List of tables | 2012/13 Assessment of ASX Clearing and Settlement Facilities

Table 1: ASX Clear Ratings and Recommendations
Standard	Rating	Recommendation
1. Legal basis	Observed
2. Governance	Observed
3. Framework for the comprehensive management of risks	Observed (transitional relief for CCP Standard 3.5)	In order to meet the requirements of CCP Standard 3.5, which comes into effect on 31 March 2014, ASX Clear should prepare an appropriate recovery plan based on addressing identified scenarios that may threaten ASX Clear's ability to provide its critical services as a going concern. This plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning.
4. Credit risk	Broadly observed (transitional relief for CCP Standard 4.8)	To fully observe CCP Standard 4, ASX Clear should implement plans to strengthen the analysis of capital stress-test models, through comprehensive annual validation, periodic reverse stress testing, and more detailed monthly reviews of stress-testing scenarios, models and underlying parameters and assumptions. These should include sensitivity analysis and analysis of concentration risk. In order to meet the requirements of CCP Standard 4.8, which comes into effect on 31 March 2014, ASX should implement mechanisms consistent with forthcoming CPSS-IOSCO guidance on recovery planning that would fully address any uncovered credit losses and replenish financial resources following a participant default.
5. Collateral	Observed
6. Margin	Broadly observed	To fully observe CCP Standard 6, ASX Clear should implement plans to conduct monthly sensitivity analysis of material model assumptions. The Bank will also monitor annual validation and ongoing review of margin and stress-testing models under ASX's new Model Validation Standard, and the implementation and further enhancement of the new margin backtesting regime.
7. Liquidity risk	Observed (transitional relief for CCP Standards 7.3 and 7.9)	In order to observe CCP Standard 7.3, which comes into effect on 31 March 2014, ASX Clear should develop and implement appropriate alternative arrangements to rescheduling, to cover its largest liquidity exposure to a single participant and its affiliates in respect of cash equity transactions. In order to meet the requirements of CCP Standard 7.9, which comes into effect on 31 March 2014, ASX Clear should implement mechanisms consistent with forthcoming CPSS-IOSCO guidance on recovery planning that would fully address any uncovered liquidity shortfall following a participant default.
8. Settlement finality	Observed
9. Money settlements	Observed
10. Physical deliveries	Not applicable
11. Exchange-of-value settlements	Observed
12. Participant default rules and procedures	Observed
13. Segregation and portability	Observed (transitional relief for CCP Standards 13.1, 13.2 and 13.3)	In order to meet the requirements of CCP Standards 13.1, 13.2 and 13.3, which come into effect on 31 March 2014, ASX Clear should complete development and commence implementation of arrangements for client account segregation in its cash equity clearing service.
14. General business risk	Broadly observed (transitional relief for CCP Standard 14.3)	To fully observe CCP Standard 14, ASX should implement plans to enhance its intragroup legal agreements to explicitly reflect the allocation and availability of business risk capital to ASX Clear. In order to meet the requirements of CCP Standard 14.3, which comes into effect on 31 March 2014, ASX Clear should develop and maintain a viable recovery plan and ensure that the capital it holds under CCP Standard 14.2 is sufficient to fund this plan. The plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning. As ASX Clear develops its recovery plan, it should also review and integrate the recapitalisation processes described under CCP Standard 14.5 with broader recovery planning arrangements.
15. Custody and investment risks	Broadly observed	To fully observe CCP Standard 15, ASX Clear should implement plans to further reduce, over time, the concentration of unsecured exposures to the large domestic banks. The Bank will continue to monitor treasury investment policy and continues to encourage a more rapid transition to lower unsecured exposures.
16. Operational risk	Observed (transitional relief for CCP Standard 16.11)	In order to meet the requirements of CCP Standard 16.11, which comes into effect on 31 March 2014, ASX Clear should review its operational arrangements in light of the proposed Australian FMI resolution regime, to ensure that they are consistent with the form of the regime once finalised.
17. Access and participation requirements	Observed	ASX Clear is encouraged to carry out the planned review of risk-based capital requirements for participants.
