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

Standard 8: Money Settlements

A securities settlement facility should conduct its money settlements in central bank money where practical and available. If central bank money is not used, a securities settlement facility should minimise and strictly control the credit and liquidity risk arising from the use of commercial bank money.

Rating: Observed

Austraclear conducts its money settlements across the Exchange Settlement Accounts (ESAs) of Participating Banks at the Bank, via RITS (SSF Standard 8.1). Participating Banks that effect money settlements on their own behalf or on behalf of other participants must be prudentially regulated and meet Austraclear's participation requirements (SSF Standard 8.3).

Based on this information, the Bank's assessment is that Austraclear has observed the requirements of SSF Standard 8 during the 2012/13 Assessment period. Austraclear's money settlement arrangements are discussed under the following sub-standards.

8.1 A securities settlement facility should conduct its money settlements in central bank money, where practical and available, to avoid credit and liquidity risks.

Austraclear's money settlements are all settled in central bank money. Payment obligations in Austraclear are settled on a real-time gross settlement (RTGS) basis across ESAs at the Bank, via RITS. This includes money settlements initiated by ASX Collateral; while it is expected that most collateral substitutions will involve the exchange of one security for another on a delivery-versus-delivery (DvD) basis, cash may be used as a last resort to effect collateral substitution.

8.2 If central bank money is not used, a securities settlement facility should conduct its money settlements using a settlement asset with little or no credit or liquidity risk.

Money settlements in Austraclear are effected using central bank money.

8.3 If a securities settlement facility settles in commercial bank money or its participants effect settlements using commercial settlement banks, it should monitor, manage and limit credit and liquidity risks arising from the commercial bank money settlement agents and commercial settlement banks. In particular, a securities settlement facility should establish and monitor adherence to strict criteria for commercial banks appropriate to their role in the settlement process, taking account of matters such as their regulation and supervision, creditworthiness, capitalisation, access to liquidity and operational reliability. A securities settlement facility should also monitor and manage the concentration of its and its participants' credit and liquidity exposures to commercial bank money settlement agents and settlement banks.

Settlement is in central bank funds. Since not all Austraclear participants are eligible to hold an ESA, Austraclear rules provide for those participants to nominate a Participating Bank (an ESA holder that agrees to act on behalf of a participant as settlement agent). A Participating Bank in Austraclear must be approved by the Australian Prudential Regulation Authority (APRA) as an authorised deposit-taking institution (ADI) for the purpose of carrying out banking business within Australia, and be a member of RITS with an ESA. Participating Banks must also satisfy Austraclear's general participation requirements, which include that the participant must satisfy Austraclear with regard to operational capacity, financial standing, and business continuity arrangements (see SSF Standard 15).

Austraclear is not a party to arrangements between settlement participants and Participating Banks (which may also be Austraclear participants) and is not directly exposed to credit or liquidity risk. Participating Banks are obligated under Austraclear Regulations to meet money settlement obligations, arising from DvP settlement, of any participant that they represent in central bank money. Participating Banks do not receive title to any securities due from settlement. Title is delivered to the participant upon settlement in central bank money. Credit exposures, if any, between participants and Participating Banks are managed bilaterally on the same basis as any transactional banking arrangement.

8.4 If a securities settlement facility conducts money settlements on its own books, it should minimise and strictly control its credit and liquidity risks.

Austraclear does not conduct money settlements on its own books.

8.5 A securities settlement facility's legal agreements with any commercial bank money settlement agents should state clearly when transfers on the books of the relevant commercial bank are expected to occur, that transfers are to be final when effected, and that funds received should be transferable as soon as possible, at a minimum by the end of the day and ideally intraday, in order to enable the securities settlement facility and its participants to manage credit and liquidity risks.

Austraclear does not use commercial bank money settlement agents. Participants' arrangements with Participating Banks to access central bank money settlement are conducted under legal agreements between the parties involved; Austraclear is not a party to these agreements.