Assessment of ASX Clearing and Settlement Facilities Appendix B: Background Information

B.1 ASX group structure and governance

There are two types of CS facilities operated by the ASX Group:

• CCPs. A CCP acts as the buyer to every seller, and the seller to every buyer in a market. It does so by interposing itself as the legal counterparty to all purchases and sales via a process known as novation. These arrangements provide substantial benefits to participants in terms of counterparty risk management as well as greater opportunities for netting of obligations. At the same time, however, they result in a significant concentration of risk in the CCP. This risk can crystallise if a participant defaults on its obligations to the CCP, since the CCP must continue to meet its obligations to all of the non-defaulting participants. The ASX CCPs manage this risk in a number of ways, including through participation requirements, margin collection, the maintenance of pooled resources and loss allocation arrangements (see Appendix B.3).
• SSFs. An SSF provides for the final settlement of securities transactions. Settlement involves transfer of the title to the security, as well as the transfer of cash. These functions are linked via appropriate DvP arrangements incorporated within the settlement process.

The ASX Group operates two CCPs and two SSFs:

• ASX Clear Pty Limited provides CCP services for ASX-quoted cash equities, debt products and warrants traded on the ASX and Chi-X markets, equity-related derivatives traded on the ASX market, Chi-X-quoted warrants, Transferable Custody Receipts and funds traded on Chi-X, and National Stock Exchange of Australia Pty Ltd (NSXA) quoted securities traded on the NSXA market. The provision of CCP services for Chi-X and NSXA is provided under the Trade Acceptance Service (TAS), which allows ASX Clear to act as a CCP for trades executed on Approved Market Operator (AMO) platforms in accordance with the ASX Clear Operating Rules and Procedures.
• ASX Clear (Futures) Pty Limited provides CCP services for futures and options on interest rate, equity, energy and commodity products traded on the ASX 24 market, as well as AUD and NZD-denominated OTC interest rate derivatives (IRD).^[31]
• ASX Settlement Pty Limited provides SSF services for ASX-listed cash equities, debt products and warrants traded on the ASX and Chi-X markets. The provision of SSF services for Chi-X is provided under the TAS. Under the Settlement Facilitation Service, ASX Settlement provides DvP settlement services for transactions in non-ASX-listed securities undertaken on trading platforms operated by Approved Listing Market Operators; these include NSXA and the Sydney Stock Exchange Limited. ASX Settlement also provides for subscriptions and redemptions in unlisted managed funds through the mFund Settlement Service.
• Austraclear Limited provides settlement and depository services for debt securities, including government bonds. It also provides settlement services for derivatives traded on the ASX 24 market and for margin payments in ASX Clear and ASX Clear (Futures).

Each of the ASX facilities holds a CS facility licence, and each CCP and SSF is required under the Corporations Act to comply with the relevant FSS determined by the Bank (i.e. the CCP Standards and SSF Standards, respectively) and to do all other things necessary to reduce systemic risk (see Appendix B.2).

In the ASX corporate structure, the two CCPs – ASX Clear and ASX Clear (Futures) – are subsidiaries of ASX Clearing Corporation Limited (ASXCC). ASXCC is the holding company for the two CCPs and manages the financial resources that the CCPs would use in the event of a default. It invests these resources according to a treasury investment policy and investment mandate approved by the CS Boards. The two SSFs – ASX Settlement and Austraclear – are subsidiaries of ASX Settlement Corporation Limited. ASXCC and ASX Settlement Corporation Limited are in turn subsidiaries of the ASX Group's parent entity, ASX Limited. ASX Limited is the licensed operator of the ASX market, which provides a trading platform for ASX-quoted securities and equity derivatives. Another subsidiary, Australian Securities Exchange Limited, is the licensed operator of the ASX 24 market, an exchange for futures products.

The CRO, who heads the Risk group, is responsible for providing executive oversight of ASX's Clearing Risk Policy and Settlement Risk Policy Framework, which document the formal structure for the development, governance and review of policy and standards for the CCPs and SSFs (refer section 4.2).

