Assessment of ASX Clearing and Settlement Facilities – September 2024 Appendix A: Summary of Progress 2023/24

Recommendation updated and extended to include ClearStar. Timeframe updated.

ASX has engaged with stakeholders on the solution design, project and implementation timeline through the industry Business Committee, Technical Committee, and related working groups. ASX also supported the Advisory Group that was instigated by ASIC. ASX disclosed its analysis of transition options. ASX has consulted with stakeholders on the first release of CHESS Replacement (clearing), as well as the possible shortening of settlement cycles to T+1. A consultation on the second release of CHESS Replacement (settlement and sub-registry) was published in August 2024.

Recommendation updated. Timeframe updated.

During the assessment period, ASX presented a plan and timeline to account for outstanding margin payments in its stress test calculations. ASX currently expects to implement the required changes prior to September 2025.

During the assessment period, ASX commenced model development on a new liquidity stress testing model for both CCPs. ASX also increased the comprehensiveness of stress testing scenarios.

Over the next two assessment periods, ASX intends to introduce collateral stress testing at ASX Clear (Futures) and implement its new liquidity stress testing model at both CCPs.

Recommendation updated. At the end of the assessment period, ASX delivered a plan to enhance its technological capability to monitor the build-up of current exposures to participants and to make intraday margin calls.

The RBA will discuss the plan with ASX in the coming assessment period.

Recommendation updated. Timeframe updated. During the assessment period, ASX completed the implementation of margin floors for all products. ASX also implemented a margin forward guidance framework and developed a methodology for measuring procyclicality.

ASX is still finalising updates to its procyclicality framework. ASX requested an extension to this recommendation to ensure their proposed framework is consistent with potential new international regulatory guidance. The RBA will review this framework and monitor whether it has been embedded over the following assessment period.

Timeframe updated.

In May 2024, ASX presented the RBA with its Long-Term Technology Sustainability Strategy. Over the 2025 assessment period the RBA will monitor and assess whether this strategy proves to be fit for purpose.

• progress against its Technology Issues Remediation Roadmap
• a holistic view of the health of all critical systems, and the expected impact of planned remediation activities on the risk attributes of critical systems.

• the useability of the PPPM framework documents
• project resource forecasting, forecasting capacity/demand planning and portfolio management functions
• clarifying roles and decision-making responsibilities
• stage-gate reviews.

• vendor risk assessments
• implementation of consistent enterprise processes for monitoring vendor performance
• contingency plans for when a vendor ceases to provide services.

Timeframe updated.

ASX has completed and closed 89 of the 93 actions planned to address the Accenture recommendations. External reviews have been undertaken to verify the sustainable implementation of the actions. Two of the remaining actions are expected to be completed as part of the CHESS Replacement project. The other two remaining actions require further evidence of implementation before they can be closed.

Timeframe updated.

ASX has progressed items on the current CHESS Roadmap and planned further upgrades as part of the updated Roadmap. This work will be ongoing until the current CHESS is replaced.

Timeframe updated.

ASX presented the regulators their backup plan in the event that CHESS Replacement does not occur before the supportability of CHESS is severely compromised. ASX plans to review the backup plan as part of a refreshed CHESS business case in November. At this time, the RBA expects the plan to include more detail on how the risks of enacting the backup option will be managed appropriately.

Timeframe updated.

ASX published indicative go-live dates in November 2023, noting these would be subject to stakeholder consultation and more detailed planning.

In June 2024, ASX completed industry consultation on the first release of CHESS Replacement and published a project and implementation timeline with key milestones for this release. The expected go-live date for the first release is the first half of 2026.

The second release of CHESS Replacement is estimated to go live in 2029. Stakeholder consultation on this release commenced in August. The implementation dates and milestones will be confirmed by November 2024.

ASX announced a phased implementation of CHESS Replacement. The first release (proposed for the first half of 2026) is expected to address the capacity issues in the current trade registration process in CHESS.

Changes to address the dependency of current CHESS on CORE were completed in July and August 2024.

ASX completed stress tests of the current CHESS and implemented a fix for a breakpoint identified at a peak of 15 million trades per day. ASX is analysing and monitoring the feasibility of further options for improving CHESS capacity over the next year.

