2015/16 Assessment of ASX Clearing and Settlement Facilities A1.1 ASX Clear Standard 20: Disclosure of rules, key policies and procedures, and market data

A central counterparty should have clear and comprehensive rules, policies and procedures and should provide sufficient information and data to enable participants to have an accurate understanding of the risks they incur by participating in the central counterparty. All relevant rules and key policies and procedures should be publicly disclosed.

ASX Clear fully discloses its Operating Rules and Procedures to participants, and publicly discloses its rules, guidance on its rules and a range of additional relevant information on its risk management procedures. ASX provides links to information that is subject to disclosure requirements from a central location on its public website (CCP Standard 20.1). This includes information regarding the process of novation, and general descriptions of system design and the roles and obligations of ASX Clear and its participants (CCP Standards 20.2, 20.3). ASX Clear provides new participants with comprehensive documentation, and verifies their understanding of their responsibilities as participants. Existing participants are also provided with education on their obligations where required (CCP Standard 20.4). ASX has updated its published response to the CPMI-IOSCO Disclosure Framework and plans to periodically review and enhance this document where appropriate. During the Assessment period, ASX Clear began to publish risk and activity data in accordance with the CPMI-IOSCO quantitative disclosure standards for CCPs (CCP Standard 20.5). ASX Clear has also developed additional disclosures to assist participants in understanding their contingent exposure to the use of ASX's expanded suite of recovery tools.

20.1 A central counterparty should adopt clear and comprehensive rules, policies and procedures that are fully disclosed to participants. Relevant rules and key policies and procedures should also be publicly disclosed (including specific requirements relating to CCP Standards 1.4, 2.2, 12.3, 13.4, 15.4, 17.2 and 17.3).

ASX Clear's Operating Rules and Procedures form the basis of all material aspects of the CCP's service to participants. The Operating Rules and Procedures, together with the associated ASX Guidance Notes, are disclosed on the ASX public website.^[27] The Operating Rules and Procedures are also made available on the Customer Portal, ASX's participant website. During the Assessment period, ASX enhanced the design and functionality of its participant website to better support the dissemination of non-public information to participants.

To assist participants in their understanding of the risks of participating in ASX Clear, and for the information of other interested stakeholders, ASX publishes a range of additional material on its public website; this includes information required to be disclosed under the FSS. Information specific to ASX Clear includes information about risk management, default management, margins and CBPLs, and business continuity arrangements. More general information includes: the ASX Group's regulatory framework; requirements of the FSS; requirements of the Corporations Act for provision of services in a ‘fair and effective’ way; the ASX Group's other obligations under the Corporations Act; and the ASX Group's observance of the Principles. During the Assessment period, ASX developed a centralised list of links on its website to information related to its clearing risk management arrangements. ASX also operates a dedicated website that discloses information relevant to the clearing and settlement of cash equities, to support its disclosure commitments under the Code of Practice and other information.

Specific disclosure requirements are dealt with under CCP Standards 1.4, 2.2, 12.3, 13.4, 15.4, 17.2 and 17.3.

20.2 A central counterparty's rules, policies and procedures should clearly identify the nature and scope of the risk exposure assumed by the central counterparty, such as by novation, open offer or other similar legal devices. A central counterparty's rules, policies and procedures should clearly identify the point in the clearing process at which the central counterparty assumes the risk exposure.

ASX maintains on its public website an overview of how the CCPs would manage a clearing participant default; this includes information about the purpose of novation, the point at which novation occurs, and the scope of contractual arrangements.^[28] Section 12 of

ASX Clear's Operating Rules sets out the arrangements for registration of market contracts, including the point at which a contract is considered to be registered and at which ASX Clear assumes the risk exposure of a trade. These arrangements apply to transactions of ASX-quoted securities on the ASX and Chi-X markets and OTC equity options (see CCP Standard 1.5).

20.3 A central counterparty should disclose clear descriptions of the system's design and operations, as well as the central counterparty's and participants' rights and obligations, so that participants can assess the risks they would incur by participating in the central counterparty (see CCP Standards 2.8 and 9.5).

