Assessment of ASX Clearing and Settlement Facilities List of tables

Chapters

Table 1: Summary of Progress against 2017 Recommendations to Observe or Continue Observing the FSS

Table 2: Ratings of FSS Observance(a),(b)

Table 3: Recommendations to Observe or Continue Observing the FSS

Table 4: Supervisory Focus

Table 5: ASX CCP Initial Margin Models

Table 6: Summary of Progress against 2017 Areas of Supervisory Focus

Table 7: ASX CS Facility System Availability and Usage Statistics for 2017/18

Table 1: Summary of Progress against 2017 Recommendations to Observe or Continue Observing the FSS
Recommendation Standard Facility Actions
Risk model validation. The ASX CCPs should review the frequency of the independent validation of their credit risk models to ensure that they align with the CCP Standards. CCP Standard 4 Both CCPs

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.

Analysis of credit stress testing. The ASX CCPs should ensure that they perform comprehensive and thorough analysis of their credit stress test scenarios, models and underlying parameters and assumptions on at least a monthly basis.

CCP Standard 4 Both CCPs

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.

Intraday exposures. By the end of 2017, ASX Clear (Futures) should implement its plans to introduce a scheduled intraday margin call during ASX 24's Night Session to improve its management of intraday exposures created during this 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.

CCP Standard 6 ASX Clear (Futures)

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.

Margin period of risk. ASX Clear and ASX Clear (Futures) should conduct and document analysis of the MPOR assumptions used in their initial margin models for all products, and review these assumptions in light of this analysis. CCP Standard 6 Both CCPs

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.

Liquidity risk. ASX Clear and ASX Clear (Futures) should complete the implementation of add-ons to manage liquidity risk for cash equities and products margined using the Chicago Mercantile Exchange Standard Portfolio Analysis of Risk (CME SPAN) model. CCP Standard 6 Both CCPs

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.

Default broker. ASX Clear should implement its plans to secure an additional default broker. CCP Standard 12 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.

Table 2: Ratings of FSS Observance(a),(b)
Standard ASX Clear ASX Clear (Futures) ASX Settlement Austraclear
CCP and SSF Standard 1: Legal Basis Observed (→) Observed (→) Observed (→) Observed (→)
CCP and SSF Standard 2: Governance Broadly observed (↓) Broadly observed (↓) Broadly observed (↓) Broadly observed (↓)
CCP and SSF Standard 3: Framework for the Comprehensive Management of Risks Observed (→) Observed (→) Observed (→) Observed (→)
CCP and SSF Standard 4: Credit Risk Broadly observed (↓) Broadly observed (↓) N/A N/A
CCP and SSF Standard 5: Collateral Observed (→) Observed (→) N/A N/A
CCP Standard 6: Margin Observed (→) Broadly observed (→) --- ---
CCP Standard 7 and SSF Standard 6: Liquidity Risk Broadly observed (↓) Broadly observed (↓) Observed (→) Observed (→)
CCP Standard 8 and SSF Standard 7: Settlement Finality Observed (→) Observed (→) Observed (→) Observed (→)
CCP Standard 9 and SSF Standard 8: Money Settlements Observed (→) Observed (→) Observed (→) Observed (→)
SSF Standard 9: Central Securities Depositories --- --- Observed (→) Observed (→)
CCP Standard 10: Physical Deliveries N/A Observed (→) --- ---
SSF Standard 10: Exchange-of-value Settlement Systems --- --- Observed (→) Observed (→)
CCP Standard 11: Exchange-of-value Settlements Observed (→) Observed (→) --- ---
CCP Standard 12 and SSF Standard 11: Participant Default Rules and Procedures Observed (→) Observed (→) Observed (→) Observed (→)
CCP Standard 13: Segregation and Portability Observed (→) Observed (→) --- ---
CCP Standard 14 and SSF Standard 12: General Business Risk Observed (→) Observed (→) Observed (→) Observed (→)
CCP Standard 15 and SSF Standard 13: Custody and Investment Risks Observed (→) Observed (→) N/A Observed (→)
CCP Standard 16 and SSF Standard 14: Operational Risk Partly observed (↓↓) Partly observed (↓↓) Partly observed (↓↓) Partly observed (↓↓)
CCP Standard 17 and SSF Standard 15: Access and Participation Requirements Observed (→) Observed (→) Observed (→) Observed (→)
CCP Standard 18 and SSF Standard 16: Tiered Participation Arrangements Observed (→) Observed (→) Observed (→) Observed (→)
CCP Standard 19 and SSF Standard 17: FMI Links Observed (→) Observed (→) Observed (→) Observed (→)
CCP Standard 20 and SSF Standard 18: Disclosure of Rules, Key Policies and Procedures, and Market Data Observed (→) Observed (→) Observed (→) Observed (→)
CCP Standard 21 and SSF Standard 19: Regulatory Reporting Observed (→) Observed (→) Observed (→) Observed (→)

(a) The arrows in brackets indicate the change in ratings from last year: a horizontal arrow indicates no change; a single vertical up arrow indicates a single upgrade (e.g. from ‘broadly observed’ to ‘observed’); a single vertical down arrow indicates a single downgrade (e.g. from ‘observed’ to ‘broadly observed’); and a double vertical down arrow indicates a downgrade by two grades (e.g. from ‘observed’ to ‘partly observed’). Green text is used for upgraded ratings and red text for downgraded ratings.
(b) ‘N/A’ means that the Bank has determined that the standard is not applicable to the ASX facility; ‘---’ means that an equivalent standard does not exist for the type of facility (e.g. for CCP Standard 6, there is no equivalent standard for SSFs).