During the assessment period, the Chief Operating Officer (COO) was responsible for providing executive oversight of the frontline management of risks under ASX's Settlement Risk Policy Framework.^[32] The COO was also responsible for the delivery of overall operations of the ASX Group and reported directly to the CEO, as did the CRO. Both the COO and CRO had a direct reporting line to the CS Boards and attended CS Board meetings.

The Risk and Operations groups contain a number of departments that play key roles in the management of risks faced by the CS facilities:

• Clearing Risk Quantification and Oversight (CRQO) is responsible for the development of clearing risk management systems, maintaining and validating CCP risk and pricing models and the oversight of clearing participant exposures. Clearing Risk Policy (CRP) develops and maintains CCP and SSF policies and standards.
• Counterparty Risk Assessment (CRA) monitors clearing participants adherence with the ASX CCPs capital rules and liquidity guidance and sets the Stress Test Exposure Limits (STELs) for clearing participants.
• Post Trade Operations implements SSF policies and standards, and maintains effective procedures for carrying out those policies and standards.
• Enterprise Risk is responsible for enterprise-wide risk management, including general business risk.
• Enterprise Compliance oversees CS facility compliance obligations, including providing compliance training for business areas, undertaking compliance reviews, and coordinating reporting to regulators.
• Participants Compliance assesses new applications from potential CS participants and monitors existing participants for adherence with the CS facilities' rules.
• Internal Audit conducts risk-based reviews of internal controls and procedures across ASX. Internal Audit reports to the Audit and Risk Committee, and to the CRO for administrative purposes only.

ASX has three main executive-level committees that support decisions related to the risk management of the CS facilities:

• The role of the Risk Committee is to advise the CRO on risk management decisions in the exercise of his or her delegated authority from the CEO.
• The Regulatory Committee manages the processes associated with the development and evolution of ASX policy related to the conduct and operations of the licensed entities in the ASX Group, including the CS facilities.
• The Technology, Operations and Security Committee (TOSC) was responsible for advising the members of the TOSC (including CEO, CIO, CRO, COO and the GM Technology Security and Governance) in the oversight of ASX's technology, operations and security strategies, and the investments that support these strategies. A sub-group of the committee meets as the Portfolio Governance Group, providing oversight of significant projects within the ASX Group.

ASX's Executive Committee operates in parallel to the three executive-level committees described above. The Executive Committee reports to the ASX Limited Board and CS Boards on strategic and business initiatives, non-risk-related frameworks and HR matters.

ASX also operates a number of other internal forums that bring together experts from departments across the group for the review or oversight of risk management at the CS facilities:

• The Risk Quantification Working Group (RQWG) is responsible for quantitative risk management matters, such as the review and application of quantitative risk policies and standards. It also reviews material changes to the Model Validation Framework, including in relation to the oversight of model governance and the outcomes and recommendations of regular reviews of margining and stress test models. The RQWG is chaired by the CRO.
• The Default Management and Recovery Working Group (DMRWG) provides oversight of the CCP's default management and recovery framework (DMRF). The DMRWG is chaired by the CRO.
• Credit Risk Working Group (CRWG) was established during 2020/21 to share information related to clearing participants including their capital, profitability, liquidity, market indicators of creditworthiness and STELs as well as the results of periodic/thematic reviews conducted by the CRA team. The CRWG also recommends the addition or removal of participants from the clearing participant watchlist. The CRWG is chaired by the CRO and includes representatives from the various teams in Clearing Risk and also Participants Compliance.
• The Participant Incident Response Group (PIRG) is responsible for monitoring and managing material participant incidents, including any non-compliance with participant obligations, settlement default, operational failure or an event which might result in the participant becoming an externally administered body corporate or an insolvent under administration and, in the case of a clearing participant, escalating potential default events to the DMC.
• The Technology Risk Working Group (TRWG) is responsible for the management of active and emerging technology risks, review of technology KRIs, tracking the closure of actions to mitigate risks and address audit findings, and the annual review of risk profiles, with the outcomes being reported to the TOSC. The TRWG is chaired by the Chief Information Officer and meets monthly.

