| Purpose |
In accordance with its responsibilities under the Corporations Act 2001,
the Reserve Bank of Australia (the Bank) presents its annual Assessment of the
ASX clearing and settlement (CS) facilities. ASX operates four CS facilities:
two central counterparties (CCPs) – ASX Clear Pty Limited and ASX Clear
(Futures) Pty Limited – and two securities settlement facilities
(SSFs) – ASX Settlement Pty Limited and Austraclear Pty Limited. The
report details the CCPs' and SSFs' compliance with the Bank's Financial
Stability Standards for Central Counterparties (CCP Standards) and Financial
Stability Standards for Securities Settlement Facilities (SSF
Standards) (together, the Financial Stability Standards or FSS), respectively,
as well as the facilities' more general obligation to do all other things
necessary to reduce systemic risk. The assessment is as at the end of June;
however, where relevant, developments after this time are discussed.
|
| Conclusion |
It is the Bank's assessment that, except for ASX Clear (Futures), the ASX CS
facilities ‘observed’ all relevant requirements under the FSS as at
30 June and ASX Clear (Futures) ‘observed’ or ‘broadly
observed’ all relevant requirements in the FSS. The Bank therefore
concludes that the ASX CS facilities have conducted their affairs in a manner
that causes or promotes overall stability in the Australian financial system.
|
| Progress towards previous priorities |
ASX has made material progress against the Bank's regulatory priorities
identified in its September 2016 Assessment report:
- Investment risk. From 1 July 2017, the CCPs have limited
unsecured exposures to non-government counterparties in their investment
portfolio to the level of capital set aside for general business risk
losses ($75 million). The CCPs have also modified their investment
policy to restrict the assets eligible to meet their minimum liquid
resource requirement to government/semi-government securities or cash.
- Liquidity risk management. The CCPs have refined and expanded
their liquidity-specific stress testing framework. This framework now
considers foreign currency liquidity exposures in ASX Clear (Futures).
It has also more clearly defined the strategy for covering exposures in
the cash market. Both CCPs have now clearly defined the process they
would follow if a breach of their liquidity targets were to occur.
- Default management. The SSFs have significantly enhanced the
documentation supporting their Default Management and Recovery Framework
(DMRF), and ASX has published additional information on particular
aspects of the CS facilities frameworks.
The CCPs have also made some enhancements to their fire drills, and
further enhancements are planned in the coming assessment period.
- Cyber resilience. The Bank conducted a detailed assessment of
the CS facilities against the governance chapter of Guidance on
cyber resilience for financial market infrastructures (Cyber
Guidance), which was jointly published by the Committee on Payments and
Market Infrastructures (CPMI) and International Organization of
Securities Commissions (IOSCO). The results of this assessment have been
shared with ASX. The facilities have initiated an external review of
their cyber resilience arrangements against industry standards and plan
to conduct a self-assessment against the remaining chapters of the
guidance by November 2017. ASX has also developed a plan to improve the
CS facilities' capabilities to recover from a cyber attack.
|
Other
material
developments |
Other material developments relevant to the supervision of the ASX CS facilities
that occurred during the assessment period include:
- Operational risk review. In light of a recent series of
significant operational incidents, ASX is undertaking an external review
of its operational and technological risk management arrangements,
including those of its CS facilities.
- Clearing House Electronic Sub-register System (CHESS)
replacement. ASX continued its development work on a project to
replace CHESS, the clearing and settlement system that supports the cash
equities market. ASX is currently considering the use of a system using
distributed ledger technology (DLT) and intends to make a decision as to
whether to proceed with a DLT solution at the end of 2017.
- Risk management systems enhancements. ASX has modified and
reprioritised certain aspects of its technology transformation program.
Rather than developing a new risk management system for the CCPs, ASX
will instead be making incremental enhancements to the CCPs'
existing risk management systems as part of a five-year plan to be
developed over the next assessment period.
|
| Priorities for the next assessment period |
The Assessment includes recommendations for the ASX CS facilities to either
observe or continue to observe the requirements under particular FSS. These
recommendations relate to:
- the management of exposures during the ASX Clear (Futures) Night
Session
- the analytical basis for the CCPs' margin period of risk (MPOR)
assumptions
- the management of liquidity and concentration risk in the CCPs'
margin models for exchange-traded derivatives
- the addition of a second default broker in ASX Clear
- the analysis of the CCPs' credit stress test scenarios, models and
underlying parameters and assumptions
- the frequency of external validations of the CCPs' risk models.
The Assessment also identifies areas that will be an important part of the Bank's
supervisory engagement with ASX over the next assessment period. These relate to
work ASX has underway to strengthen the facilities' risk management
arrangements, developments in international standards, and regulatory priorities
that carry over from previous Assessments, and include:
- recently issued guidance from CPMI and IOSCO, the Resilience of
Central Counterparties: Further guidance on the Principles for financial
market infrastructures (CCP Resilience Guidance)
- the reviews of the CS facilities' cyber resilience arrangements
- the project to replace CHESS
- the external review of ASX's operational risk management
arrangements.
|
