2012/13 Assessment of ASX Clearing and Settlement Facilities B2.2: Austraclear

Standard 7: Settlement Finality

A securities settlement facility should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, a securities settlement facility should provide final settlement intraday or in real time.

Rating: Observed

Austraclear defines the point at which settlement is final in its Regulations, and finality is ensured by its approval under Part 2 of the PSNA. The finality of interbank obligations arising from its settlements is protected by the approval of RITS under the same legislation (SSF Standard 7.1). Final settlement occurs on DvP (or equivalent simultaneous exchange of assets) model 1 basis in real time (SSF Standard 7.2). Austraclear defines clear cut-off times for the cancellation of payment or transfer instructions (SSF Standard 7.3).

Based on this information, the Bank's assessment is that Austraclear has observed the requirements of SSF Standard 7 during the 2012/13 Assessment period. Austraclear's arrangements for ensuring finality of settlements are described in further detail under the following sub-standards.

7.1 A securities settlement facility's rules and procedures should clearly define the point at which settlement is final.

The point at which settlement is final is defined in the Austraclear Regulations. In the case of transactions involving the transfer of a security, settlement is final when Austraclear has made the appropriate amendments to the security records of the participants involved in the transaction. In the case of transactions involving a cash payment, the cash element of the transaction is settled and may not be unwound when a message is received from RITS that the cash transfer has been made. Upon receipt of the RITS confirmation, Austraclear will update the cash record of the participant. The cash record is a record of the day's flow of debits and credits against each participant's nominated account that allows participants to limit the amount of their funds made available for settlement of transactions.[1]

The finality of Austraclear's settlement process is ensured by its approval under Part 2 of the PSNA. In addition, the payments between participants that are ‘Participating Banks’ are protected by virtue of the approval of RITS as an RTGS system under Part 2 of the PSNA. This approval protects payments from being voided in the case of a Participating Bank entering external administration.

Since the protection of the PSNA covers any exchange of assets, it extends to delivery-versus-delivery settlement of substitutions generated by ASX Collateral. The point of finality in the case of collateral substitutions is identical to other obligations settled in Austraclear.

7.2 The securities settlement facility should complete final settlement no later than the end of the value date, and preferably intraday or in real time, to reduce settlement risk. A securities settlement facility should consider adopting real-time gross settlement (RTGS) or multiple batch processing during the settlement day.

Settlement of securities transactions in Austraclear occurs on a DvP (or equivalent simultaneous exchange of assets) model 1 basis. This involves the simultaneous exchange of assets (cash and securities) between the buyer and seller on an item-by-item basis in real time. Austraclear additionally provides for one-way cash transfers between participants, which are also settled on an item-by-item basis. Although settlements occur in real time, transactions may be held pending during the settlement day (the value date) due to insufficient funds or securities. However, all settlements must occur by the end of the settlement day. Any instructions not ready at the end of the day are automatically moved to a ‘failed’ status and removed from Austraclear. Austraclear's Regulations establish the basis for settlement of transactions entered into the system.

By volume, DvP settlements accounted for around 54 per cent of total settlements during the Assessment period, and one-way cash transfers account for around 46 per cent. There was also a small number of free-of-payment securities transfers – less than 1 per cent of total volumes. By value, however, DvP settlements predominate, accounting for 77 per cent of total transfers in the year to end June 2013.

7.3 A securities settlement facility should clearly define the point after which unsettled payments, transfer instructions or other obligations may not be revoked by a participant.

The cut-off times for cancelling payment or transfer instructions are in line with the daily Austraclear cycle. Some cut-off times vary according to whether participants are engaged in evening settlement operations in RITS. Key cut-off times are:

  • 1.00 pm for automated re-generation of corporate action instructions (e.g. maturity and coupon payments to bond holders) if amendments are required. However, manual corrections can be processed after this time.
  • 4.28 pm for the cancellation of DvP and cash transactions by participants that do not engage in evening operations.
  • 6.32 pm AEST (8.32 pm AEDT) for the cancellation of transactions by participants engaging in evening operations.

No transaction can be cancelled once it is at ‘payment pending’ status in Austraclear, which occurs following matching of instructions from both participants involved in the transaction. In all cases, the above deadlines can be extended at the discretion of Austraclear, with extension of the last two deadlines requiring the Bank's approval due to the implications for RITS.

Footnote

The cash record starts at zero at the beginning of the day and records debit and credit cash movements through the day. A total debit limit may be set on the cash record by the participant. When a settlement instruction has been matched, the cash leg of each transaction is tested against the debit limit. If the debit limit is not exceeded, the transaction will be sent to RITS for settlement; otherwise, the transaction will remain in a pending state until sufficient funds are available (i.e. through another transaction that delivers cash or through the participant increasing the limit). [1]