Media Release Assessment of ASX Clearing and Settlement Facilities – October 2020

The Reserve Bank today released the October 2020 Assessment of the ASX Clearing and Settlement Facilities. The Assessment concludes that ASX's clearing and settlement (CS) facilities ‘observed’ or ‘broadly observed’ all relevant requirements under the Reserve Bank's Financial Stability Standards (FSS) as at 30 June 2020, with the exception of the standard relating to margin, which was rated as ‘partly observed’ in ASX Clear (Futures), and the standard relating to operational risk, which was rated as ‘partly observed’ in ASX Clear and ASX Settlement.

The Reserve Bank is responsible for the supervision of Australian-licensed CS facilities focusing on the reduction of systemic risk. Systemically important CS facilities are assessed on a regular basis against the FSS set by the Reserve Bank.

A key finding of the Assessment is that ASX should implement its new system for the clearing and settlement of cash equities trades as soon as this can safely be achieved by ASX and users of the existing CHESS system. The importance of replacing CHESS in a safe and timely manner was highlighted by processing delays experienced in March during record trading volumes, which contributed to the downgraded ratings on operational risk.

The Reserve Bank has continued to work closely with the Australian Securities and Investment Commission (ASIC) as the co-regulator of the ASX CS facilities in supervising the CHESS replacement project. ASIC and the Reserve Bank today announce the two regulators' expectations of ASX as it replaces CHESS. Details of these expectations are also included in the Assessment.

On balance, the Reserve Bank has concluded that the facilities have conducted their affairs in a way that causes or promotes overall stability in the Australian financial system. However, ASX will need to place a high priority on addressing recommendations related to margin at ASX Clear (Futures) and operational risk at ASX Clear and ASX Settlement, including via the replacement of CHESS.

The Assessment also describes progress made by the ASX CS facilities in addressing recommendations from the 2019 Assessment.

Background

In the case of the ASX Group, the Reserve Bank conducts annual assessments of its four CS facilities: two central counterparties – ASX Clear Pty Limited and ASX Clear (Futures) Pty Limited – and two securities settlement facilities – ASX Settlement Pty Limited and Austraclear Limited. These assessments include a rating of the CS facilities' observance of each of the FSS.

For more information on the Bank's approach to assessing CS facilities, see: The Reserve Bank's Approach to Supervising and Assessing Clearing and Settlement Facility Licensees.

ASIC has separate, but complementary, responsibilities for the supervision of CS facilities focused on the fair and effective provision of services.

ASIC and the Reserve Bank, with the broader Council of Financial Regulators (CFR) and the Australian Competition and Consumer Commission, are also closely supervising ASX's conduct in the CHESS replacement program of change in accordance with the CFR's Regulatory Expectations for Conduct in Operating Cash Equities Clearing and Settlement. These Regulatory Expectations apply to ASX's engagement with, and provision of services to, users of its monopoly cash equity CS services.