In addition to the internal forums that ASX operates, the views of participants and other stakeholders are sought through external standing forums:

• The ASX Clear (Futures) Default Management Group (DMG) which is comprised of OTC participants and is consulted on aspects of the default management process.
• RCCs for both ASX Clear and ASX Clear (Futures), comprising participants from each CCP. The committees are consulted on material changes to default management processes, the margining methodology, the default fund, position and liquidity limits, participation criteria, and other changes affecting risk management practices or related rules.
• A Business Committee which acts as a stakeholder advisory body for ASX's cash market clearing and settlement services. The Committee is comprised of representatives of clearing participants, settlement participants, AMOs, share registries and a number of relevant industry associations.
• Advisory user groups for particular products and services (i.e. ETOs, interest rate derivatives and Austraclear), which are forums for participants to provide feedback on those products and services.

B.2 Regulatory environment

The Corporations Act establishes conditions for the licensing and operation of CS facilities in Australia and gives ASIC and the Bank powers and responsibilities relating to these facilities. These powers are exercised under the governance of ASIC's Commission and the Bank's Payments System Board, respectively. The regulators' roles are defined in the Corporations Act.

• The Bank is responsible for determining standards (the FSS) for the purposes of ensuring that CS facility licensees conduct their affairs in a way that causes or promotes overall stability in the Australian financial system. In addition, the Bank is responsible for assessing how well a licensee is complying with its obligation under the Corporations Act, to the extent that it is reasonably practicable to do so, to comply with these standards and do all other things necessary to reduce systemic risk.
• ASIC is responsible for assessing the extent to which CS facility licensees comply with all other obligations of a CS facility licensee arising under the Corporations Act, including the obligation, to the extent that it is reasonably practicable, to do all things necessary to ensure that the CS facility's services are provided in a fair and effective way.

The Bank has determined two sets of FSS relevant to its oversight of CS facilities: the CCP Standards and SSF Standards.

As licensees, the ASX CS facilities are required to provide the Bank with timely information on any material developments relevant to the services provided under its CS facility licence and its compliance with the FSS. The Bank also gathers information on the facilities through an open and ongoing dialogue with ASX staff, including through scheduled periodic meetings and ad hoc targeted meetings on specific topics.^[33] Based on the information gathered, the Bank undertakes regular assessments of the ASX CS facilities.

The ASX CCPs are recognised by the European Securities and Markets Authority (ESMA) as ‘third-country CCPs’. This allows the ASX CCPs to continue to provide clearing services to participants established in the European Union (see section 2.6.3 regarding the withdrawal of the UK from the EU). ASX Clear (Futures) was also granted an exemption from registration as a Derivatives Clearing Organization in the US. This exemption allows ASX Clear (Futures) to provide clearing services to US banks with respect to ‘proprietary’ swaps. The Bank and ASIC have established a memorandum of understanding (MoU) with each of ESMA and the US Commodity and Futures Trading Commission which, among other things, supports cross-border cooperation and information sharing. The Bank has also issued a supplementary interpretation of CCP Standards to facilitate the ASX CCPs' recognition in the EU (see Appendix C). The Swiss Financial Market Supervisory Authority (FINMA) also recognises ASX Clear (Futures) as a foreign central counterparty, which allows it to grant Swiss market participants supervised by FINMA direct access to its facilities as clearing participants.

The Bank has an MoU with the RBNZ which establishes cooperation arrangements relevant to ASX Clear (Futures)' activities in NZD-denominated products. ASX Clear (Futures) has been designated as a settlement system under the RBNZ Act (see section 2.6.3).

B.3 Risk management in the ASX central counterparties

CCPs are exposed to both credit and liquidity risks, primarily following the default of one or more participants. Credit risk is the risk that one or more counterparties will not fulfil their obligations to the CCP, resulting in a financial loss, while liquidity risk arises where the CCP is unable to meet its payments obligations at the time that they are due, even if it has the ability to do so in the future. ASX Clear and ASX Clear (Futures) manage the risks arising from a potential default in a number of ways, including through participation requirements, margin collection, the maintenance of prefunded pooled financial resources, recovery tools, and risk monitoring and compliance activities.