18. Tiered participation arrangements	Observed	ASX Clear is encouraged to investigate options to improve its ability to monitor risks associated with tiered participation.
19. FMI links	Observed
20. Disclosure of rules, key policies and procedures, and market data	Broadly observed	To fully observe CCP Standard 20, ASX Clear should publish an expanded Disclosure Framework document, in a form consistent with that prescribed by CPSS-IOSCO, setting out in detail how ASX Clear meets the requirements of each of the Principles. ASX Clear is also encouraged to provide a central location on the ASX website linking to all information that is subject to disclosure requirements under the FSS.
21. Regulatory reporting	Observed

Table 2: ASX Clear (Futures) Ratings and Recommendations
Standard	Rating	Recommendations
1. Legal basis	Observed
2. Governance	Observed
3. Framework for the comprehensive management of risks	Observed (transitional relief for CCP Standard 3.5)	In order to meet the requirements of CCP Standard 3.5, which comes into effect on 31 March 2014, ASX Clear (Futures) should prepare an appropriate recovery plan based on addressing identified scenarios that may threaten ASX Clear (Futures)' ability to provide its critical services as a going concern. This plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning.
4. Credit risk	Broadly observed (transitional relief for CCP Standard 4.8)	To fully observe CCP Standard 4, ASX Clear (Futures) should implement plans to strengthen the analysis of capital stress-test models, through comprehensive annual validation, periodic reverse stress testing, and more detailed monthly reviews of stress-testing scenarios, models and underlying parameters and assumptions. These should include sensitivity analysis and analysis of concentration risk. In order to meet the requirements of CCP Standard 4.8, which comes into effect on 31 March 2014, ASX Clear (Futures) should implement mechanisms consistent with forthcoming CPSS-IOSCO guidance on recovery planning that would fully address any uncovered credit losses and replenish financial resources following a participant default.
5. Collateral	Observed
6. Margin	Broadly observed	To fully observe CCP Standard 6, ASX Clear (Futures) should implement plans to conduct monthly sensitivity analysis of material model assumptions. The Bank will also monitor annual validation and ongoing review of margin and stress-testing models under ASX's new Model Validation Standard, and the implementation and further enhancement of the new margin backtesting regime.
7. Liquidity risk	Observed (transitional relief for CCP Standards 7.3 and 7.9)	To meet the requirements of CCP Standard 7.9, which comes into effect on 31 March 2014, ASX Clear (Futures) should implement mechanisms consistent with forthcoming CPSS-IOSCO guidance on recovery planning that would fully address any uncovered liquidity shortfall following a participant default.
8. Settlement finality	Observed
9. Money settlements	Observed
10. Physical deliveries	Observed
11. Exchange-of-value settlements	Observed
12. Participant default rules and procedures	Observed	In order to continue to fully observe CCP Standard 12 in light of the new OTC derivatives clearing service, ASX Clear (Futures) should further develop its default rules and procedures. In particular, in accordance with commitments made to the Bank prior to the launch of the service, ASX should develop an appropriate mechanism to encourage competitive bidding in any auction of a defaulting participant's positions, doing so within the context of a more fully articulated default management process. Further, given the role participants play in default management, the Bank will monitor closely the implementation of ASX Clear (Futures)' plans to test default arrangements for OTC derivatives clearing participants, including through participant involvement in testing of the auction process.
13. Segregation and portability	Observed (transitional relief for CCP Standards 13.1, 13.2 and 13.3)	In order to meet the requirements of CCP Standard 13.3, which comes into effect on 31 March 2014, ASX Clear (Futures) should begin implementation of its proposals to complement the existing omnibus client account structure for exchange-traded products with individual client account segregation in both its exchange-traded and OTC derivatives clearing services.