Table 3: Recommendations to Observe or Continue Observing the FSS
Recommendation Standard Facility

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.

CCP and SSF Standard 2 All facilities

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 Standard 6 ASX Clear (Futures)

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.

CCP Standards 4 and 7 Both CCPs

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.

CCP Standard 6 Both CCPs

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 Standard 16,
SSF Standard 14
All facilities
Table 4: Supervisory Focus
Development Standard Facility
Special topic
Legal basis special topic. The Bank will carry out a special topic assessment of the ASX CS facilities' legal basis, with a secondary focus on the facilities' arrangements for settlement finality and the ASX CCPs' segregation and portability arrangements. CCP Standards 1, 8 and 13, SSF Standards 1 and 7 All facilities
Planned work by the ASX CS facilities

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.

CCP Standards 2, 4, 5, 6, 7 and 15 Both CCPs

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.

CCP Standards 4, 5, 6 and 7 Both CCPs

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.

CCP Standard 7 Both CCPs

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.

CCP Standard 14 ASX Clear and ASX Settlement

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.

CCP Standard 16, SSF Standard 14 All facilities
Table 5: ASX CCP Initial Margin Models
Product CCP Model
Exchange-traded derivatives Both CME SPAN
OTC IRDs ASX Clear (Futures) Filtered historical simulation value at risk
Cash market products ASX Clear Historical simulation value at risk (for equities in the All Ordinaries Index with at least two years of price history)
Flat rates (for all other products)
Table 6: Summary of Progress against 2017 Areas of Supervisory Focus
Development Standard Facility Actions
Developments in International Standards
CCP Resilience Guidance. The alignment of the CCPs' risk management arrangements with the new CPMI-IOSCO Resilience Guidance. CCP Standards 2, 3, 4, 5, 6, 7 and 14 Both CCPs The Bank performed an assessment of the ASX CCPs against the Resilience Guidance, which forms the special topic of this assessment. For more information, see section 4.
Updated FMI Recovery Report. The alignment of the facilities' recovery planning arrangements with the revised CPMI-IOSCO guidance on recovery. CCP Standards 3, 4 7 and 14, SSF Standards 3, 4, 6 and 12 All facilities The Bank performed an assessment of the ASX CCPs against the updated elements of the guidance on recovery. For more information, see section 2.2.2.
Cyber resilience. The CS facilities' self-assessment against the CPMI-IOSCO Cyber Guidance and the implementation of the facilities' concrete plans to improve their capabilities to recover from a cyber attack. CCP Standard 16, SSF Standard 14 All facilities The Bank has assessed ASX against the Cyber Resilience Guidance, drawing on a self-assessment by ASX against the guidance and an external assessment of ASX against industry standards. For more information, see section 2.3.4.
Review of Planned Work
Risk system enhancements. The ASX CCPs' progress in developing and implementing their short-term risk system enhancements over the next assessment period, as well as the development of ASX's five-year plan to improve its risk systems. CCP Standards 4, 5, 6 and 7 Both CCPs ASX has continued to make incremental enhancements to its risk management systems as part of a longer-term plan to improve its risk systems. For more information, see section 2.1.3.
Settlement prices. The ASX CCPs' consultation with their participants on the determination of settlement prices during an outage of ASX Trade and ASX 24. CCP Standard 6 Both CCPs ASX completed its consultation in respect of ASX Clear, and concluded that it would continue to use its current methodology in both CCPs, supported by improved documentation of procedures and greater transparency on how it would determine prices in the event of a market disruption. For more information, see section 2.1.2.

Margin model sensitivity analysis. The implementation of the CCPs' new sensitivity analysis framework, and the expansion of the product scope covered by the analysis.

CCP Standard 6 Both CCPs ASX implemented its new sensitivity analysis framework in September 2017 for exchange-traded and OTC derivatives, and December 2017 for cash market products. For more information, see section 2.1.2.
Default management. The CS facilities' plans to enhance their default management fire drills, including the introduction of SSF-specific fire drills. CCP Standard 12, SSF Standard 11 All facilities ASX conducted a SSF-specific fire drill, and made enhancements to broaden the scope and increase the complexity of its CCP fire drills to test the flow-on effects of a participant default. For more information, see section 2.2.1.
Operational risk review. The external review of the CS facilities' operational risk management arrangements and ASX's response to the findings of the review. CCP Standard 16, SSF Standard 14 All facilities ASX has commissioned a multi-year project to address the findings of KPMG's external review of ASX's technology governance and operational risk frameworks. The Bank and ASIC have engaged with both ASX and KPMG on the review findings and ASX's response. For more information, see section 3.
CHESS replacement. The development of the new clearing and settlement system for cash securities transactions, including: how the new system aligns with the requirements in the FSS; the clarity, effectiveness and documentation of the default management processes; contingency plans regarding the replacement of CHESS should the decision be taken not to proceed with a DLT solution. CCP Standard 14 ASX Clear and ASX Settlement The Bank has continued engagement with ASX on its CHESS replacement project. ASX has confirmed that it will proceed with a DLT-based platform to replace CHESS, and has conducted a consultation on the business requirements for the new platform. For more information, see section 2.3.1.
Table 7: ASX CS Facility System Availability and Usage Statistics for 2017/18
Facility Core system Availability (per cent) Peak usage (per cent) Average usage (per cent)
ASX Clear Derivatives Clearing System 100 18 7
ASX Clear / ASX Settlement CHESS 99.99 39 24
ASX Clear (Futures) Genium 100 27 9
ASX Clear (Futures) Calypso 100 49 44
Austraclear EXIGO 99.98 45 28