Recommendation updated.

ASX has now implemented all 59 IBM Review recommendations. An independent expert (EY) has confirmed all recommendations are fully closed. EY has been engaged to perform spot checks to assess the continued adherence to these recommendations, the first tranche of these spot checks was completed in March 2024.

Lessons learned from the IBM Review have been built into the CHESS Replacement project with the remaining action items having defined milestones linked to the progress of the CHESS Replacement. ASX’s internal CHESS Replacement Assurance plan will track these actions to closure.

• having comprehensive and effective contingency plans in place for dealing with an issue on the go-live weekend or subsequent to go-live
• successful execution of migration dress rehearsals
• effective arrangements for go-live decision-making, including ASX’s compliance with relevant 2021 License Conditions.

CHESS Replacement will be implemented in two releases. The first release (clearing) is expected to go live in the first half of 2026, and the second (settlement and sub-registry) in 2029.

ASX has designed an assurance program to assist with risk management and decision-making at key milestones. ASX expects to develop and publish its cutover approach for the first release in the next assessment period.

Outcome: Closed and combined with 2023-4.

ASX has supported the functioning of the Advisory Group for strategic matters relating to cash equities clearing and settlement, which was established at the initiation of ASIC. ASX has also engaged with stakeholders on CHESS Replacement through the industry Business Committee, Technical Committee and associated working groups, and consultations on the first release of CHESS Replacement and transition to T+1.

ASX also has a high-level plan for stakeholder engagement on ClearStar.

ASX needs to continue placing a high emphasis on stakeholder management for CHESS Replacement and ClearStar (see recommendation 2023-4).

Outcome: Closed and replaced with an ‘Area of Supervisory Focus’.

An external review found ASX’s board oversight arrangements to be appropriate, but recommended improvements to board reporting. A new reporting template was introduced late in the assessment period. The quality of reporting to the boards will remain an area of focus during the next assessment period.

Outcome: Closed.

ASX completed a self-assessment for the calendar year ending 2023, and has a process in place to complete annual self-assessments going forward.

• are clear and specific, with no gaps or unintended overlaps in accountabilities
• articulate desired outcomes and hold executives to high standards.

Outcome: Closed.

ASX updated its executive accountability statements to more clearly articulate expected actions and executives’ roles in the implementation of key risk management and operating frameworks. The statements work together with a new program to ensure the appropriate maturity of key frameworks (see section 3.2.2) and remuneration arrangements, to hold executives to account for the quality of outcomes.

ASX also introduced scenario testing to identify and remediate any gaps or overlaps in accountabilities.

Governance: CHESS – Accountability statements. By 31 December 2023, ASX should ensure that responsibilities under the CHESS Roadmap are included in ASX accountability documentation.

Outcome: Closed.

Accountability statements were updated through the year to include accountabilities, in line with the published CHESS governance statement.

Outcome: Closed.

ASX published a statement outlining its governance arrangements for the current CHESS and CHESS Replacement on its website 30 October 2023. Updates to the governance arrangements were published in May 2024.

Outcome: Closed.

ASX expanded and actioned a plan for responding to the findings made in the external review of its Internal Audit function. A follow-up external review in June 2024 concluded that ASX’s response to all high and medium findings had been completed or satisfactorily progressed.

ASX also identified and took steps to remediate the relationship between Internal Audit and the Executive. This included increased engagement and greater transparency by Internal Audit, as well as introducing accountabilities relating to Internal Audit in Executives’ accountability statements. Internal Audit followed the Institute of Internal Auditors (IIA) Global Audit Standard to maintain independence. Audits conducted during the year have demonstrated independent challenge from Internal Audit, and constructive response to the findings by executives. The follow-up external review noted a step-change in engagement between Internal Audit and the Executive.

Outcome: Closed.

During the assessment period, ASX implemented its revised Model Risk Policy, outlining ASX’s approach to the management of models and tools used within the ASX CCPs. The policy also outlines rules and responsibilities of the CS Board, and other relevant staff in relation to Model Risk management.

Outcome: Closed.

During the assessment period, ASX implemented a formal policy to govern the CCPs’ risk disclosures to its stakeholders, covering all relevant aspects of CCP risk management.

Outcome: Closed.