14. General business risk	Broadly observed (transitional relief for CCP Standard 14.3)	To fully observe CCP Standard 14, ASX should implement plans to enhance its intragroup legal agreements to explicitly reflect the allocation and availability of business risk capital to ASX Clear (Futures). In order to meet the requirements of CCP Standard 14.3, which comes into effect on 31 March 2014, ASX Clear (Futures) should develop and maintain a viable recovery plan and ensure that the capital it holds under CCP Standard 14.2 is sufficient to fund this plan. The plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning. As ASX Clear (Futures) develops its recovery plan, it should also review and integrate the recapitalisation processes described under CCP Standard 14.5 with broader recovery planning arrangements.
15. Custody and investment risks	Broadly observed	To fully observe CCP Standard 15, ASX Clear (Futures) should implement plans to further reduce, over time, the concentration of unsecured exposures to the large domestic banks. The Bank will continue to monitor treasury investment policy and continues to encourage a more rapid transition to lower unsecured exposures.
16. Operational risk	Observed (transitional relief for CCP Standard 16.11)	In order to meet the requirements of CCP Standard 16.11, which comes into effect on 31 March 2014, ASX Clear (Futures) should review its operational arrangements in light of the proposed Australian FMI resolution regime, to ensure that they are consistent with the form of the regime once finalised.
17. Access and participation requirements	Observed
18. Tiered participation arrangements	Observed	ASX Clear (Futures) is encouraged to investigate options to improve its ability to monitor risks associated with tiered participation.
19. FMI links	Observed
20. Disclosure of rules, key policies and procedures, and market data	Broadly observed	To fully observe CCP Standard 20, ASX Clear (Futures) should publish an expanded Disclosure Framework document, in a form consistent with that prescribed by CPSS-IOSCO, setting out in detail how ASX Clear (Futures) meets the requirements of each of the Principles. ASX Clear (Futures) is also encouraged to provide a central location on the ASX website linking to all information that is subject to disclosure requirements under the FSS.
21. Regulatory reporting	Observed

Table 3: ASX Settlement Ratings and Recommendations
Standard	Rating	Recommendations
1. Legal basis	Observed
2. Governance	Observed
3. Framework for the comprehensive management of risks	Observed (transitional relief for SSF Standard 3.5)	In order to meet the requirements of SSF Standard 3.5, which comes into effect on 31 March 2014, ASX Settlement should prepare an appropriate recovery plan based on addressing identified scenarios that may threaten ASX Settlement's ability to provide its critical services as a going concern. This plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning.
4. Credit risk	Not applicable
5. Collateral	Not applicable
6. Liquidity risk	Observed
7. Settlement finality	Observed
8. Money settlements	Observed
9. Central securities depositories	Observed
10. Exchange-of-value settlement systems	Observed
11. Participant default rules and procedures	Observed
12. General business risk	Broadly observed (transitional relief for SSF Standard 12.3)	To fully observe SSF Standard 12, ASX should implement plans to enhance its intragroup legal agreements to explicitly reflect the allocation and availability of business risk capital to ASX Settlement. In order to meet the requirements of SSF Standard 12.3, which comes into effect on 31 March 2014, ASX Settlement should develop and maintain a viable recovery plan and ensure that the capital it holds under SSF Standard 12.2 is sufficient to fund this plan. The plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning. As ASX Settlement develops its recovery plan, it should also review and integrate the recapitalisation processes described under SSF Standard 12.5 with broader recovery planning arrangements.
13. Custody and investment risks	Not applicable
14. Operational risk	Observed (transitional relief for SSF Standard 14.11)	In order to meet the requirements of SSF Standard 14.11, which comes into effect on 31 March 2014, ASX Settlement should review its operational arrangements in light of the proposed Australian FMI resolution regime, to ensure that they are consistent with the form of the regime once finalised.
15. Access and participation requirements	Observed
16. Tiered participation arrangements	Observed
17. FMI links	Observed
18. Disclosure of rules, key policies and procedures, and market data	Broadly observed	To fully observe SSF Standard 18, ASX Settlement should publish an expanded disclosure framework document, in a form consistent with that prescribed by CPSS-IOSCO, setting out in detail how ASX Settlement meets the requirements of each of the Principles. ASX Settlement is also encouraged to provide a central location on the ASX website linking to all information that is subject to disclosure requirements under the FSS.
