2015/16 Assessment of ASX Clearing and Settlement Facilities A1.2 ASX Clear (Futures) Standard 11: Exchange-of-value settlements

If a central counterparty is involved in the settlement of transactions that comprise two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by ensuring that the final settlement of one obligation is conditional upon the final settlement of the other.

ASX Clear (Futures) eliminates principal risk in the settlement of derivatives contracts involving the transfer of a security or physical asset in exchange for cash by ensuring that delivery occurs if and only if payment occurs (CCP Standard 11.1). For transactions involving securities transfers, ASX Clear (Futures) employs the DvP Model 1 settlement mechanism in Austraclear (CCP Standard 11.2).

11.1 A central counterparty should eliminate principal risk associated with the settlement of any obligations involving two linked obligations by ensuring that the payment system or securities settlement facility employed operates in such a way that the final settlement of one obligation occurs if and only if the final settlement of the linked obligation also occurs, regardless of whether the securities settlement facility settles on a gross or net basis and when finality occurs.

In those cases where settlement of derivatives contracts involves the transfer of a security or physical asset with a corresponding transfer of cash, ASX Clear (Futures)' arrangements ensure that delivery occurs if and only if payment occurs. For 90-day bank bill futures, ASX Clear (Futures) utilises the standard DvP settlement process in Austraclear; that is, sellers deliver and receive payment for their bills, and buyers pay for and take delivery of the bills as a single exchange of value (see Appendix A2.2, SSF Standard 10). For grain contracts, delivery is via commodity warehouses, with ASX Clear (Futures) retaining title documentation until payment has been made.

11.2 A central counterparty should eliminate principal risk associated with the settlement of linked obligations by ensuring that it employs an appropriate delivery versus payment (DvP), delivery versus delivery (DvD) or payment versus payment (PvP) settlement mechanism.

Settlement of ASX Clear (Futures) derivatives transactions that involve securities transfers occurs on a DvP Model 1 basis in Austraclear. This involves the simultaneous transfer of cash and securities obligations between the buyer and seller on a transaction-by-transaction basis through the settlement cycle.