX Clear, equity securities comprise the remaining collateral. In ASX Clear (Futures), approximately 11 per cent was held in foreign currency on average in 2016/17, while 4 per cent was Australian government bonds. Some clients of participants in ASX Clear commonly post non-cash collateral in excess of margin requirements for equity derivatives. In 2016/17, on average, 82 per cent of the value of non-cash collateral posted against derivatives positions in ASX Clear was in excess of margin obligations.

The margin and other collateral posted by a participant would be drawn on first in the event of that participant's default.[40] Should this prove insufficient to meet the CCP's obligations, the CCP may draw on a fixed quantity of prefunded pooled financial resources (referred to as the CCP's ‘default fund’).

  • ASX Clear's default fund was $250 million over the Assessment period (Graph 3). This comprised $178.5 million of own equity and $71.5 million paid into a restricted capital reserve from the National Guarantee Fund in 2005.
  • ASX Clear (Futures)' default fund was $650 million over the Assessment period. This included $450 million of own equity and $200 million of contributions from participants.

There were no changes to either CCP's default fund over 2016/17.

Credit stress tests

In order to assess the adequacy of its financial resources to cover its current and potential future credit exposures, the CCPs perform daily credit stress tests.[41] These tests compare each CCP's available prefunded resources against the largest potential loss in the event of the joint default of two participants and their affiliates under a range of extreme but plausible scenarios (Cover 2 requirement). The requirement for the ASX CCPs to have sufficient prefunded resources to meet Cover 2 reflects the Bank's supplementary interpretation of the FSS, under which both CCPs are deemed to be systemically important in multiple jurisdictions (see Appendix C.1, CCP Standard 4.4).

While ASX Clear (Futures) met the Cover 2 requirement throughout 2016/17 (Graph 4), ASX Clear's Cover 2 requirement exceeded its prefunded financial resources on three days in 2016/17 (Graph 5). These shortfalls were covered by AIM the following day. Since the shortfalls were isolated to an individual participant and were covered by AIM collected the following day, ASX did not consider that an increase in the default fund was necessary.

The ASX CCPs automatically call AIM when credit stress test results are in excess of stress test exposure limits (STELs). The STELs are based on ASX's Internal Credit Ratings (ICRs) of participants, with the highest STEL set at half of the total default fund of the relevant CCP. When a participant's credit stress test results exceed its STEL, ASX calls for AIM to cover the difference, with payment due before midday the following day. Not all of these STEL AIM calls are related to shortfalls in the Cover 2 requirement. During the Assessment period ASX Clear made STEL AIM calls on 93 days against three participants in total, with the largest totalling $269.4 million. ASX Clear (Futures) made STEL AIM calls on 50 days against five participants in total, with the largest call totalling $119.8 million.

Liquidity risk management

Credit exposures faced by the CCPs from a participant default would also create liquidity exposures. The CCPs may also face default liquidity exposures in excess of their credit exposures. These additional exposures may be particularly large for ASX Clear, given that it novates equity trades with delivery obligations. For example, if a participant with net equity delivery obligations were to default, ASX Clear's liquidity exposure would include the cost of purchasing the securities to meet the delivery obligations of the defaulted participant. By contrast, the CCP's credit exposure would be limited to the change in price in the securities between the defaulting participant's last variation margin payment and the time the CCP executes an offsetting securities trade. ASX Clear also faces liquidity exposures from its acceptance of equity collateral against derivative positions. Specifically, if ASX Clear were to liquidate its equity collateral, it would likely have to wait two days to receive the proceeds of the sale.

The ASX CCPs perform daily liquidity stress tests to assess the adequacy of the CCPs' prefunded financial resources to cover the largest potential liquidity exposure arising from the joint default of two participants and their affiliates under a range of extreme but plausible scenarios (Cover 2 liquidity target). The CCPs' liquidity stress test framework is based on the price movements from their credit stress test scenarios.[42] As a consequence of having a cash market liquidity ‘buffer’ (see Section 2.1.2), ASX Clear implicitly has a liquidity threshold for its derivatives-market exposures. During the Assessment period, derivatives-market liquidity exposures exceeded its threshold on 14 days. In all cases, however, the exposures were offset by AIM already held or offsetting exposures in the cash market. While cash market liquidity exposures regularly exceeded the buffer over 2016/17, ASX Clear could have relied on offsetting transaction arrangements (which are essentially liquidity commitments from its participants) to settle any exposures above the buffer (see Appendix C.1, CCP Standard 7.3). ASX Clear (Futures)' liquidity exposures, net of intraday margin held, were less than its prefunded liquid resources during the Assessment period.

