2007/08 Assessment of Clearing and Settlement Facilities in Australia 5.4 Austraclear

Background

Austraclear operates within a sound egal framework, based on its Regulations which under Section 822B of the Corporations Act have effect as a contract under seal between Austraclear and each of its participants, and between participants. Among other things, the rules set out the rights and obligations of Austraclear and each of its participants, including in the event of default or suspension.

The finality of settlements undertaken by Austraclear is reinforced by its approval as an RTGS system under Part 2 of the Payment Systems and Netting Act. This approval protects the finality of payments made through Austraclear in the event of a participant's entering external administration.

Austraclear addresses settlement risk by the use of a Model 1 DVP mechanism, involving settlement of individual transactions on a gross basis. The interbank cash leg is settled in the Reserve Bank's RTGS system, with simultaneous transfer of securities title in Austraclear.

Assessment of Developments in 2007/08

In light of operational problems following the implementation of EXIGO in August 2006, particular attention has been paid in this assessment to operational performance.

Operational performance

In April 2008, Austraclear brought in-house some of the support for its key EXIGO system, which had previously been provided by OMX.^[1] Austraclear is now responsible for all first- and second-level computer system support and business-continuity arrangements. OMX will continue to provide third-level support, i.e. support provided by the product's suppliers (manufacturers, software developers etc).

After some operational problems experienced during the period shortly after implementation of the EXIGO system in August 2006, Austraclear achieved a high level of operational reliability during the 2007/08 assessment period. System availability was 99.95 per cent, with three outages reported, two of which extended beyond one hour. Relevant code changes have been implemented in respect of two of the three problems identified; a long-term solution in respect of the third is under investigation. Capacity utilisation averaged 32 per cent during the assessment period, peaking at 57 per cent. Monthly connectivity and procedural tests were carried out throughout the period with satisfactory results. No business-continuity test simulating loss of the primary Sydney site was carried out for EXIGO during the assessment period as operational problems during 2007 had necessitated a ‘live’ fail-back of production to the business-recovery site. This had been satisfactorily achieved.

Austraclear undertook an audit of EXIGO's security in April 2008, the purpose of which was to assess the effectiveness of business and system controls in the EXIGO system. While no significant issues were identified by the audit, Austraclear is taking steps to address some administrative issues highlighted.

New activities

ASIC approved the variation of Austraclear's CS facility licence with effect from 14 September 2007 to include a broader range of financial products. In particular, the licence was amended to include a range of ‘hybrid’ securities, thereby providing legal certainty to Austraclear participants that such securities can be deposited and settled within the Austraclear system.

Austraclear also introduced a new Electronic Conveyancing (EC) Settlement Facility. However, the EC Settlement Facility is not part of the operations of the licensed CS facility because the EC Settlement Facility does not involve ‘financial products’ as defined in the Corporations Act. Nonetheless, Austraclear has made amendments to its Regulations to incorporate arrangements covering the EC Settlement Facility, and these Regulations have effect as a contract between Austraclear participants. Settlement of the financial component of EC transactions occurs through the RITS batch settlement facility. Austraclear was approved as a Batch Administrator in the RITS batch settlement facility during the assessment period.

Assessment

It is the Reserve Bank's assessment that Austraclear has complied with the Financial Stability Standard for Securities Settlement Facilities during the assessment period.

Footnote

Similar new ‘in-sourcing’ arrangements were introduced for SFECC's principal system, SECUR. [1]