General descriptions of ASX Clear's system design and operations are available on the ASX public website, including as part of ASX's response to the CPMI-IOSCO Disclosure Framework (see CCP Standard 20.5). The Disclosure Framework document describes the ASX group structure, provides a general description of the CS facilities and their roles, system design and operations, outlines the legal and regulatory framework for clearing and settlement, and provides a description of steps taken by ASX to implement the Principles and the corresponding FSS. The ASX public website provides additional information on system design and operations, including descriptions of the cash market clearing and settlement process, and margining approaches for both securities and derivatives products.

The rights and obligations of ASX Clear and its participants are defined in the ASX Clear Operating Rules and Procedures, which are published on the ASX public website and the Customer Portal. These documents are supplemented with explanatory material to support participants' understanding of the risks they face by participating in the system. There is a clear process for changing ASX Clear's Operating Rules and Procedures, with any changes notified to participants via the ASX website (see CCP Standard 1.3).

During the Assessment period, ASX developed additional disclosures to assist participants in understanding their contingent exposure to the use of ASX Clear's expanded suite of recovery tools, including tools to address uncovered credit losses and liquidity shortfalls (see Section 3.5.1).

20.4 A central counterparty should provide all necessary and appropriate documentation and training to facilitate participants' understanding of the central counterparty's rules, policies and procedures and the risks they face from participating in the central counterparty.

All applicants for participation in ASX Clear are provided with a comprehensive application pack, which includes information regarding key requirements of the facilities. Applicants have access to the Operating Rules, Procedures and Guidance Notes via the ASX website, as well as other publicly available information about the facilities, services and participation requirements. When ASX Clear has completed an initial assessment of an application, the applicant is also invited to attend formal ‘on boarding’ meetings with the Compliance, CRPM and Operations departments to discuss key areas of importance for participants.

As part of the formal admission process, the applicant is required to certify that it has resources and processes in place to comply with its obligations under the applicable Operating Rules and Procedures (see CCP Standard 17.2). This is reviewed and discussed with the applicant prior to approving admission. During ASX's review of the application, or at any time following admission, the applicant must be able to demonstrate, to the satisfaction of ASX, the basis on which the certification is, or was, provided.

Where ASX becomes aware or suspects that a participant lacks a satisfactory understanding of the Operating Rules and Procedures or the risks of participation, ASX will generally work collaboratively with the participant to educate them on their obligations. ASX may become aware of issues through its routine risk monitoring activities or through its regular discussions with participants. Examples of matters that might raise concerns are if a participant was slow in making required payments, or had a high frequency of intraday margin calls arising from delays in the intraday allocation of client positions. Steps available to ASX Clear to address serious matters include: calling for AIM from the participant; requiring the participant to hold additional capital; requiring the participant to remediate the weakness; imposing conditions on participation; or requiring that the participant appoint an independent expert to assist with the remediation task (see also CCP Standard 16.5).

20.5 A central counterparty should complete regularly and disclose publicly responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures.^[29] A central counterparty also should, at a minimum, disclose basic risk and activity data, as directed by the Reserve Bank from time to time.

ASX has published its response to the CPMI-IOSCO Disclosure Framework, including information describing how its CS facilities observe the applicable Principles.^[30] This document was revised during the Assessment period, in part to reflect the introduction of ASX's enhanced recovery arrangements. ASX plans to continue updating this document periodically (at least annually) and to further enhance its disclosure as necessary from time to time.

ASX reports publicly basic risk and activity data for the CS facilities via a monthly activity report, as well as through additional data published on both its main website and a dedicated website on clearing and settlement of cash equities. In December 2015, ASX Clear began to publish an expanded set of quantitative risk and activity data in accordance with the CPMI-IOSCO Public quantitative disclosure standards for central counterparties, which are intended to complement the descriptive disclosures under the Disclosure Framework; these data will be updated on a quarterly basis.^[31] Also in the Assessment period, ASX Clear began to provide daily statements to participants detailing their individual margin requirements and stress test results.

Footnotes

Available at <http://www.asx.com.au/regulation/rules/asx-clear-operating-rules.htm>. [27]

Available at <http://www.asx.com.au/documents/clearing/131001_Default_Management_-_Public_Information_Document_v1.pdf>. [28]

The CPSS was renamed the CPMI in October 2014. [29]

Available at <http://www.asx.com.au/documents/asx-compliance/pfmi-disclosure-framework.pdf>. [30]

The quantitative disclosures for ASX Clear are available at <http://www.asx.com.au/regulation/regulatory-compliance/asx-clear.htm>. [31]