19. Regulatory reporting	Observed

Table 4: Austraclear Ratings and Recommendations
Standard	Rating	Recommendations
1. Legal basis	Observed
2. Governance	Observed
3. Framework for the comprehensive management of risks	Observed (transitional relief for SSF Standard 3.5)	In order to meet the requirements of SSF Standard 3.5, which comes into effect on 31 March 2014, Austraclear should prepare an appropriate recovery plan based on addressing identified scenarios that may threaten Austraclear's ability to provide its critical services as a going concern. This plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning.
4. Credit risk	Not applicable
5. Collateral	Not applicable
6. Liquidity risk	Observed
7. Settlement finality	Observed
8. Money settlements	Observed
9. Central securities depositories	Observed
10. Exchange-of-value settlement systems	Observed
11. Participant default rules and procedures	Observed
12. General business risk	Broadly observed (transitional relief for SSF Standard 12.3)	To fully observe SSF Standard 12, ASX should implement plans to enhance its intragroup legal agreements to explicitly reflect the allocation and availability of business risk capital to Austraclear. In order to meet the requirements of SSF Standard 12.3, which comes into effect on 31 March 2014, Austraclear should develop and maintain a viable recovery plan and ensure that the capital it holds under SSF Standard 12.2 is sufficient to fund this plan. The plan should be consistent with forthcoming CPSS-IOSCO guidance on recovery planning. As Austraclear develops its recovery plan, it should also review and integrate the recapitalisation processes described under SSF Standard 12.5 with broader recovery planning arrangements.
13. Custody and investment risks	Observed
14. Operational risk	Observed (transitional relief for SSF Standard 14.11)	In order to meet the requirements of SSF Standard 14.11, which comes into effect on 31 March 2014, Austraclear should review its operational arrangements in light of the proposed Australian FMI resolution regime, to ensure that they are consistent with the form of the regime once finalised.
15. Access and participation requirements	Observed
16. Tiered participation arrangements	Observed
17. FMI links	Observed
18. Disclosure of rules, key policies and procedures, and market data	Broadly observed	To fully observe SSF Standard 18, Austraclear should publish an expanded disclosure framework document, in a form consistent with that prescribed by CPSS-IOSCO, setting out in detail how Austraclear meets the requirements of each of the Principles. Austraclear is also encouraged to provide a central location on the ASX website linking to all information that is subject to disclosure requirements under the FSS.
19. Regulatory reporting	Observed

Table 5: ASX CS Facility System Availability and Usage Statistics for 2012/13
Facility	Core system	Availability	Peak usage	Average usage
Facility	Core system	Per cent	Per cent	Per cent
ASX Clear	DCS	100	40	16
ASX Clear (Futures)	SECUR	100	15	10
ASX Settlement	CHESS	100	23	14
Austraclear	EXIGO	100	32	22

Table 6: ASX CS Facility Participation Levels
Facility	End June 2013	End June 2012	Comments
ASX Clear	40	44	At end of June 2013 there were 11 participants offering third-party or related-entity services; excludes inactive participants.
ASX Clear (Futures)	14	17	Participants are predominantly large foreign banks and their subsidiaries. Three participants resigned in 2012/13, including two MF Global entities.
ASX Settlement	119	136	The 119 participants at end of June 2013 included 34 temporary special-purpose participants.
Austraclear	786	747	At end of June 2013 there were 184 full participants, 183 associate participants, 293 public trust participants and 126 special-purpose participants.

Table 7: Managing the Cash Equity Liquidity Impact of a Participant Default*
Day	Current Rescheduling Arrangements	Proposed Participant Committed Liquidity Arrangements
T+3	Selected settlements of non-defaulting participants to deliver stocks purchased by the defaulting participant would be rescheduled to T+4. ASX Clear would enter into close-out trades to sell stocks that it would receive once the rescheduled transactions settle. Close-out trades would typically settle on T+6.	All novated settlements would take place as originally scheduled. Selected non-defaulting participants due to deliver stocks purchased by the defaulting participant would be required to enter into an overnight repo with ASX Clear. Under this repo, they would receive back stocks delivered to ASX Clear and provide funds required to allow original novated transactions to settle. The repos would exactly offset the payment obligations of the defaulting participant assumed by ASX Clear. ASX Clear would enter into a close-out trade to sell stocks that it would receive once the repo unwinds. The close-out trade would typically settle on T+6.
