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

B.1 ASX Group Structure and Governance

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. The provision of CCP services for Chi-X is provided under the Trade Acceptance Service (TAS), which allows ASX Clear to act as a CCP for trades executed on AMO platforms in accordance with the ASX Clear Operating Rules and Procedures.
  • 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 and NZD-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. The provision of SSF services for Chi-X is provided under the TAS. Under the Settlement Facilitation Service, ASX Settlement provides DvP 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) and the Sydney Stock Exchange Limited (SSX). ASX Settlement also provides for subscriptions and redemptions in unlisted managed funds through the mFund Settlement Service.
  • 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) 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, the ASX Limited 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), a wholly owned subsidiary of ASX Limited. ASX Operations provides most operational resources required by 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 CEO
  • Risk
  • Operations
  • Technology
  • Business Development
  • ASX Compliance
  • Office of General Counsel and Company Secretariat, and Regulatory Policy
  • Finance
  • Human Resources.

The CRO, who heads the Risk group, is responsible for providing executive oversight of ASX's Clearing Risk Policy Framework and Settlement Risk Policy Framework, which document the formal structure for the development, governance and review of policy and standards for the CCPs and SSFs.

The COO who heads the Operations and Technology groups, is responsible for providing executive oversight of the frontline management of risks under ASX's Settlement Risk Policy Framework. The COO is also responsible for the delivery of overall operations of the ASX Group and reports directly to the CEO, as does the CRO. Both COO and CRO have a direct reporting line to the CS Boards and are able to attend CS Board meetings.

The Risk and Operations groups contain a number of departments that play key roles in the management of risks faced by the CS facilities:

  • Clearing Risk Quantification and Development (CRQD) is responsible for the development of clearing risk management systems, maintaining and validating CCP risk and pricing models and the implementation of CCP policies and standards.
  • Clearing Risk Policy and Management (CRPM) develops and maintains CCP and SSF policies and standards.
  • Post Trade Operations 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.
  • Regulatory Assurance oversees CS facility compliance obligations, including providing compliance training for business areas, undertaking compliance reviews, and coordinating reporting to regulators.
  • 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.

Following a restructuring of its management committees during the assessment period (discussed in section 2.4.2), ASX now has three main executive-level committees that support decisions related to the risk management of the CS facilities:

  • The Risk Committee is responsible for advising the CRO on risk management decisions in the exercise of his delegated authority from the CEO. The Risk Committee replaces two previous committees – the Enterprise Risk Management Committee and CALCO.
  • The Regulatory Committee is responsible for ASX policies related to the conduct and operations of the licensed entities in the ASX Group, including the CS facilities.
  • The Technology, Operations and Security Committee is responsible for advising the COO in the oversight of ASX's technology, operations and security strategies, and the investments that support these strategies. A sub-group of the committee meets as the Portfolio Governance Group, providing oversight of significant projects within the ASX Group.

ASX also operates a number of other internal forums that bring together experts from departments across the group for the review or oversight of risk management at the CS facilities:

  • Risk Quantification Working Group (RQWG) is responsible for quantitative risk management matters, such as the review and application of quantitative risk policies and standards 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. The RQWG is chaired by the General Manager, CRQD.
  • Default Management and Recovery Steering Group (DMRSG) provides oversight of the CCP's Default Management and Recovery Framework (DMRF). The DMRSG is chaired by the CRO.
  • Participant Incident Response Group (PIRG) is 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).

In addition to the internal forums that ASX operates, the views of participants and other stakeholders are sought through external standing forums:

  • An ASX Clear (Futures) Default Management Group (DMG) which is comprised of OTC participants and is consulted on aspects of the default management process.
  • Risk Consultative Committees for both ASX Clear and ASX Clear (Futures), comprising participants from each CCP. The committees are consulted on material changes to default management processes, the margining methodology, the default fund, position and liquidity limits, participation criteria, and other changes affecting risk management practices or related rules.
  • A Business Committee which acts as a stakeholder advisory body for ASX's cash market clearing and settlement services. The Committee is comprised of representatives of clearing participants, settlement participants, AMOs and the Stockbrokers and Financial Advisors Association.
  • Advisory user groups for particular products and services (i.e. ETOs, rates and Austraclear), which are forums for participants to provide feedback on those products and services.

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.[23] Based on the information gathered, the Bank undertakes annual assessments of the ASX CS facilities.[24]

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 has an MoU with the 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.[25]

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 market products 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. As discussed in section 2.1.5, after December 2018 participants will also be subject to additional core capital requirements based on the risk profile and complexity of their business.
  • ASX Clear (Futures) requires participants that clear futures only to hold at least $5 million in net tangible assets (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 capital-based position limits (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. 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. ASX Clear also places requirements on participants to establish a formal liquidity risk management framework and prepare an annual liquidity plan.

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. To validate the adequacy of their initial margin models, the CCPs perform regular backtesting and sensitivity analysis.
  • 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. 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 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 securities, 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 34 per cent of margin requirements in ASX Clear and 95 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 5 per cent was held in foreign currency on average in 2017/18, while 5 per cent was Australian government and semi-government bonds. Some clients of participants in ASX Clear commonly post non-cash collateral in excess of margin requirements for equity derivatives. In 2017/18, on average, 83 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.[26] 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’; Graph 1).

  • ASX Clear's default fund was $250 million over the assessment period. 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 ASX's own equity and $200 million of contributions from participants.

There were no changes to either CCP's default fund over 2017/18.

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.[27] 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 (i.e. the 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).

