2012/13 Assessment of ASX Clearing and Settlement Facilities B2.1 ASX Settlement

Standard 19: Regulatory Reporting

A securities settlement facility should inform the Reserve Bank in a timely manner of any events or changes to its operations or circumstances that may materially impact its management of risks or ability to continue operations. A securities settlement facility should also regularly provide information to the Reserve Bank regarding its financial position and risk controls on a timely basis.

Rating: Observed

The Bank meets regularly with ASX Settlement to discuss matters relevant to its compliance with the FSS, and related aspects of its risk management and operational arrangements, and has been kept informed of relevant developments during the Assessment period (SSF Standard 19.1). ASX Settlement provides the Bank with financial, activity and operational data and reports on a regular and timely basis (SSF Standard 19.2).

The Bank's assessment is that ASX Settlement has observed the requirements of SSF Standard 19 during the 2012/13 Assessment period. ASX Settlement's regulatory reporting arrangements with the Bank are described under the following sub-standards.

19.1 A securities settlement facility should inform the Reserve Bank as soon as reasonably practicable if:

  1. it breaches, or has reason to believe that it will breach:
    1. an SSF Standard; or
    2. its broader legislative obligation to do, to the extent that it is reasonably practicable to do so, all things necessary to reduce systemic risk;
  2. it becomes subject to external administration, or has reasonable grounds for suspecting that it will become subject to external administration;
  3. a related body to the securities settlement facility becomes subject to external administration, or if the securities settlement facility has reasonable grounds for suspecting that a related body will become subject to external administration;
  4. a participant becomes subject to external administration, or if the securities settlement facility has reasonable grounds for suspecting that a participant will become subject to external administration;
  5. a participant fails to meet its obligations under the securities settlement facility's risk control requirements or has its participation suspended or cancelled because of a failure to meet the securities settlement facility's risk control requirements;
  6. it fails to enforce any of its own risk control requirements;
  7. it plans to make significant changes to its risk control requirements or its rules, policies and procedures;
  8. it or a service it relies on from a third party or outsourced provider experiences a significant operational disruption, including providing the conclusions of its post-incident review;
  9. any internal audits or independent external expert reviews are undertaken of its operations, risk management processes or internal control mechanisms, including providing the conclusions of such audits or reviews;
  10. its operations or risk controls are affected, or are likely to be affected, by distress in financial markets;
  11. it has critical dependencies on utilities or service providers, including providing a description of the dependency and an update if the nature of this relationship changes;
  12. it proposes to grant a security interest over its assets (other than a lien, right of retention or statutory charge that arises in the ordinary course of business);
  13. it proposes to incur or permit to subsist any loans from participants or members unless such loans are subordinated to the claims of all other creditors of the securities settlement facility; or
  14. any other matter arises which has or is likely to have a significant impact on its risk control arrangements (see also SSF Standards 1.6, 14.10 and 17.3).

Three routine quarterly meetings are held between the Bank and ASX:

  • executive-level meetings to discuss developments relevant to compliance with the FSS, involving the Chief Risk Officer and other relevant members of ASX's management team
  • risk management meetings, involving general managers and other staff responsible for clearing risk policy and the implementation of risk management arrangements
  • operations meetings, involving the Executive General Manager, Operations, and other members of the management team responsible for implementation of operational strategy, management of operational risk and business continuity planning.

In addition, the Bank, ASIC and ASX hold a monthly meeting to discuss matters of common interest, including proposed rule changes and regulatory developments. These meetings provide a forum for the discussion of material developments, such as issues regarding participant compliance, changes to risk management controls, and the results of internal audits. Matters discussed in the formal scheduled meetings are followed up, as appropriate, in more focused targeted sessions.

The Bank expects to be notified immediately of any significant developments in ASX Settlement's risk exposure; for example, if there was an operational outage or a participant entered external administration. Notification to the Bank of significant developments is specified in many of ASX's key internal risk management policies. The Bank and ASX hold ad hoc meetings to discuss relevant matters as required.

During the 2012/13 Assessment period, ASX kept the Bank up to date with the status of important project milestones, including the introduction of retail CGS depository interests settled by ASX Settlement and the rollout of ASX Collateral. The Bank is satisfied with its level of communication with ASX over this period.

19.2 A securities settlement facility should also provide to the Reserve Bank, on a timely basis:

  1. audited annual accounts;
  2. management accounts on a regular basis, and at least quarterly;
  3. risk management reports on a regular basis, and at least quarterly;
  4. periodic activity, risk and operational data, as agreed with the Reserve Bank; and
  5. any other information as specified by the Reserve Bank from time to time.

Audited annual reports are published on the ASX public website, while ASX provides the Bank with quarterly statements of balance sheet, income, and collateral held for each CS facility.

The Bank conducts a quarterly review of ASX's adherence to the FSS, focusing on any material developments in its risk management activities. As part of this review process, ASX provides detailed activity, risk and operational data. Data provided quarterly to the Bank include settlement values and volumes, and data on system availability and capacity utilisation. Quarterly operations meetings between the Bank and ASX provide a forum for discussion of developments.

From time to time the Bank will request additional information from ASX Settlement on topics of interest, particularly in regard to any operational incidents or the status of projects with significant risk implications.

During the second half of 2013, the Bank will be conducting a review of the data it collects from ASX to better support its assessment of the CS facilities against the requirements of the FSS.