T+4	If ASX Clear does not have sufficient liquidity to settle rescheduled transactions on T+4, these would be further rescheduled to T+5.	ASX Clear would settle the unwinding of repos, but if it does not have sufficient liquidity to settle its payment obligations on T+4, it would enter into replacement repo transactions due to unwind on T+5.
T+5	If ASX Clear does not have sufficient liquidity to settle rescheduled transactions on T+5, these would be further rescheduled to T+6.	ASX Clear would settle the unwinding of repos, but if it does not have sufficient liquidity to settle its payment obligations on T+5, it would enter into replacement repo transactions due to unwind on T+6.
T+6	ASX Clear would receive funds from the settlement of close-out trades and use these (and any other resources required to cover losses on the close-out trade) to settle rescheduled transactions.	ASX Clear would receive funds from the settlement of close-out trades and use these (and any other resources required to cover losses on the close-out trade) to unwind repo transactions.
* The process described in this table assumes prefunded liquid resources are not sufficient to meet ASX Clear's cash equity payment obligations assumed on behalf of the defaulting participant.

Table 8: Scope of Changes to ASX Clear (Futures) Rules
Aspect	Purpose
Participation requirements	Introduced a new ‘OTC participant’ category, with separate, risk-based participation criteria. This included amendments to the resignation and termination arrangements.
Registration	Set out the criteria and process for submitting OTC derivatives trades for novation to ASX Clear (Futures), including the circumstances under which a trade would be novated.
Accounts and Margining	Set out the account and margining arrangements for OTC derivatives positions, including the types of collateral accepted as initial and variation margin and the basis of portfolio margining (including cross-margining).
Pooled financial resources	Introduced an obligation for OTC participants to contribute to ASX Clear (Futures)' pooled financial resources, and amended the obligations of ‘futures’ participants' commitments to resources. The rules also implemented an amended default waterfall that varies according to the clearing activities of the defaulter.
Default management	Set up a hedge-then-auction process for a defaulter's OTC derivatives positions, including establishing what constitutes an event of default, the participation arrangements for Default Management Groups and the requirement for OTC participants to bid in an auction.
Risk Committee	Established the arrangements for a new Risk Committee, designed to allow both futures and OTC participants to make recommendations on changes to ASX Clear (Futures) risk management and rules.
OTC Product Committee	Established the arrangements for a new OTC Product Committee, designed to allow OTC participants to provide recommendations on the types of OTC derivatives transactions that are eligible for clearing and material changes to the terms of OTC derivatives contracts.
Obligation to consult on rule changes	Formalised ASX's practice of consulting on rule changes by introducing a requirement in the rules.

Table 9: Scope of Changes to the Austraclear Regulations*
Aspect	Purpose
Collateral Management System	The Regulations provide for a Collateral Management System to be provided within Austraclear for the management and movement of collateral between collateral givers and collateral receivers on the instruction of a Collateral Manager.
Collateral Manager as a Participant	Revisions to the Regulations provide for a Collateral Manager to be admitted as Special Purpose Participant, subject to specific requirements. A Collateral Manager may submit settlement instructions as long as it is authorised to do so under the terms of a Collateral Management Agreement with both the collateral giver and the collateral receiver. The Regulations allow for the admission of Collateral Managers other than ASX Collateral.
Account structures	The Regulations provide for new account types and account structures that facilitate the identification of source securities available for use in the Collateral Management System (Collateral Source Accounts), and transferred or pledged collateral (Collateral Accounts). The Regulations clarify restrictions on participants' access to transferred collateral; i.e. that such collateral may be transferred to/from a Collateral Account only by a Collateral Manager acting on behalf of the collateral receiver.
