2015/16 Assessment of ASX Clearing and Settlement Facilities A2.1 ASX Settlement Standard 5: Collateral

A securities settlement facility that requires collateral to manage its or its participants' credit exposures should accept collateral with low credit, liquidity and market risks. A securities settlement facility should also set and enforce appropriately conservative haircuts and concentration limits.

ASX Settlement does not assume credit risk as principal (see SSF Standard 4). Furthermore, the settlement process does not give rise to credit exposures for participants, since settlement occurs on a DvP Model 3 basis (see SSF Standard 10) and replacement cost risk (in respect of on-market trades in ASX-quoted securities) is managed via novation to ASX Clear as central counterparty. Accordingly, ASX Settlement does not collect collateral from participants.

The Bank has therefore concluded that SSF Standard 5 does not apply to ASX Settlement.

5.1 A securities settlement facility should generally limit the assets it (routinely) accepts as collateral to those with low credit, liquidity and market risks.

Not applicable to ASX Settlement.

5.2 In determining its collateral policies, a securities settlement facility should take into consideration the broad effect of these policies on the market. As part of this, a securities settlement facility should consider allowing the use of collateral commonly accepted in the relevant jurisdictions in which it operates.

Not applicable to ASX Settlement.

5.3 A securities settlement facility should establish prudent valuation practices and develop haircuts that are regularly tested and take into account stressed market conditions.

Not applicable to ASX Settlement.

5.4 In order to reduce the need for procyclical adjustments, a securities settlement facility should establish stable and conservative haircuts that are calibrated to include periods of stressed market conditions, to the extent practicable and prudent.

Not applicable to ASX Settlement.

5.5 A securities settlement facility should avoid concentrated holdings of certain assets where this would significantly impair the ability to liquidate such assets quickly without significant adverse price effects.

Not applicable to ASX Settlement.

5.6 A securities settlement facility that accepts cross-border collateral should mitigate the risks associated with its use and ensure that the collateral can be used in a timely manner.

Not applicable to ASX Settlement.

5.7 A securities settlement facility should use a collateral management system that is well designed and operationally flexible.

Not applicable to ASX Settlement.