| Purpose |
In accordance with its responsibilities under the Corporations Act
2001, the Reserve Bank of Australia (the Bank) presents its annual
Assessment of the ASX clearing and settlement (CS) facilities. ASX operates
four CS facilities: two central counterparties (CCPs) – ASX Clear Pty
Limited and ASX Clear (Futures) Pty Limited – and two securities
settlement facilities (SSFs) – ASX Settlement Pty Limited and
Austraclear Pty Limited. The report details the CCPs' and SSFs'
compliance with the Bank's Financial Stability Standards for Central
Counterparties (CCP Standards) and Financial Stability
Standards for Securities Settlement Facilities (SSF Standards)
(together, the Financial Stability Standards or FSS), as well as the
facilities' more general obligation to do all other things necessary to
reduce systemic risk. The assessment is as at the end of June 2019; however,
where relevant, developments after this time are discussed.
|
| Conclusion |
It is the Bank's assessment that the CS facilities ‘observed’
or ‘broadly observed’ all relevant requirements under the FSS as
at 30 June, with the exception of the General Business Risk Standard (CCP
Standard 14, SSF Standard 12), which was rated as ‘partly observed’
in each facility. On balance, the 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, the facilities will
need to place a high priority on addressing the recommendations related to
general business risk.
|
| Progress towards previous priorities |
ASX has made material progress against the Bank's regulatory
priorities identified in its 2018 Assessment report:
- Governance and operational risk management. ASX has
implemented the majority of the recommendations of an external
review of its operational risk management and technology governance
carried out at the instigation of the Bank and the Australian
Securities and Investments Commission (ASIC). ASX's Building
Stronger Foundations program established to implement these
recommendations also incorporates other ASX initiatives that were
already underway in these areas.
- Intraday exposures. ASX Clear (Futures) reviewed the margin
buffer used to cover potential variation margin exposures created in
the overnight session. ASX Clear (Futures) also implemented a
risk-visualisation tool to aid monitoring and management of intraday
exposures on a near real-time basis.
- CCP Resilience Guidance. The ASX CCPs have progressed a
work plan designed to align financial risk management practices with
the CCP Resilience Guidance. Key changes include the implementation
of a more comprehensive credit stress testing approach at ASX Clear
(Futures) and the removal of the assumption that clients in ASX
Clear could be ported in the event that their clearing participant
defaulted.
- Liquidity add-ons. ASX Clear (Futures) implemented plans to
scale up margin requirements for larger portfolios based on
estimated liquidation costs. ASX is continuing work to develop its
approach to liquidity add-ons at ASX Clear.
|
| Other material developments |
Other material developments relevant to the supervision of the ASX CS
facilities that occurred during the assessment period include:
- Clearing House Electronic Sub-register System (CHESS)
replacement. ASX continued its work on a project to replace
CHESS, the clearing and settlement system that supports the cash
equities market. ASX released its response to consultation on the
business requirements of the new system and has commenced the build
phase of the project.
- Liquid resources. ASX completed a review of the adequacy of
liquid resources held by the ASX CCPs as part of its annual default
fund review. ASX Clear plans to increase its prefunded liquid
resources in the coming assessment period.
|
| Priorities for the next assessment period |
The Assessment includes recommendations aimed at enabling the ASX CS
facilities to either observe or continue to observe the requirements
under particular FSS.
These recommendations relate to:
- strengthening ASX's processes for identifying and managing legal
risks
- embedding enhancements to governance arrangements
- aligning financial risk management practices with international
guidance on CCP resilience
- managing intraday exposures through real-time monitoring and
management, and the calibration of default fund buffers
- resuming the review of margin offset parameters in ASX Clear
(Futures)
- reviewing client segregation arrangements in ASX Clear after
implementation of the CHESS replacement system
- strengthening the legal basis of facilities' access to general
business risk capital
- implementing plans to strengthen operational risk management
arrangements
- ensuring core systems fully support risk management functionality.
The Assessment also identifies areas that will be an important part of
the Bank's supervisory engagement with ASX over the next assessment
period. These include:
- work to formalise controls for legal risks
- the ongoing adequacy of liquid resources at both CCPs
- the project to replace CHESS
- continued enhancement of the CS facilities' cyber resilience
arrangements.
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