Participation	A participant in the Collateral Management System must be a full participant of Austraclear. In the event that Austraclear considers that a participant no longer meets its participation requirements it may direct that participant to transfer securities out of its collateral accounts, or effect such transfers itself. The Regulations indemnify Austraclear against any loss or claim arising in respect of any such actions taken.
Rights and obligations	Without affecting the rights and obligations of Austraclear, the Regulations uphold the rights, obligations and interests of collateral givers and collateral receivers under underlying bilateral contracts between collateral givers and collateral receivers (Principal Agreements).
Default	The Regulations clarify the role of a Collateral Manager in the event of the default of a participant in the Collateral Management System. In such circumstances, and in accordance with the terms of the Principal Agreement, a Collateral Manager may, on the sole instruction of a collateral receiver, instruct Austraclear to transfer securities held in a Collateral Account. The Regulations indemnify Austraclear against any loss or claim arising in respect of any actions taken in accordance with such instructions.
* The table sets out, at a high level, the broad scope of changes to the Austraclear Regulations that give effect to the centralised collateral management service.

Table A1: Interpretation of CCP Standards for Domestically Licensed CCPs that Provide Services to Clearing Participants Established in the EU
CCP Standard	Additional Interpretation
Governance CCP Standard 2.6. The board should establish a clear, documented risk management framework that includes the central counterparty's risk tolerance policy, assigns responsibilities and accountability for risk decisions, and addresses decision-making in crises and emergencies. Governance arrangements should ensure that risk management and internal control functions have sufficient authority, independence, resources and access to the board, including through the maintenance of a separate and independent internal audit function.	The guidance to this CCP Standard, in 2.6.3, states that ‘…a central counterparty should have a risk committee responsible for advising the board on the central counterparty's overall current and future risk tolerance and strategy, or equivalent...’ It is the Bank's judgement that, in accordance with the guidance, establishment of an independent risk committee is the most appropriate way to help the board discharge its risk-related responsibilities. The risk committee should comprise representatives of participants, and depending on the scale and nature of client clearing activity, also indirect participants. The Bank will interpret CCP Standard 2.6 accordingly in the case of ASX Clear (Futures).
Credit Risk CCP Standard 4.2. A central counterparty should identify sources of credit risk, routinely measure and monitor credit exposures, and use appropriate risk management tools to control these risks. To assist in this process, a central counterparty should ensure it has the capacity to calculate exposures to participants on a timely basis as required, and to receive and review timely and accurate information on participants' credit standing. CCP Standard 4.4. A central counterparty should cover its current and potential future exposures to each participant fully with a high degree of confidence using margin and other prefunded financial resources. In addition, a central counterparty that is involved in activities with a more complex risk profile or that is systemically important in multiple jurisdictions should maintain additional financial resources to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would potentially cause the largest aggregate credit exposure for the central counterparty in extreme but plausible market conditions…	The guidance in 4.2.4 discusses the role of prefunded financial resources in managing losses caused by participant defaults. The guidance recognises that the default waterfall may include ‘…a defaulter's initial margin, the defaulter's contribution to a prefunded default arrangement, a specified portion of the central counterparty's own funds, and other participants' contributions to a prefunded default arrangement’. The guidance does not prescribe a particular composition of prefunded financial resources, nor does it prescribe the order in which such funds should be drawn. Nevertheless, the Bank would expect that a material proportion of pooled financial resources comprised a central counterparty's own resources, and, further, that a sufficient proportion of such resources would be drawn first in the event that a defaulting participant's margin and other contributions were exhausted, so as to ensure that the central counterparty faced appropriate incentives to set robust risk management standards. The Bank will interpret CCP Standard 4.2 accordingly in the case of ASX Clear (Futures). Separately, the guidance in 4.4.2, states that ‘…determinations of whether a central counterparty is systemically important in multiple jurisdictions should include consideration of, among other factors: the location of the central counterparty's participants; the aggregate volume and value of transactions that originate in each jurisdiction in which it operates; the proportion of its total volume and value of transactions that originate in each jurisdiction in which it operates; the range of currencies in which the instruments it clears and cleared or settled; any links it has with FMIs located in other jurisdictions; and the extent to which it clears instruments that are subject to mandatory clearing obligations in multiple jurisdictions…’. In forming a judgement on systemic importance with reference to these factors, the Bank will take into account the (implicit or explicit) views of the relevant overseas regulatory authorities. In the case of a central counterparty foreign to the EU that provides services to clearing participants established in the EU, the need to obtain recognition under EMIR may be regarded as evidence that the EU authorities consider such a central counterparty to be a vehicle for the transmission of risks to the EU, and may therefore be evidence of systemic importance in multiple jurisdictions. If a systemically important domestic Australian central counterparty not only required recognition in the EU, but also had material participation of clearing participants established in the EU and cleared a range of derivatives products with different characteristics (including levels of liquidity), the Bank would expect to conclude that such a central counterparty was systemically important in multiple jurisdictions. The Bank will interpret CCP Standard 4.4 accordingly in the case of ASX Clear (Futures) and hold ASX Clear (Futures) to the higher standard that it should maintain additional financial resources to cover the default of the largest two participants and their affiliates (by credit exposure).
