Assessment of ASX Clearing and Settlement Facilities – September 2022 1. Ratings and Regulatory Priorities

Governance. The CS Boards should require the CS Lead Executives to complete a first self-assessment of compliance with the FSS by 31 December 2022. ASX should implement a robust annual self-assessment process that provides the CS Boards with ongoing visibility of the CS facilities' compliance with the FSS by June 2023.

For more information, see section 2.1.3.

Risk management. ASX should present the Bank with plans to strengthen the operating effectiveness of ASX's three lines model by 31 December 2022.

For more information, see section 2.2.

Regulatory reporting. ASX should complete work under way to review the quality controls and systems it has in place to systematically identify and bring to the Bank's attention information required to be reported to the Bank, and address any gaps identified as part of this review. By June 2023, ASX should implement metrics to monitor the effectiveness of these measures and put processes in place to address gaps. ASX should ensure that these controls are in place for its implementation of the Bank's upgraded FMI data collection.

For more information, see section 2.3.

Liquidity risk. The ASX CCPs should take all steps possible to ensure that ASX Clearing Corporation (ASXCC) enters into an updated RITS membership agreement that is consistent with ASXCC's management of collateral and other assets held as trustee for the CCPs.

For more information, see section 2.5.1.

Margin. ASX should develop and implement a plan to review its margin methodologies and systems that takes into consideration international best practice and is designed to produce coherent and consistent risk outcomes from its margin models that are transparent to participants. ASX should discuss its implementation plan with the Bank by 30 September 2023.

For more information, see section 3.3.2.

Margin. ASX Clear should ensure that its margin period of risk (MPOR) for securities products is consistent with its approach to mark-to-market margin for these products.

For more information, see section 3.3.3.

Margin. Consistent with the CCP Resilience Guidance, by 30 June 2024 the ASX CCPs should develop a systematic framework to avoid destabilising increases in margin and other financial risk requirements during periods of heightened market volatility. This framework should include an appropriate methodology for measuring the degree of procyclicality in the CCPs' risk models and should consider the potential effect of expert judgement on procyclicality when determining margin and other financial risk requirements.

For more information, see sections 3.4 and 3.7.2.

Margin. The ASX CCPs should put in place arrangements that allow them to monitor and manage exposures from large late-in-day price movements, including movements that exceed the coverage provided by initial and additional margin. By 30 June 2023, ASX should review the feasibility of options to address this recommendation and develop a plan to implement option(s) found to be feasible.

For more information, see section 3.5.3.

Margin. By 30 June 2023 ASX Clear (Futures) should review the feasibility of options to remove or mitigate exposures to commercial settlement banks arising from overnight margin processes and develop a plan to implement option(s) found to be feasible.

For more information, see section 3.5.3.

CCP Resilience Guidance. To align financial risk management practices and governance arrangements with the CCP Resilience Guidance, the ASX CCPs should continue to implement plans to:

1. enhance the comprehensiveness of stress testing to ensure risks are appropriately identified, captured and stressed
2. enhance analysis and justification of assumptions used in stress testing models so that risks are adequately captured
3. remove the assumption made by ASX Clear that excess collateral will not be withdrawn or decreased during periods of stress to more accurately reflect the extreme but plausible conditions appropriate for stress testing
4. ensure that roles and processes in relation to the governance of financial risk management are appropriately formalised and documented in order to ensure that the CS Boards have sufficient information to effectively oversee the CCPs
5. ensure that their arrangements for disclosure to, and soliciting feedback from, stakeholders cover all relevant aspects of the CCPs' risk management frameworks, including margin sensitivity analysis, reverse stress testing and management of procyclicality.

For more information, see sections 3.7.1 and 3.9.4.

Operational risk. Consistent with the 2021 licence conditions, ASX should make any necessary adjustments to the assurance program for CHESS replacement as part of its broader replan of the program and to take into account lessons learned from the delays to program timelines. ASX should implement the revised assurance program and address findings from assurance reviews.

For more information, see section 4.3.3.

Operational risk. Consistent with the 2021 Licence Conditions, ASX should continue to address the findings from the IBM review of the Trade Refresh project, and ensure that any relevant steps are taken to apply lessons learned to its clearing and settlement operations, and in particular to the CHESS replacement project.

For more information, see section 4.4.1.

Operational risk. ASX should prepare for cutover, migration and go-live of the CHESS replacement system, including by:

• having comprehensive and effective contingency plans in place for dealing with an issue on the go-live weekend or subsequent to go-live
• successful execution of migration dress rehearsals
• effective arrangements for go-live decision-making, including ASX's compliance with relevant 2021 Licence Conditions.

For more information, see section 4.4.1.

Operational risk. ASX should engage with the Bank and ASIC on its plans to address findings from a planned external review of its key vendor dependency on DA for delivery of the CHESS replacement application.

For more information, see section 4.4.2.

Legal basis. ASX Settlement should apply for approvals as an approved RTGS system and as a multilateral netting arrangement under the Payment Systems and Netting Act 1998 (PSNA), or in the case of the multilateral netting approval provide the Bank with legal analysis demonstrating why its existing approval remains valid once changes to the ASX Settlement operating rules required to support the introduction of CHESS replacement have been made.

For more information, see section 4.6.2.

Segregation and portability. ASX Clear should conduct an assessment of whether the protections from arrangements utilising a commingled house/client account structure remain materially equivalent to those provided by omnibus or individual client segregation. ASX should provide the Bank with a plan for implementing omnibus or individual client segregation, or a satisfactory explanation of how any alternative arrangements satisfy the requirements of the FSS, after consulting with industry stakeholders and within 12 months of the CHESS replacement system going live.

For more information, see section 4.7.2.

Margin. ASX Clear should report to the Bank ahead of the CHESS replacement system going live on how it intends to introduce the intraday margining of cash market positions.

For more information, see section 4.7.3.