All systems and processes required by the recommendation have been implemented. ASX has completed its review of the effectiveness of all systems and controls.

1. include timelines and dependencies for remediation (e.g. key milestones such as business case and funding approval)
2. clearly specify the prioritisation of system remediation
3. include details of the key risks for assets that will reach the end of their support period or end-of-life before remediation or replacement
4. include the implementation of short-term controls to mitigate these risks.

Outcome: Closed.

During the assessment period, ASX introduced the Technology Issues Remediation Roadmap. This roadmap currently tracks the remediation of High Severity Technology Issues at ASX. The roadmap will now be reported to the ASX Board on a quarterly basis. At least annually, the roadmap will be reviewed with any new issues added.

Outcome: Closed.

ASX prepared a new policy for key vendors – the Critical Third-Party Policy – in late December 2023, which took effect on 1 January 2024. ASX also prepared an associated handbook to guide internal users on the application of the policy. The Vendor Management Framework was updated to reflect the introduction of the policy. Through the second half of the assessment period, ASX applied the new policy to relevant contracts, though work to embed the policy requirements is ongoing. Several new related recommendations have been opened as part of the special topic on Operational Risk.

Outcome: Closed.

During the assessment period, ASX introduced a Historical Stress Scenario Governance Policy and implemented new processes to regularly monitor and review market moves exceeding existing stress test scenarios. ASX’s Clearing and Settlement Boards formally approved the exclusion of the March 2020 10-year bond futures intraday ‘flash crash’.

Outcome: Closed.

ASX completed all overdue clearing risk reviews set out in the policies and standards that are rated as high and medium materiality.

Outcome: Closed.

ASX completed its review of its margin methodologies and systems in October 2023. Following on from the review, ASX is currently planning to develop an enterprise-wide value-at-risk-based margin model for all products cleared by ASX.

1. by 30 June 2024, implement a robust annual process of updating the CHESS Roadmap to ensure that all planned upgrades and material changes to the current CHESS are incorporated
2. provide ASX boards and the regulators with ongoing visibility of the CHESS Roadmap, relevant risks, new deliverables and measures to ensure continued compliance with the FSS
3. share the latest CHESS Roadmap with the industry at least on an annual basis
4. progress and safely implement currently identified and any new deliverables, including required upgrades.

ASX has progressed deliverables on the CHESS Roadmap and provided the required visibility to the ASX boards and regulators.

ASX has established a process for updating and communicating the CHESS Roadmap on an annual basis. An updated roadmap, as well as an external assurance report over the roadmap, was published in July 2024.

Outcome: Closed.

ASX provided the regulators with a report on the capacity bottlenecks identified during breakpoint stress tests. The bottlenecks identified are the trade registration and end-of-day processing services. Bottlenecks were not identified in the batch settlement process.

Outcome: Closed.

ASX tested the effect on performance at daily peak volumes of 12.5 million and 15 million trades. The results were communicated to the ASX boards and the regulators.

Outcome: Closed.

ASX has provided progress updates through regular reporting on the current CHESS.

Outcome: Closed.

ASX analysed the risks associated with three transition options for CHESS replacement and selected what it assessed to be the lowest risk option. The option selected was a phased implementation approach. The first phase will replace clearing functionality and the second, settlement and sub-registry functionality. ASX considered the approach would increase trade registration capacity at the earliest possible point without the requirement for modifications to current CHESS. It was also assessed by ASX to have the least industry impact.

Outcome: Closed.

Contractual arrangements with the CHESS replacement vendors include provisions that provide the regulators with rights of access to the vendors. This includes the ability to interview vendor staff, inspect premises and inspect records.

Outcome: Closed.

ASX completed the final stages of its FMI Data Reporting project.

During the assessment period, ASX verified the maturity of its cyber security arrangements and their alignment with two industry recognised cyber security standards through independent audits.

Based on the results of its cyber assurance and testing activities, as well as the developments in the threat landscape, ASX boards approved an updated cyber security strategy. The updated strategy is aligned with an internationally accepted cyber security framework.

ASX has also engaged with the government on industry-wide initiatives, analysing the potential impact of cyber threats and vulnerabilities on ASX’s environment and any implications for its security posture, response and recovery capabilities.