Margin CCP Standard 6.3. …Initial margin should meet an established single-tailed confidence interval of at least 99 per cent with respect to the estimated distribution of future exposure… The model should: use a conservative estimate of the time horizons for the effective hedging or close out of the particular types of product cleared by the central counterparty…	The guidance to this CCP Standard elaborates further. In particular, the guidance in paragraphs 6.3.1–6.3.3 requires that: ‘…the method selected by the central counterparty to estimate its potential future exposure should be capable of measuring and incorporating the effects of price volatility and other relevant product factors and portfolio effects over a close-out period that reflects the market size and dynamics for each product cleared by the central counterparty…’ ‘…close-out periods should be set on a product-specific basis because less liquid products might require significantly longer close-out periods…’ ‘…a central counterparty should select an appropriate sample period for its margin model to calculate required margin for each product that it clears…’ ‘…selection of the period should be carefully examined based on the theoretical properties of the margin model and empirical tests on these properties using historical data…’ In accordance with the guidance summarised above, the Bank will interpret CCP Standard 6.3 in such a way that a central counterparty with the profile of ASX Clear (Futures) – which clears a range of derivatives products with varying degrees of liquidity and provides services to systemically important financial institutions headquartered in multiple jurisdictions – would typically be expected to : apply a higher confidence interval, of at least 99.5 per cent, in relation to less liquid products, such as OTC derivatives, to reflect increased uncertainty around potential future exposure for products with such characteristics use a close-out assumption of at least five days for less liquid products, such as OTC derivatives, and the higher of a one or two day close-out period for more liquid exchange-traded products consider a range of sample periods to inform the calibration of margin requirements.
Liquidity Risk CCP Standard 7.3. A central counterparty should maintain sufficient liquid resources in all relevant currencies to settle securities-related payments, make required variation margin payments and meet other payment obligations on time with a high degree of confidence under a wide range of potential stress scenarios... In addition, a central counterparty that is involved in activities with a more complex risk profile or that is systemically important in multiple jurisdictions should consider maintaining additional liquidity resources to cover a wider range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would generate the largest aggregate payment obligation to the central counterparty in extreme but plausible market conditions.	Consistent with the equivalent requirement in relation to credit risk, the Bank will, in determining whether a central counterparty is systemically important in multiple jurisdictions, take into account the (implicit or explicit) views of the relevant overseas regulatory authorities. In the case of a central counterparty foreign to the EU that provides services to clearing participants established in the EU, the need to obtain recognition under EMIR may be regarded as evidence that the EU authorities consider such a central counterparty to be a vehicle for the transmission of risks to the EU, and may therefore be evidence of systemic importance in multiple jurisdictions. If a systemically important domestic Australian central counterparty not only required recognition in the EU, but also had material participation of clearing participants established in the EU and cleared a range of derivatives products with different characteristics (including levels of liquidity), the Bank would expect to conclude that such a central counterparty was systemically important in multiple jurisdictions. The Bank will interpret FSS 7.3 accordingly in the case of ASX Clear (Futures), and hold ASX Clear (Futures) to the higher standard that it should maintain additional liquid resources to cover liquidity needs in the event of the default of the two participants and their affiliates that would generate the largest aggregate payment obligation to the central counterparty in extreme but plausible market conditions.
