Disclosure of Equities Securities Lending – February 2009 1. Introduction

This document sets out the Reserve Bank's conclusions on variation of the Financial Stability Standard for Securities Settlement Facilities to improve the transparency of equities securities lending.

The need for improved transparency in this area was highlighted in the review undertaken by the Reserve Bank in early 2008 of settlement practices in the Australian equities market.^[1] This review was triggered by significant delays to settlement in the cash equities market in late January 2008, which arose, in part, from a participant's inability to meet obligations arising from securities-lending transactions. These types of transactions are currently settled in a batch process operated by the ASX Settlement and Transfer Corporation (ASTC) alongside equity trades novated to the central counterparty, Australian Clearing House (ACH). However, in contrast to transactions undertaken on the exchange, about which there is considerable transparency, securities-lending activity is relatively opaque, increasing the potential for disruptions to the settlement process and impairment of the overall efficiency of the market.

Following consultation with industry participants, the Reserve Bank proposed that steps be taken to improve disclosure in this area. In particular, in October 2008 it released a Consultation Document proposing a variation of the Financial Stability Standard for Securities Settlement Facilities to require facilities settling equity transactions to increase the transparency of securities lending.^[2] Over recent months, the Reserve Bank's proposal has been subject to extensive consultation with industry participants, the Australian Securities Exchange (ASX), the Australian Securities and Investments Commission (ASIC) and the Australian Treasury. Following this consultation, the Reserve Bank has decided to proceed with a variation to the Financial Stability Standard, with the consultation process proving very useful in developing the specifics of the improved disclosure regime.

This document presents the final variation, as well as details on how the disclosure regime will be implemented. Section 2 sets out the Reserve Bank's regulatory responsibilities as well as the objectives of improved disclosure of securities lending. Section 3 then summarises the consultation process, while Section 4 discusses the possible approaches to implementing disclosure. Section 5 goes on to discuss the specifics of the proposed disclosure regime, including issues related to implementation and the timeline.

Footnotes

The Reserve Bank released the conclusions of this review on 26 May 2008. The report is available at: <https://www.rba.gov.au/payments-system/clearing-settlement/pdf/practices-au-equities-may08.pdf> [1]

The Consultation Document is available at: <https://www.rba.gov.au/payments-system/clearing-settlement/pdf/disclosure-equities-oct08.pdf> [2]