Assessment of ASX Clearing and Settlement Facilities Appendix A: 2020 Areas of Supervisory Focus

Table 7: Summary of Progress Against 2020 Areas of Supervisory Focus
Development Standard Facility Actions
Special topic
Governance special topic. The Bank will carry out a special topic assessment of the ASX CS facilities' governance, with a secondary focus on the facilities' framework for the comprehensive management of risks and their arrangements for identifying, monitoring and managing general business risk. CCP Standards 2, 3 and 14, SSF Standards 2, 3 and 12 All facilities The Bank's special topic assessments of the ASX CS facilities' governance and their framework for the comprehensive management of risks are presented in Section 4. The assessment of the facilities' approach to general business risk has been deferred.

Default management and recovery. The Bank will discuss with ASX the establishment of a work plan to enhance its default management and recovery frameworks, taking into account potential gaps identified in the special topic assessment. These include:

  • a review of the legal certainty of arrangements for ASX Limited to replenish ASX contributions to the CCPs' default funds
  • the implementation of planned enhancements to fire drills, lessons learned from the Nasdaq Clearing default and benchmarking to the Committee on Payments and Market Infrastructures-International Organization of Securities Commissions (CPMI-IOSCO) paper on Central Counterparty default management auctions – Issues for consideration
  • the continued enhancement of its recovery plan via benchmarking it to the CPMI-IOSCO Recovery of financial market infrastructures – Revised report and updating it for the gaps identified
  • the implementation of enhancements to the default management framework including more frequent audits, an updated approach to default loss estimates and improved documentation.
CCP Standards 12, 2, 3, 4, 7 and 14, SSF Standards 11, 2 and 3 All facilities

The review of the legal certainty of arrangements for ASX Limited to replenish contributions to the ASX CCPs' default funds will be progressed alongside the review of the ASX Group support agreement.

ASX will perform a gap analysis against the CPMI-IOSCO paper on default management auctions by September 2021.

ASX will perform a gap analysis against the CPMI-IOSCO guidance on recovery of financial market infrastructures by December 2021.

ASX has developed and documented an updated approach to determining default loss estimates. ASX has set a three to five year frequency for audits of the default management framework. See section 2.3.3.

Review of Planned Work
Legal basis. Completion of work to enhance, formalise and document business-as-usual (BAU) controls for legal risks. CCP Standard 1 and SSF Standard 1 All facilities ASX has updated documentation of its BAU controls for legal risks, see section 2.5.
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. CCP Standards 2, 4, 5, 6, 7 and 15 Both CCPs The CCPs continue to implement a multi-year work program to address identified gaps against the CCP Resilience Guidance, see Box A.

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

  • the implementation of actions identified in ASX's Cyber Strategy
  • 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.
CCP Standard 16, SSF Standard 14 All facilities ASX has progressed work to implement actions set out in its Cyber Strategy roadmap. Work to evaluate technology that could further enhance recovery capabilities is ongoing, see section 2.1.5.
Other
Stress test severity. The Bank will continue to discuss with ASX whether its CCP stress test scenarios are appropriately calibrated to cover losses in ‘extreme but plausible’ market conditions. CCP Standard 4, 7 Both CCPs ASX has introduced four new stress test scenarios and consulted with participants on the boundary of ‘extreme but plausible’, see section 2.2.1.
Collateral concentration limits. The Bank will discuss with ASX Clear its conclusion that it is not necessary to impose concentration limits for equity collateral. CCP Standard 5 ASX Clear ASX has enhanced its monitoring of concentration in security collateral and plans to introduce haircuts to disincentivise concentrated collateral holdings, see section 2.2.1.
ASX Group support agreement. The Bank will conduct a broader review of the ASX Group Support Agreement, covering aspects outside the scope of the 2018/19 special topic assessment of the CS facilities' legal basis. CCP Standard 14 and SSF Standard 12 All facilities The Bank will commence this review once any changes to the ASX Group Support Agreement necessary to support the revised arrangements for CS facility business, operational and investment risk capital have been made, see section 2.5.