If a liquidity stress test breach occurs at either CCP, it is reported to the CRO and CFO. ASX would also review the circumstances and nature of the breach, the size of the breach and possible mitigants. Breaches are also reported on a quarterly basis to CALCO. In addition, if there were three breaches in a quarter, this would require an emergency meeting of CALCO, which would decide on the response. Potential responses to a breach could be to increase the CCPs' prefunded resources, or establish or increase the size of committed liquidity facilities.

Both ASX Clear and ASX Clear (Futures) also face liquidity risk from the reinvestment of pooled prefunded resources and the portion of margin posted by participants in the form of cash. These assets are reinvested and held by ASXCC, the holding company for the two CCPs, according to a defined treasury investment policy and investment mandate. Liquidity risk arises since ASXCC would have to convert its assets into cash to meet any obligations arising from a participant default or for day-to-day liquidity requirements, such as the return of cash margin to participants. To mitigate investment liquidity risk, ASXCC's treasury investment policy requires that a minimum portion of ASXCC's investments must be in liquid assets to meet its minimum liquidity requirements (see Appendix C.1, CCP Standard 7.3).

Recovery tools

In a highly unlikely scenario that involves more than two large participant defaults or market conditions that are beyond ‘extreme but plausible’, it is possible that prefunded or other liquid financial resources could be insufficient to fully absorb default-related losses or meet payment obligations. In such circumstances, the CCP may be left with an uncovered credit loss or liquidity shortfall. Each CCP's approach for allocating an uncovered credit loss or liquidity shortfall following a participant default relies on a number of tools:

  • Recovery Assessments. The power to call for additional cash contributions from participants to meet uncovered losses and fund payment obligations, in proportion to each participant's exposures at the CCP prior to the default. Recovery Assessments are capped at $300 million in ASX Clear and $600 million in ASX Clear (Futures) (or $200 million for a single default).
  • Variation margin gains haircutting. A tool, available to ASX Clear (Futures) only, allowing the CCP to reduce (haircut) outgoing variation margin payments to participants in order to allocate losses or a liquidity shortfall arising from a defaulting participant's portfolio. There is no cap on the use of this tool.
  • Settlement payment haircutting. A reserve power that could be used in the context of complete termination to allocate losses or a liquidity shortfall if the above tools were insufficient. Complete termination would involve tearing up all open contracts at the CCP and settling them at their current market value. Any residual losses or liquidity obligations of the CCP could be allocated by haircutting settlement payments to participants. Use of this tool would have a highly disruptive effect on the markets served by the CCP, so would be considered only as a last resort.

In addition, ASX Clear can address a liquidity shortfall relating to the settlement of securities transactions via the use of OTAs with participants due to receive funds in the settlement batch. Both CCPs also have the power to restore a matched book via partial or complete termination of contracts at their current market value if normal close-out processes cannot be carried out.

ASX has established a staged process for replenishment of the CCPs' default funds in the event that these were exhausted or partially drawn down following a participant default. At the end of a 22-business-day ‘cooling-off period’ following the management of a default, ASX Clear and ASX Clear (Futures)' default funds would be fully replenished up to $150 million and $400 million, respectively (see Appendix C.1, CCP Standard 4.8).

B.4 Activity and Participation

Central counterparties

Market conditions were generally benign during the Assessment period, with the average volatility in products cleared by ASX CCPs remaining below their 10-year averages. Average volatility in equity prices (as measured by the 65-day moving average of daily absolute percentage changes in the S&P ASX All Ordinaries Index) fell by around 35 basis points to 0.5 per cent (Graph 6). Similarly, volatility in the prices of ASX 24 interest rate futures decreased despite a small uptick in volatility around the time of the US election in November (Graph 7).