Segregation and Portability CCP Standard 13.2. A central counterparty should employ an account structure that enables it readily to identify positions of a participant's customers and to segregate related collateral. A central counterparty should maintain customer positions and collateral in individual customer accounts or in omnibus customer accounts, or equivalent. CCP Standard 13.3. To the extent reasonably practicable under prevailing law, a central counterparty should structure its portability arrangements in a way that makes it highly likely that the positions and collateral of a defaulting participant's customers will be transferred to one or more other participants.	CCP Standards 13.2 and 13.3, which come into force on 31 March 2014, do not explicitly require that a central counterparty offer the choice between individual and omnibus account structures. However, associated guidance (particularly 13.2.2–13.2.9) draws out the relevant considerations for a central counterparty in determining appropriate account structures, while the guidance in 13.3.1 observes that ‘in order to achieve a high likelihood of portability, a central counterparty will need to: have the ability to identify positions that belong to customers; identify and assert rights to related collateral held by or through the central counterparty; transfer positions and related collateral to one or more other participants…’. Where a central counterparty that clears a range of derivatives products with different characteristics (including levels of liquidity) and for a variety of participant and underlying customer types, the Bank will interpret CCP Standards 13.2 and 13.3 as requiring that the central counterparty employ an account structure that enables its participants to offer their customers a choice between individual and omnibus segregation. Such choice should be sufficient to enable customers to choose clearing arrangements that deliver protections appropriate to the scale, scope and nature of their business. Accordingly, ASX Clear (Futures) will be expected to make available to its participants an account structure that enables its participants to offer their customers, in addition to a net omnibus client account structure, an option that allows for separate identification and protection of individual customers' gross positions and collateral (or collateral value). To further protect customers, ASX Clear (Futures) will be expected to make available an account structure that enables excess customer collateral to be held directly with the central counterparty.
Custody and Investment Risks CCP Standard 15.4. A central counterparty's investment strategy should be consistent with its overall risk management strategy and fully disclosed to its participants, and investments should be secured by, or be claims on, high-quality obligors. These investments should allow for quick liquidation with little, if any, adverse price effect.	Although not explicitly stated in CCP Standard 15.4 or associated guidance (15.4.1), the Bank will interpret this requirement as applying in all market conditions, including in periods of market stress. Furthermore, since CCP Standard 15.4 also requires that a central counterparty's investment strategy should be ‘consistent with its overall risk management strategy’ and that ‘investments should be secured by, or be claims on, high-quality obligors’, and since the guidance (15.4.1) notes that investments should be subject to appropriate controls for wrong-way risk, the Bank would not consider investments in a central counterparty's own, or an affiliated entity's, securities to be consistent with these requirements. The Bank will interpret CCP Standard 15.4 accordingly in the case of ASX Clear (Futures).
Regulatory Reporting CCP Standard 21. A central counterparty 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 central counterparty should also regularly provide information to the Reserve Bank regarding its financial position and risk controls on a timely basis.	CCP Standard 21 sets out a range of reporting requirements for CCPs. The Bank plans, in the coming period, to review its regular information requirements and will inform ASX Clear (Futures) accordingly. In the meantime, that Bank would like to clarify that in accordance with CCP Standard 21.1(i), which requires notification to the Bank if ‘…any internal audits or independent external reviews are undertaken of its operations, risk management processes or internal control mechanisms, including providing the conclusions of such audits or reviews’, a central counterparty such as ASX Clear (Futures) will be expected to provide the Bank with a copy of any review of its margin methodology.

2012/13 Assessment of ASX Clearing and Settlement Facilities List of tables

Chapters

Appendices