2015/16 Assessment of ASX Clearing and Settlement Facilities A2.1 ASX Settlement Standard 15: Access and participation requirements

A securities settlement facility should have objective, risk-based and publicly disclosed criteria for participation, which permit fair and open access.

ASX Settlement has objective and transparent participation requirements set out in its Operating Rules and Procedures (SSF Standard 15.1). These include financial requirements, as well as requirements relating to participants' operational arrangements (SSF Standard 15.2). ASX Settlement monitors participants' compliance with requirements on an ongoing basis, and has the authority to suspend or terminate participation, or take other disciplinary or remedial action in the event of a breach of these requirements (SSF Standard 15.3).

ASX Settlement's access and participation requirements are described in further detail under the following sub-standards.

15.1 A securities settlement facility should allow for fair and open access to its services, including by direct and, where relevant, indirect participants and other FMIs, based on reasonable risk-related participation requirements.

ASX Settlement has objective and transparent participation requirements, which are publicly available and form part of ASX Settlement's Operating Rules and Procedures. ASX has also issued formal guidance to assist applicants' and participants' understanding of the participation requirements. This includes guidance on: the admission process and criteria; notification obligations; offshoring and outsourcing arrangements; and business continuity requirements.

ASX has an internal policy and supporting standards that summarise the minimum requirements placed on participants under the Operating Rules and Procedures (see SSF Standard 15.2), and document the responsibilities of the CS Boards, SRPC and relevant executives for ensuring these requirements are met and periodically reviewed. The Operating Rules and Procedures provide for an appeals process should an application for participation be rejected or a participant's access be terminated.

Under the Code of Practice, ASX has committed to providing transparent and non-discriminatory terms of access to ASX Settlement's cash equity settlement services, including to participants, AMOs and ALMOs.

At the end of June 2016, ASX Settlement had 89 participants. A further 6 participants were active as temporary specialist settlement participants set up to effect corporate actions.

15.2 A securities settlement facility's participation requirements should be justified in terms of the safety of the securities settlement facility and the markets it serves, be tailored to and commensurate with the securities settlement facility's specific risks, and be publicly disclosed. Subject to maintaining acceptable risk control standards, a securities settlement facility should endeavour to set requirements that have the least restrictive impact on access that circumstances permit.

ASX Settlement's participation requirements are designed to promote the safety and integrity of the SSF. A settlement participant must post a settlement bond of $500,000, unless: it is subject to prudential supervision as an ADI; is required to comply with financial requirements under the Operating Rules of an approved clearing facility or an AMO; is a CS facility that complies with the FSS; or only acts as a Participant Bidder in a takeover. In addition, a sponsoring participant (i.e. a participant that also acts in ASX Settlement on behalf of non-participants) that is not covered by the National Guarantee Fund compensation arrangements (under the Corporations Act) must post a sponsorship bond of $500,000.

Performance and sponsorship bonds must be issued by an Australian bank or appropriately regulated insurance company. Funds held under a performance bond may be drawn upon by ASX Settlement when deemed appropriate under the ASX Settlement rules. In a similar vein, funds held under a sponsorship bond would be drawn upon to meet any losses suffered by ASX Settlement, an issuer, or a holder sponsored by an ASX Settlement participant arising from a breach of the Operating Rules or other offence committed by the participant.

Under the Operating Rules and Procedures, a potential participant must satisfy ASX Settlement that it has the resources and processes in place to comply with its obligations as a participant. For these purposes, ‘resources’ include financial, technological and human resources, and ‘processes’ include management supervision, training, compliance, risk management, business continuity and disaster recovery processes.

15.3 A securities settlement facility should monitor compliance with its participation requirements on an ongoing basis and have clearly defined and publicly disclosed procedures for facilitating the suspension and orderly exit of a participant that breaches, or no longer meets, the participation requirements.

ASX Settlement's arrangements for monitoring and enforcing compliance with its Operating Rules are published on the ASX public website. Under these arrangements, ASX Settlement has wide-ranging powers to sanction its participants in order to preserve the integrity of the SSF. ASX Settlement may restrict, suspend or terminate a participant's access to the facility in the event of ‘non-compliance’, which includes failure to comply with participation requirements (see SSF Standard 11.1). The action taken in the event of a breach will depend on a number of factors, including the participant's history of compliance and whether the breach implies negligence, incompetence or dishonesty. Where a breach has been identified and the participant has taken appropriate steps to rectify it, ASX Settlement will typically continue to monitor the participant closely for a period of time. Breaches are also referred to ASIC and, in most cases, are investigated by ASX Compliance for formal disciplinary action.

ASX Settlement levies fees on participants that fail to meet securities delivery obligations on the scheduled settlement date (see SSF Standard 10.2). The fee is 0.1 per cent of the value of the settlement obligation, but with a minimum and maximum fee of $100 and $5 000, respectively. Participants are also required to close out any positions remaining unsettled two days after the scheduled settlement date (i.e. on the fourth day after the trade date). ASX Settlement also routinely benchmarks participants' settlement performance. Under this regime, a participant receives a ranking of its settlement performance (based on the value of its trades that have failed to settle) against its market group peers. In addition, under its Operating Rules, ASX Settlement is able to impose monetary penalties of up to $1 million on participants that it deems to be in violation of the Operating Rules.