Both ASX CCPs experienced days on which their respective Cover 2 requirement exceeded their prefunded financial resources in 2017/18. At ASX Clear (Futures), the Cover 2 requirement exceeded its prefunded financial resources on six days, with the largest shortfall being $62 million (Graph 2). ASX Clear's Cover 2 requirement exceeded its prefunded financial resources on seven days in the year, with a largest shortfall of $112 million (Graph 3). These projected shortfalls were covered by AIM the next day.

The ASX CCPs automatically call AIM, to be paid before midday the next day, when credit stress test results are in excess of STELs. The STELs are based on ASX's Internal Credit Ratings (ICRs) of participants, with all STELs set at less than half of the total default fund of the relevant CCP. 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 162 days against nine participants in total, with the largest totalling $130 million. ASX Clear (Futures) made STEL AIM calls on 226 days against nine participants in total, with the largest call totalling $435 million.

After investigating the reasons for breaches of the Cover 2 requirement experienced in each CCP, ASX determined that it was appropriate to lower participant STELs in order to provide a greater buffer of prefunded financial resources to cover intraday changes in stressed exposures (see section 2.1.1).

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 derivatives 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' available liquid 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 utilises the same market stress scenarios as the corresponding credit stress tests, but also takes into account additional, liquidity-specific risks.

While ASX Clear manages liquidity across both its cash market and derivatives products, it has defined a target minimum cash market liquidity ‘buffer’ of $100 million (see Appendix C.1, CCP Standard 7.8). Cover 2 cash market liquidity exposures regularly exceeded the buffer over 2017/18, in which case ASX Clear would have had to rely on OTAs (which are essentially liquidity commitments from its participants) to settle any exposures above the buffer (see Appendix C.1, CCP Standard 7.3). The buffer also implicitly defines the liquidity threshold for ASX Clear's derivatives-market exposures. During the assessment period, ASX Clear's derivatives-market liquidity exposures exceeded this threshold on 20 occasions. ASX Clear (Futures) exceeded its prefunded liquid resources on 155 occasions. Most of the breaches of the Cover 2 liquidity target observed at both CCPs during the year would have been covered had additional liquid resources held by each CCP been taken into account. ASX updated its Liquidity Risk Standard in July 2018 to reflect the availability of these resources (see section 2.1.4).

If a liquidity stress test breach occurs at either CCP, it is reported to the CRO and Chief Financial Officer. 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 the Risk Committee. In addition, if there were three breaches in a quarter, this would require an emergency meeting of the Risk Committee, 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 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 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 the 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 10 basis points to 0.39 per cent when compared to the previous year (Graph 4). Volatility in the prices of 90-day bank bill futures increased towards the end of the year, although remained below long-term average levels, while price volatility remained broadly stable for government bond futures (Graph 5).

Trading activity in ETOs declined over 2017/18, consistent with the long-term trend (Graph 6). The volume on the cash equities market increased, but the average value traded was broadly unchanged.[28] Exposures in ASX Clear continued to fall over 2017/18. As measured by initial margin, ASX Clear's exposures in ETOs fell by 14 per cent to an average of $910 million over 2017/18 compared with 2016/17, while exposures to cash equities trades fell by 5 per cent to an average of $148 million (Graph 7). ASX Clear's exposures to the cash equities market are much lower than for ETOs primarily because of the short duration of cash market trades at two days.

Exposures at ASX Clear (Futures) grew by 6 per cent to $5.2 billion on average, as measured by margin held (Graph 8). 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 96 per cent of total transactions cleared at ASX Clear (Futures) in 2017/18. Transaction volumes increased across each of the four most actively traded contracts on ASX 24, with the 10-year Treasury bond futures and 90-day bank bill futures contracts experiencing the strongest growth in 2017/2018 (Graph 9).

The average daily value of AUD OTC IRDs cleared by ASX Clear (Futures) continued to grow, although at a slower rate when compared to previous years (Graph 10). The share of these products cleared by ASX Clear (Futures) compared with the other CCPs clearing the product (LCH Ltd and CME Inc.) remained steady at an average 13 per cent over the year.

ASX Clear had 35 direct participants as at 30 June 2018. There were 20 direct clearing participants in ASX Clear (Futures).

Securities settlement facilities

The daily average value of cash equity settlements in ASX Settlement remain unchanged at approximately $9.5 billion in 2017/18. This is consistent with subdued 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 2017/18, the average daily value of debt securities settled in Austraclear increased by 4 per cent, to $48 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 ERM 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 or less. These objectives were met during the assessment period (Table 7). System availability was above target availability for all systems, while peak usage was below the limit of 50 per cent for all systems.

There were two incidents during the assessment period that impacted availability of CS facility systems. CHESS availability was impacted by an incident that occurred in February 2018 that affected the processing of CHESS messages. All CHESS processing was stopped for approximately 23 minutes while remedial action was carried out. Austraclear's core system, EXIGO, experienced two incidents during the assessment period that affected availability. Both of these incidents resulted in a delay to settlement processing, lasting a total of 42 minutes across both incidents. ASX also experienced an incident affecting its primary data centre on 4 June that did not affect the availability of its CS facility systems, but did have an impact on the connectivity of some participants to trading systems.


For more information see The Reserve Bank's Approach to Assessing Clearing and Settlement Facility Licensees. [23]

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. [24]

For more information, see ‘An Enhanced Oversight Framework for Financial Market Infrastructures’, available at <>. [25]

For ASX Clear (Futures) the other collateral would include the defaulted participant's contributions to the CCP's prefunded pooled financial resources. [26]

For more detail on the CCPs' credit stress test framework see section 4.3. [27]

Exposures to cash equity transactions in ASX Clear are correlated more with value traded than volume. [28]