Participation requirements

Participants in each CCP must meet minimum capital requirements. While capital is only a proxy for the overall financial standing of a participant, minimum capital requirements offer comfort that a participant has adequate resources to withstand an unexpected shock, for example, arising from operational or risk-control failings.

• ASX Clear requires direct participants that clear cash market products or derivatives to maintain at least $5 million in capital. ‘General participants’, which are able to clear on behalf of third-party participants, are subject to tiered capital requirements. A general participant must maintain $5 million in capital to support its own clearing activity and $5 million to support each third-party clearing relationship, up to a maximum of $20 million. These base capital requirements are supplemented by additional capital requirements that are designed to account for the complexity of each participant's business model. The additional capital requirements reflect each participant's activities in own-account business, non-ASX client activity, and client-written ETO activity. ASX applies an additional capital requirement of $2.5 million or $5 million for material activity in each of these areas, depending on the level of materiality. The total core capital requirement is capped at $35 million if the maximum level of additional capital requirements applies.
• ASX Clear (Futures) requires participants that clear futures only to hold at least $5 million in net tangible assets (NTA). Participants using the OTC derivatives clearing service must meet a higher minimum NTA (or Tier 1 Capital) requirement of $50 million.

The CCPs also impose capital-based position limits (CBPLs) on participants' activity. Specifically, a participant's initial margin requirements cannot be more than three times the level of its liquid capital, NTA or Tier 1 Capital. Under certain conditions, banks and subsidiaries of banks or bank holding companies that are participants of ASX Clear (Futures) are not subject to a ratio-based limit. Rather, these institutions' initial margin liabilities are subject to a fixed $1.5 billion aggregate limit. If a participant exceeds its CBPL, it will be called for additional margin. ASX Clear also places requirements on participants to establish a formal liquidity risk management framework and prepare a 12-month liquidity plan.

Prefunded financial resources

The CCPs cover their credit and liquidity exposures to their participants by collecting margin and maintaining a fixed quantity of prefunded pooled resources. The CCPs collect several types of margin.

• Variation margin. Variation (or ‘mark-to-market’) margin is collected at least daily from participants with mark-to-market losses and – in the case of futures, OTC derivatives and cash market contracts – paid out to the participants with mark-to-market gains.
• Initial margin. Both CCPs routinely collect initial margin from participants to mitigate credit risk arising from potential changes in the market value of a defaulting participant's open positions between the last settlement of variation margin and the close-out of these positions by the CCP. The CCPs use statistical models to calculate initial margin, which vary by product type. To validate the adequacy of their initial margin models, the CCPs perform regular backtesting and sensitivity analysis.
• Additional initial margin (AIM). The CCPs may also make calls for AIM when exceptionally large or concentrated exposures are identified, including through stress tests, or when predefined position limits are exceeded.

In addition to end-of-day margin calls, the CCPs call margin on an intraday basis when exposures exceed predefined limits due to changes in market value and the opening of new positions. If triggered, intraday margin calls for both CCPs equal the total shortfall in initial and variation margin.^[34]

ASX requires that any variation and intraday margin shortfall be posted in cash, while initial margin may be posted in the form of cash or securities that ASX would be able to rapidly and reliably liquidate in the event of the participant's default. Specifically, ASX Clear accepts certain equity securities and exchange-traded funds as collateral, while ASX Clear (Futures) accepts certain Australian Government and semi-government securities, US Treasury Bills, as well as foreign currency denominated in EUR, GBP, JPY, NZD or USD. Participants may meet AIM obligations using AUD cash or non-cash collateral, including Australian Government and semi-government securities. ASX applies haircuts to non-cash and foreign currency collateral to cover market risk on the liquidation of those assets.

An average of 61 per cent of margin requirements in ASX Clear and 96 per cent of AUD-denominated margin requirements in ASX Clear (Futures) were met in cash during the assessment period. In ASX Clear, equity securities comprised the remaining collateral. In ASX Clear (Futures), approximately three per cent of total collateral was held in foreign currency on average in 2020/21, while four per cent was Australian Government and semi-government bonds. Some clients of participants in ASX Clear commonly post non-cash collateral in excess of margin requirements for equity derivatives. In 2020/21, on average, 74 per cent of the value of non-cash collateral posted against derivatives positions in ASX Clear was in excess of margin obligations.

