2012/13 Assessment of ASX Clearing and Settlement Facilities B1.2 ASX Clear (Futures)

Standard 10: Physical Deliveries

A central counterparty should clearly state its obligations with respect to the delivery of physical instruments or commodities and should identify, monitor and manage the risks associated with such physical deliveries.

Rating: Observed

ASX Clear (Futures)' Operating Rules and Procedures clearly state its and participants' obligations with respect to the delivery of physical instruments or commodities (CCP Standard 10.1). In accordance with these rules and procedures, ASX Clear (Futures) monitors and enforces compliance with delivery procedures (CCP Standard 10.2).

Based on this information, the Bank's assessment is that ASX Clear (Futures) has observed the requirements of CCP Standard 10 during the 2012/13 Assessment period. ASX Clear (Futures)' arrangements for physical deliveries are discussed in further detail under the following sub-standards.

10.1 A central counterparty's rules should clearly state its obligations with respect to the delivery of physical instruments or commodities.

In some cases, the settlement of derivatives contracts cleared by ASX Clear (Futures) involves the transfer of a security or physical asset. Examples of contracts that require delivery are 90-day bank accepted bills futures, wool, wheat and other grain futures, and renewable energy certificates. ASX Clear (Futures)' Operating Rules and Procedures clearly state its obligations with respect to physical delivery.

10.2 A central counterparty should identify, monitor and manage the risks and costs associated with the storage and delivery of physical instruments or commodities.

ASX Clear (Futures) Operating Rules and Procedures define detailed mandatory arrangements for delivery of a security or physical asset. Securities delivered for the 90-day bank accepted bill contract must meet ASX Clear (Futures)' specifications, which include the acceptable types of paper, maturity dates, parcel sizes and approved banks. Deliveries of commodities must follow a maturity calendar, approved warehouses and locations, guides for buyers and sellers, and rules for delivery documentation (including appropriate certification).

ASX Clear (Futures) mitigates the risks associated with physical delivery by minimising its involvement in the storage and delivery process. Participants that have delivery obligations are matched with those due to receive the commodities or documents, and any legal recourse of the receiving participant in respect of the delivered goods is to the delivering participant. Participants may cash settle contracts in the event of a default by the delivering party.

ASX Clear (Futures) monitors and enforces compliance with delivery procedures. In particular, there is regular monitoring of deliveries by Clearing and Settlement Operations in the lead up to expiry, including a daily review and reconciliation of contracts versus holdings via a physical position reconciliation report. Overnight reporting to participants occurs on current commodity holdings. ASX Clear (Futures) communicates directly with participants to confirm their intentions on delivery and lodgement of physical assets. In addition, thematic compliance reviews are undertaken, as well as ad hoc compliance investigations arising from referrals from ASX's operations areas. These compliance checks aim to ensure that participants have the necessary systems and resources to be able to fulfil their physical delivery obligations.