2015/16 Assessment of ASX Clearing and Settlement Facilities A2.2 Austraclear Standard 13: Custody and investment risks

A securities settlement facility should safeguard its own and its participants' assets and minimise the risk of loss on and delay in access to these assets. A securities settlement facility's investments should be in instruments with minimal credit, market and liquidity risks.

The assets of Austraclear are invested on its own behalf in cash or other high-quality liquid assets, which allow prompt access to its assets when required (SSF Standards 13.1, 13.2). Austraclear controls investment risk by limiting its approved counterparties to large Australian banks, and investing predominantly in cash (SSF Standard 13.4).

Austraclear's arrangements for managing custody and investment risks are described in further detail under the following sub-standards.

13.1 A securities settlement facility should hold its own and its participants' assets at supervised and regulated entities that have robust accounting practices, safekeeping procedures and internal controls that fully protect these assets.

Austraclear has funds from retained earnings that are invested in cash or other high-quality liquid assets; it does not use custodians to invest these funds (see SSF Standard 13.4).

ASX Collateral does not create custody risk for Austraclear. While the Collateral Manager has control over new collateral accounts for the purposes of submitting settlement instructions on behalf of service users, title of securities remains at all times with the service users.

Austraclear has custody of participants' securities deposited in the Austraclear system. For details of these custodial arrangements and arrangements to safeguard the integrity of securities held in Austraclear, see SSF Standard 9. Austraclear does not hold other assets of participants.

13.2 A securities settlement facility should have prompt access to its assets and the assets provided by participants, when required.

Under the terms of the Austraclear Investment Mandate, funds held by Austraclear must be invested with large Australian banks in highly liquid assets (see SSF Standard 13.4). Austraclear does not use custodians to hold its assets or participants' assets. These arrangements aim to ensure that Austraclear has prompt access to its assets when required.

13.3 A securities settlement facility should evaluate and understand its exposures to its custodians, taking into account the full scope of its relationships with each.

Austraclear does not use custodians to hold its assets or the assets provided by participants.

13.4 A securities settlement facility'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.

Austraclear is exposed to investment risk on funds from contributions and retained earnings. These funds, currently around $10 million, are small relative to the total funds held by ASX Limited at the group level to cover general business risk and are invested predominantly in cash. The Investment Mandate for Austraclear funds requires that liquidity be maintained so that it can meet its liabilities in a timely fashion. Investment products are limited to a small set of low risk and highly liquid AUD-denominated products – cash, bank bills or certificates of deposit – with large Australian banks as counterparties. Hard limits are set on maximum instrument maturity (185 days) and weighted average maturity (60 days).