The margin and other collateral posted by a participant would be drawn on first in the event of that participant's default.^[35] Should this prove insufficient to meet the CCP's obligations, the CCP may draw on a fixed quantity of prefunded pooled financial resources (referred to as the CCP's ‘default fund’; Graph 2).

• ASX Clear's default fund was $250 million over the assessment period. This comprised $178.5 million of own equity and $71.5 million paid into a restricted capital reserve from the National Guarantee Fund in 2005.
• ASX Clear (Futures)' default fund was $650 million over the assessment period. This included $450 million of ASX's own equity and $200 million of contributions from participants.

There were no changes to either CCP's default fund over 2020/21.

Credit stress tests

In order to assess the adequacy of its financial resources to cover its current and potential future credit exposures, the CCPs perform daily credit stress tests. These tests compare each CCP's available prefunded resources against the largest potential loss in the event of the joint default of two participants and their affiliates under a range of extreme but plausible scenarios (i.e. the Cover 2 requirement). The requirement for the ASX CCPs to have sufficient prefunded resources to meet Cover 2 reflects the Bank's supplementary interpretation of the FSS, under which both CCPs are deemed to be systemically important in multiple jurisdictions.

Neither ASX Clear (Futures) (Graph 3) or ASX Clear (Graph 4) experienced any days on which their credit stress test Cover 2 requirement exceeded their respective prefunded financial resources in 2020/21.

The ASX CCPs automatically call AIM, to be paid before 11:00 am the next day, when credit stress test results are in excess of STELs. The STELs are based on external agencies' credit ratings and ASX's internal creditworthiness model, with all STELs set at less than half of the total default fund of the relevant CCP. Not all of these STEL AIM calls are related to shortfalls in the Cover 2 requirement. During the assessment period, ASX Clear made STEL AIM calls on 65 days against four participants in total, with the largest totalling $86 million. ASX Clear (Futures) made STEL AIM calls on 162 days against six participants in total, with the largest call totalling $339 million.

Liquidity risk management

Credit exposures faced by the CCPs from a participant default also create liquidity exposures. The CCPs may also face additional default liquidity exposures in excess of their credit exposures, due to the timing of when payment obligations fall due. These additional exposures may be particularly large for ASX Clear, since it clears equity trades with delivery obligations. For example, if a participant with net equity purchase obligations were to default, ASX Clear's initial liquidity exposure would include the cost of settling the payment obligations of the defaulted participant. However, the CCP must wait two days for funds to become available from selling the purchased securities, due to the T+2 settlement cycle. By contrast, the CCP's credit exposure would be limited to the change in price in the securities between the defaulting participant's last variation margin payment and the time the CCP executes an offsetting securities trade. ASX Clear also faces liquidity exposures from its acceptance of equity collateral against derivatives positions. Specifically, if ASX Clear were to liquidate its equity collateral, it would likely have to wait two days to receive the proceeds of the sale.

The ASX CCPs perform daily liquidity stress tests to assess the adequacy of their available liquid resources to cover the largest potential liquidity exposure arising from the joint default of two participants and their affiliates under a range of extreme but plausible scenarios (Cover 2 liquidity target). The CCPs' liquidity stress test framework utilises the same market stress scenarios as the corresponding credit stress tests, but also takes into account additional, liquidity-specific risks.

While ASX Clear manages liquidity across both its cash market and derivatives products, it has defined a target minimum cash market liquidity ‘buffer’, which was sized at $130 million during the assessment period. Cover 2 cash market liquidity exposures regularly exceeded the buffer over 2020/21, in which case ASX Clear would have had to rely on offsetting transactions arrangements (OTAs, which are essentially liquidity commitments from its participants) to settle any exposures above the buffer. The buffer also implicitly defines a liquidity threshold for ASX Clear's derivatives-market exposures of $350 million. During the assessment period, liquidity exposures at both ASX Clear and ASX Clear (Futures) remained within their respective thresholds.