Trading activity in ETOs was relatively flat; this follows a number of years of contraction in activity (Graph 8). The volume on the cash equities market increased, as did the average daily trading value, which grew by 4 per cent.[43] Exposures in ASX Clear fell over 2016/17. As measured by initial margin, ASX Clear's exposures in ETOs fell by 6 per cent on average to around $1.1 billion over 2016/17 compared with 2015/16, while exposures to cash equites trades fell by 8 per cent to $155 million (Graph 9). ASX Clear's exposures to the cash equities market are much lower than for ETOs primarily because of the short duration of cash security trades at two days.

Exposures at ASX Clear (Futures) grew strongly by 45 per cent to $4.9 billion on average as measured by margin held (Graph 10). These exposures primarily arise from the four major contracts cleared – the SPI 200 equity index future, the 3-year and 10-year Treasury bond futures and 90-day bank bill swap future – which accounted for around 95 per cent of total transactions cleared at ASX Clear (Futures) in 2016/17. Growth in ASX Clear (Futures)' exposures was initially driven by higher margin rates set in response to the UK referendum on EU membership in June 2016 (see Section 3.1.1). While margin rates were reduced towards the end of 2016, strong growth in transaction volume in the 10-year Treasury bond futures of 16 per cent, more than offset the impact on exposures of the decrease in rates (Graph 11).

The average daily value of AUD OTC IRDs cleared by ASX Clear (Futures) continued to grow strongly in 2016/17 by almost 90 per cent compared to 2015/16 (Graph 12). The share of these products cleared by ASX Clear (Futures) compared with the other CCPs clearing the product (LCH Ltd and CME Inc.) has, on average, also grown. Nonetheless, ASX Clear (Futures) still accounts for a moderate proportion (around 12 per cent) of the notional value of OTC IRD transactions that were centrally cleared in the June quarter of 2017.

ASX Clear had 36 direct participants as at 30 June 2017. There were 20 direct clearing participants in ASX Clear (Futures), up from 19 last year.

Securities settlement facilities

The daily average value of cash equity settlements in ASX Settlement increased by 6 per cent in 2016/17 to $9.6 billion. This increase was consistent with the slower growth in trading activity in the ASX Market, albeit trends in net settlement values can deviate from trends in gross trading values, since the latter do not include non-market transactions and netting efficiency can change over time.

In 2016/17, the average daily value of debt securities settled in Austraclear increased by 6 per cent, to $46 billion. This includes the value of securities settled under repurchase agreements (other than intraday repurchase agreements with the Bank).

B.5 Operational Performance

ASX manages its operational risks in the context of its group-wide Enterprise Risk Management Framework, applying consistent operational risk controls across all of its CS facilities. Key operational objectives are minimum availability of 99.8 per cent (99.9 per cent for Austraclear) and peak capacity utilisation of 50 per cent. These objectives were met during the Assessment period (Table 8). System availability was equal to or above 99.9 per cent for all systems, while peak usage was below the target of 50 per cent for all systems.

Section 2.4.1 discusses a significant operational disruption in Austraclear. There were also two minor incidents that occurred in June – one affecting Genium and one affecting CHESS – but neither of these incidents had an impact on system availability.


Available at <>. [35]

For more information see the Reserve Bank's Approach to Assessing Clearing and Settlement Facility Licensees [36]

The Bank's intention to carry out annual assessments of the ASX CS facilities is set out in the Frequency and Scope of Regulatory Assessments of Licensed Clearing and Settlement Facilities. [37]

For more information, see ‘An Enhanced Oversight Framework for Financial Market Infrastructures’, available at <>. [38]

Prior to May 2017, this ratio was two for ASX Clear (Futures). [39]

For ASX Clear (Futures) the other collateral would include the defaulted participant's contributions to the CCP's prefunded pooled financial resources. [40]

For more detail on the CCPs' credit stress test framework see Chapter 5 in the 2014/15 Assessment of ASX CS Facilities. [41]

ASX Clear incorporated amendments to these scenarios to reflect liquidity-specific risks in the cash equities and derivatives market (see Appendix C.1, CCP Standard 7.8). By contrast, ASX Clear (Futures) does not recognise distinct liquidity risks since it has judged that the magnitude of these risks is not material. [42]

Exposures to cash equity transactions in ASX Clear are correlated more with value traded than volume. [43]