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

Standard 11: Exchange-of-value Settlements

If a central counterparty is involved in the settlement of transactions that comprise two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by ensuring that the final settlement of one obligation is conditional upon the final settlement of the other.

Rating: Observed

ASX Clear (Futures) eliminates principal risk in the settlement of derivatives contracts involving the transfer of a security or physical asset in exchange for cash by ensuring that delivery occurs only if payment occurs (CCP Standard 11.1). For transactions involving securities transfers, ASX Clear (Futures) employs the delivery-versus-payment (DvP) model 1 settlement mechanism in Austraclear (CCP Standard 11.2).

Based on this information, the Bank's assessment is that ASX Clear (Futures) has observed the requirements of CCP Standard 11 during the 2012/13 Assessment period. ASX Clear (Futures)' arrangements for DvP settlement of linked obligations are discussed in further detail under the following sub-standards.

11.1 A central counterparty should eliminate principal risk associated with the settlement of any obligations involving two linked obligations by ensuring that the payment system or securities settlement facility employed operates in such a way that the final settlement of one obligation occurs if and only if the final settlement of the linked obligation also occurs, regardless of whether the securities settlement facility settles on a gross or net basis and when finality occurs.

In those cases where settlement of derivatives contracts involves the transfer of a security or physical asset, with a corresponding transfer of cash, ASX Clear (Futures)' arrangements ensure that delivery occurs only if payment occurs. For 90-day bank bill futures, ASX Clear (Futures) utilises the standard DvP settlement process in Austraclear; that is, sellers deliver and receive payment for their bills, and the buyers pay for and take delivery of the bills as a single exchange of value. For grain and wool contracts, delivery is via commodity warehouses, with ASX Clear (Futures) retaining title documentation until payment has been made.

11.2 A central counterparty should eliminate principal risk associated with the settlement of linked obligations by ensuring that it employs an appropriate delivery versus payment (DvP), delivery versus delivery (DvD) or payment versus payment (PvP) settlement mechanism.

Settlement of securities transactions in Austraclear arising from the settlement of futures contracts in ASX Clear (Futures) occurs on a DvP model 1 basis. This involves the simultaneous transfer of cash and securities obligations between the buyer and seller on an item-by-item basis through the settlement cycle.