A liquidity stress test breach at either CCP will, depending on the number and magnitude of the breaches, result in an amber or red rating on ASX's KRIs. A breach of the KRIs will lead to a formal assessment of the breach by ASX management that is then presented to ASX's Clearing and Settlement Boards, including consideration of measures to address the breach. Potential responses to a breach could be to increase the CCPs' prefunded resources, or establish or increase the size of committed liquidity facilities.

Both ASX Clear and ASX Clear (Futures) also face liquidity risk from the reinvestment of pooled prefunded resources and the portion of margin posted by participants in the form of cash. These assets are reinvested and held by ASXCC, the holding company for the two CCPs, according to a defined investment policy and investment mandate. Liquidity risk arises since ASXCC would have to convert its assets into cash to meet any obligations arising from a participant default or for day-to-day liquidity requirements, such as the return of cash margin to participants. To mitigate investment liquidity risk, ASXCC's investment policy requires that a minimum portion of ASXCC's investments must be in liquid assets to meet its minimum liquidity requirements.

Recovery tools

In a highly unlikely scenario that involves more than two large participant defaults or market conditions that are beyond ‘extreme but plausible’, it is possible that prefunded or other liquid financial resources could be insufficient to fully absorb default-related losses or meet payment obligations. In such circumstances, the CCP may be left with an uncovered credit loss or liquidity shortfall. Each CCP's approach for allocating an uncovered credit loss or liquidity shortfall following a participant default relies on a number of tools:

• Recovery Assessments. The power to call for additional cash contributions from participants to meet uncovered losses and fund payment obligations, in proportion to each participant's exposures at the CCP before the default. Recovery Assessments are capped at $300 million in ASX Clear and $600 million in ASX Clear (Futures) (or $200 million for a single default).
• Variation margin gains haircutting. A tool, available to ASX Clear (Futures) only, allowing the CCP to reduce (haircut) outgoing variation margin payments to participants in order to allocate losses or a liquidity shortfall arising from a defaulting participant's portfolio. There is no cap on the use of this tool.
• Settlement payment haircutting. A reserve power that could be used in the context of complete termination to allocate losses or a liquidity shortfall if the above tools were insufficient. Complete termination would involve tearing up all open contracts at the CCP and settling them at their current market value. Any residual losses or liquidity obligations of the CCP could be allocated by haircutting settlement payments to participants. Use of this tool would have a highly disruptive effect on the markets served by the CCP, so would be considered only as a last resort.

In addition, ASX Clear can address a liquidity shortfall relating to the settlement of securities transactions via the use of OTAs with participants due to receive funds in the settlement batch. Both CCPs also have the power to restore a matched book (i.e. no market risk on its net positions) via partial or complete termination of contracts at their current market value if normal close-out processes cannot be carried out.

ASX has established a staged process for replenishment of the CCPs' default funds in the event that these were exhausted or partially drawn down following a participant default. At the end of a 22 business-day ‘cooling-off period’ following the management of a default, ASX Clear's and ASX Clear (Futures)' default funds would be replenished up to $150 million and $400 million, respectively.

B.4 Activity and participation

Central counterparties

Australian market conditions stabilised during the assessment period, with average volatility in products cleared by ASX CCPs declining to below long-term averages following the heightened volatility related to the onset of COVID-19 in 2019/20. Average volatility in equity prices (as measured by the 65-day moving average of daily absolute percentage changes in the S&P ASX All Ordinaries Index) decreased by 18 per cent to 79 basis points when compared to the previous year. Volatility in equity prices continued to trend downwards in 2020/21, falling below its long-term average towards the end of the period (Graph 5). While volatility in bond futures rose in early 2021 alongside similar trends in offshore markets, these increases were largely unwound towards the end of the assessment period. Volatility for key interest rate contracts was below long-term average levels at the end of the period, with volatility in 90-day bank bill and three-year Treasury bond futures around the lowest levels over the past decade owing to the Bank's three-year Australian Government bond yield target and expectations that the Bank's cash rate target will remain unchanged for some time (Graph 6).

