Assessment of ASX Clearing and Settlement Facilities List of tables

Fully addressed.

In February 2018 ASX amended its Model Validation Standard to ensure that the frequency of independent validations of its credit risk models aligns with the CCP Standards.

Fully addressed.

In July 2017 ASX recommenced monthly reverse stress testing using a modified approach that involves scaling up a selection of existing stress test scenarios, as well as considering the impact of the simultaneous default of its largest three and four participant groups. Combined with monthly review of market conditions this allows for comprehensive and thorough analysis of ASX's credit stress test scenarios, models and underlying parameters and assumptions.

Partly addressed.

ASX Clear (Futures) has mostly addressed the first part of this recommendation by introducing a 2.00 am initial margin call from certain Futures and OTC participants, supplemented by a requirement for participants to maintain a margin buffer to cover potential variation margin exposures created in the overnight session. ASX Clear (Futures) has set out a process for reviewing and resizing the buffer but is yet to implement this.

ASX Clear (Futures) has also made progress on developing the capability to monitor and manage intraday exposures (including in the ASX 24 Night Session) in near real time, and is targeting a go-live date for near real-time monitoring capabilities for ASX Clear (Futures) in December 2018.

Fully addressed.

The ASX CCPs have conducted and documented analysis of the MPOR assumptions used in their initial margin models for all products. As a result of this analysis, ASX Clear (Futures) has extended the MPOR for electricity derivatives from two days to three days, and ASX Clear is extending the MPOR for certain cash market products from one day to two days.

Partly addressed.

ASX Clear (Futures) completed a holistic review of its approach to calibrating initial margin for products margined using the CME SPAN model, developing plans to scale up margin requirements for larger portfolios based on estimated liquidation costs.

The Bank will continue to engage with ASX on the implementation of its amended margining arrangements for products margined using CME SPAN at ASX Clear (Futures), as well as its approach to liquidity add-ons at ASX Clear.

Fully addressed.

ASX Clear has implemented rule changes which allow it to select at least three participants from a pool of eligible default brokers to serve as active default brokers for a two-year period. ASX Clear now has four active default brokers and expects to appoint additional default brokers during the next assessment period.

Governance. The ASX CS facilities should take the following steps to strengthen their governance arrangements in line with the FSS and consistent with the CCP Resilience Guidance:

• as part of ASX's Building Stronger Foundations program, the facilities should implement plans to more clearly define their risk appetite and embed this in business processes and decision-making throughout the organisation
• as part of ASX's Building Stronger Foundations program, the facilities should implement plans to clarify responsibilities under ASX's three lines of defence model, improve first line risk ownership and increase resourcing for the second line risk function
• ASX Clear and ASX Clear (Futures) should ensure that roles and processes in relation to the governance of financial risk management are appropriately formalised and documented in order to ensure that the CS Boards have sufficient information to effectively oversee the ASX CCPs
• ASX Clear and ASX Clear (Futures) should ensure that their arrangements for disclosure to, and soliciting feedback from, stakeholders cover all relevant aspects of the CCPs' risk management frameworks, including margin sensitivity analysis, reverse stress testing and management of procyclicality.

For more information, see sections 3 and 4.

Intraday exposures. ASX should introduce a process for ongoing review and resizing of its margin buffer to cover potential variation margin exposures created during ASX 24's Night Session.

By 30 June 2020, ASX Clear (Futures) should put in place arrangements to be able to monitor and manage intraday exposures created during ASX 24's Night Session on a near real-time basis, or take other steps to ensure comprehensive management of intraday exposures created during ASX 24's Night Session.

For more information, see section 2.1.2.

CCP Resilience Guidance. To align financial risk management practices with the CCP Resilience Guidance the ASX CCPs should implement plans to:

• enhance the comprehensiveness of stress testing to ensure risks are appropriately identified, captured and stressed
• enhance analysis and justification of assumptions used in stress testing models so that risks are adequately captured
• remove assumptions made by ASX Clear that customer positions will be able to be ported and that excess collateral will not be withdrawn or decreased during periods of stress to more accurately reflect the extreme but plausible conditions appropriate for stress testing.

For more information, see section 4.

Liquidity add-ons. ASX Clear and ASX Clear (Futures) should complete the implementation of add-ons to manage liquidity risk for cash market products and products margined using the CME SPAN model.

For more information, see section 2.1.2.

Operational risk management. The ASX CS facilities should implement plans under ASX's Building Stronger Foundations program to:

• consolidate and develop a consistent enterprise-wide view of systems, policies, procedures and controls to identify, monitor and manage operational risks
• improve systems and processes supporting change management and incident management
• enhance knowledge management and embed additional resource in order to reduce reliance on key individuals.

For more information, see section 3.

CCP Resilience Guidance. Implementation of ASX's plans to address gaps against the CCP Resilience Guidance that are minor but indicative of good practice in financial risk management, and consideration of how to take into account other minor gaps that ASX does not currently have specific plans to address.

For more information, see section 4.

Risk system enhancements. The implementation of ASX's longer-term plans to improve its CCP risk systems.

For more information, see section 2.1.3.

Liquid resources. The review of the adequacy of liquid resources held by the ASX CCPs, as part of the ASX CCPs' annual default fund reviews.

For more information, see section 2.1.4.

CHESS replacement. The development of the new clearing and settlement system for cash market transactions, including how the new system aligns with the requirements in the FSS, and the clarity, effectiveness and documentation of default management processes.

For more information, see section 2.3.1.

Cyber resilience. Continued enhancement of ASX's cyber resilience via:

• the implementation of actions identified in ASX's Cyber Strategy roadmap
• ASX's evaluation of current and emerging technology that could lead to further enhancements to the abilities of ASX to recover from cyber attacks in a timely manner.

For more information, see section 2.3.4.