Assessment of ASX Clearing and Settlement Facilities C2. Financial Stability Standards for Securities Settlement Facilities

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.

Since Austraclear settles on a DvP Model 1 basis and does not assume credit risk as principal (see SSF Standard 4), it does not collect collateral from participants.

The Bank has therefore concluded that SSF Standard 5 and SSF Sub-standards 5.1 to 5.7 do not apply to ASX Settlement or Austraclear.