Trading activity in both cash equities and ETOs gradually declined over 2020/21 (Graph 7). Despite the decline in trading activity, initial margin requirements in ASX Clear increased over 2020/21 due to margin rates on equities products increasing relative to the previous period.^[36] ASX Clear's total margin for ETOs rose by 7 per cent to an average of $1.1 billion over 2020/21 compared with 2019/20, while initial margin for cash equities trades rose by 64 per cent to an average of $439 million (Graph 8). ASX Clear's exposures to the cash equities market are much lower than for ETOs primarily because of the short duration of cash market trades at two days.

Exposures at ASX Clear (Futures) grew by 12 per cent to $9 billion on average, as measured by initial margin held (Graph 9). These exposures primarily arise from the four major contracts cleared – SPI 200 equity index futures, the three-year and 10-year Treasury bond futures and 90-day bank bill futures – which accounted for around 96 per cent of total transactions cleared at ASX Clear (Futures) in 2020/21.

Transaction volumes on ASX 24 experienced mixed growth in 2020/21, decreasing across the SPI 200 futures contracts, three-year Treasury bond futures and 90-day bank bill futures contracts, while increasing for the 10-year Treasury bond futures (Graph 10). The decline in trading volumes in the 90-day bank bill and three-year Treasury bond futures contracts is likely at least partly driven by the aforementioned fall in the volatility of these contracts to historically low levels.

The average daily value of AUD OTC IRDs cleared by ASX Clear (Futures) decreased by 58 per cent to $1.3 billion over the period as volatility in rates markets declined (Graph 11). The share of these products cleared by ASX Clear (Futures) decreased by two percentage points to an average of 12.2 per cent in 2020/21.

ASX Clear had 33 direct participants as at 30 June 2021. There were 20 direct clearing participants in ASX Clear (Futures).

Securities settlement facilities

The daily average value of cash equity settlements in ASX Settlement decreased by around six per cent to $11.5 billion in 2020/21. This is consistent with the decline in cash equities trading activity in the ASX market, although trends in net settlement values can deviate from trends in gross trading values, since the latter do not include non-market transactions and netting efficiency can change over time. The 2020/21 peak daily activity of $31 billion occurred in March, which was below the 2019/20 peak of $38 billion (see Graph 12).

In 2020/21, the average daily value of debt securities settled in Austraclear decreased by 7 per cent, to $63.8 billion. Daily DvP transactions exceeded the previous peak of $113.2 billion on three occasions between July and September 2020, with a maximum value of $125.7 billion being settled on 2 September 2020 (see Graph 13). All three peak days were driven by the settlement of new bonds issued by the Australian Government.

B.5 Operational performance

ASX manages its operational risks in the context of its group-wide ERMF, applying consistent operational risk controls across all of its CS facilities. Key operational objectives are minimum availability of 99.8 per cent for Derivatives Clearing System (DCS) and CHESS (99.95 per cent for Austraclear, Genium and Calypso) and peak capacity utilisation of 50 per cent or less. System availability was above target availability for all systems during the assessment period (Table 6). Peak usage was at or below the limit of 50 per cent for all systems except CHESS, where peak usage exceeded 50 per cent on three days during the assessment period.

ASX did not experience any incidents during the assessment period that affected the availability of CS facility systems. However, ASX did experience an incident in November that impacted the CHESS system without affecting system availability when the completion of the CHESS settlement batch was delayed by around 3½ hours (see section 3.3).

Footnotes

Equity index futures and options on these futures are cleared through ASX Clear (Futures), while options over equity securities or indexes are cleared through ASX Clear. [31]

As noted in Section 4.1.5, there has been ongoing change to the operating model of the ASX Group described in this section following the end of the assessment period. [32]

For more information see The Reserve Bank's Approach to Supervising and Assessing Clearing and Settlement Facility Licensees, available at <https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/standards/approach-to-supervising-and-assessing-csf-licensees.html>. [33]

Only initial margin is collected at the 2:00 am intraday margin call for ASX Clear (Futures) participants that are active during the overnight session. [34]

For ASX Clear (Futures) the other collateral would include the defaulted participant's contributions to the CCP's prefunded pooled financial resources. [35]

In response to the COVID-19 outbreak, ASX increased its initial margin settings for equity products in the first half of 2020. [36]