2015/16 Assessment of ASX Clearing and Settlement Facilities A1.1 ASX Clear Standard 9: Money settlements
A central counterparty should conduct its money settlements in central bank money where practical and available. If central bank money is not used, a central counterparty should minimise and strictly control the credit and liquidity risk arising from the use of commercial bank money.
ASX Clear conducts its money settlements across ESAs at the Bank, via RITS (CCP Standard 9.1). Margin payments are settled in RITS via Austraclear instructions. Interbank payment obligations arising from equities transactions are settled in RITS via the CHESS batch administered by ASX Settlement. ASX Clear does not conduct settlement across its own books or in commercial bank money (CCP Standards 9.2, 9.3, 9.4, 9.5). The role and responsibilities of commercial settlement banks acting on behalf of participants for money settlements in RITS, known as Payment Providers, are governed by legal agreements between those banks, ASX Clear, ASX Settlement and APCA (CCP Standard 9.3).
9.1 A central counterparty should conduct its money settlements in central bank money, where practical and available, to avoid credit and liquidity risks. A central counterparty that the Reserve Bank determines to be systemically important in Australia and has Australian dollar obligations should settle its Australian dollar obligations across an Exchange Settlement Account held at the Reserve Bank, in its own name or that of a related body corporate acceptable to the Reserve Bank.
ASX Clear's money settlements are all settled in central bank money. Margin payments occur via Austraclear, with the interbank obligations settled on an RTGS basis across ESAs at the Bank, via RITS. ASX Clear uses ASXCC's ESA to settle these obligations in RITS.
The interbank element of net securities-related payment obligations arising in the CHESS settlement batch administered by ASX Settlement (see CCP Standard 8.2) are also settled across ESAs at the Bank, via RITS. These obligations are settled on behalf of participants between commercial settlement banks known as Payment Providers.
9.2 If central bank money is not used, a central counterparty should conduct its money settlements using a settlement asset with little or no credit or liquidity risk.
ASX Clear's money settlements are all settled in central bank money.
9.3 If a central counterparty 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 central counterparty 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 central counterparty 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.
ASX Clear does not settle in commercial bank money or effect settlement using a commercial settlement bank. The role of commercial settlement banks acting on behalf of participants is covered by the terms of the CHESS Payment Interface Standard Payments Provider Deed entered into by ASX Clear, ASX Settlement, APCA and the relevant commercial bank. This deed sets out payment authorisation deadlines and other operational requirements for Payment Providers that act as commercial settlement banks for participants. Changes to the deed were implemented in 2014/15 to support the introduction of enhanced client protection arrangements (see CCP Standard 13) and in 2015/16 to support the transition from a three-day to a two-day equities settlement cycle (see Appendix A2.1, SSF Standard 10.2).
The process of updating the deed involves negotiation with APCA and Payment Providers, which could create delays in implementing changes to authorisation deadlines or other operational requirements required to support changes to the settlement process. ASX, working with APCA, has established a framework for formally engaging Payment Providers on changes to settlement processes in response to regulatory or market-driven change. This is in the form of an APCA standing sub-committee comprising representatives of the Payment Providers, with ASX acting as an ‘observer’. The role of the committee is to consider and provide feedback on proposed amendments to the Standard Payments Provider Deed, facilitate consultation with Payment Providers, and helps ensure that Payment Providers are notified of any upcoming developments.
9.4 If a central counterparty conducts money settlements on its own books, it should minimise and strictly control its credit and liquidity risks.
ASX Clear does not conduct money settlements on its own books.
9.5 A central counterparty'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 central counterparty and its participants to manage credit and liquidity risks.
ASX Clear does not conduct settlements via commercial bank money settlement agents.