2009/10 Assessment of Clearing and Settlement Facilities in Australia 5.4 Austraclear

Background

Austraclear operates a securities settlement facility for trades executed in the OTC market for fixed income securities, including government bonds and repos.

Austraclear operates within a sound legal framework, based on its Regulations. Under section 822B of the Corporations Act, these 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 a RTGS system under Part 2 of the Payment Systems and Netting Act. This approval protects the finality of payments made through Austraclear should a participant enter 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 paid through the Reserve Bank's RTGS system, RITS, with simultaneous transfer of securities title in Austraclear.

Assessment of Developments in 2009/10

There were no substantial changes during the year to the policy or legal frameworks under which Austraclear operates. Accordingly, and in light of a number of operational incidents that occurred during the assessment period, the principal focus of the assessment of Austraclear is operational risk management.

Operational risk management

EXIGO is the core system used by Austraclear. Since mid 2008 Austraclear has been responsible for first- and second-level operational support of EXIGO. This includes business continuity arrangements, and computer system support not involving changes to system components or underlying source code. Previously this support was provided by NASDAQ OMX, which continues to provide third-level and software support. During the year a new agreement was finalised to extend this support beyond 2013.

EXIGO system availability was 99.9 per cent in 2009/10, in line with the target stipulated in Austraclear's ‘Step-in and Service Agreement’ with the Reserve Bank.^[1] Average capacity utilisation of 30 per cent was within its normal range, and peak capacity utilisation was 66 per cent. In accordance with its capacity headroom policy, ASX will look to increase the capacity of EXIGO within the next 12 months such that peak utilisation does not exceed 50 per cent.

There were a number of operational incidents involving EXIGO during the assessment period. Two of the most significant outages had a common cause, involving a fault in the underlying Oracle database which caused a long-running system process to initiate unexpectedly, preventing user access to the affected part of the database; the second occurrence revealed that the initial short-term fix to the problem was ineffectual. With a more comprehensive interim fix now in place, ASX intends to implement a permanent solution to the problem in November 2010. One issue coming out of these incidents was the adequacy of ASX's internal alerts. ASX has now enhanced its systems to ensure that a given period of Austraclear settlement inactivity will activate an alert.

Another significant operational incident occurred during a business continuity test in which EXIGO was operated from ASX's backup site. When users tried to log in to the system they were prompted to download EXIGO's graphical user interface again. With multiple users attempting to download and login simultaneously, not all could be serviced and many were timed out. This caused significant delays to users accessing the system and it was necessary to extend the daily session. EXIGO was subsequently operated from the backup site until a system enhancement could be developed which would allow seamless connection regardless of the site from which the system was being operated. Both the operation of EXIGO from the backup site and the eventual switchback of operations to the primary site occurred without disruption.

ASX responded to the incidents described above, as well as a number of smaller operational incidents, quickly and effectively in order to minimise or avoid disruption to Austraclear settlement activity, and action to avoid reoccurrences of the problems has been taken.

As noted in Section 5.1, ASX updated its Business Continuity Management Policy during the year and has a number of improvements to arrangements planned in line with international best practice.

System development

During the year ASX continued work on the Austraclear System Enhancement project, which will deliver the largest set of functional improvements to Austraclear users since the system's introduction in 2006. The project has been split into two parts: part 1 primarily covers user enhancements, while part 2 mainly covers internal operational enhancements. The improvements to user functionality are based on feedback received by ASX via the Austraclear Help Desk, industry working groups and other stakeholders. They cover trade management, trade input, corporate action reporting, market repo trade enhancements and straight-through processing. Part 1 of the project is expected to be implemented in Q3 2011, followed by part 2 in late 2012.

Summary

It is the Reserve Bank's assessment that Austraclear complied with the Financial Stability Standard for Securities Settlement Facilities during the assessment period. Although there were a number of operational incidents during the assessment period, the Reserve Bank is satisfied with both ASX's immediate responses to the situations, as well as the follow-up action to prevent reoccurrence.

Footnote

This agreement reflects the interdependence between Austraclear and the Reserve Bank's high-value payments system, RITS. [1]