Financial Stability Standards for Securities Settlement Facilities – December 2012 Standard 18: Disclosure of Rules, Key Policies and Procedures, and Market Data

Guidance

A securities settlement facility should provide sufficient information to its participants and prospective participants to enable them to identify clearly and understand fully the risks and responsibilities of participating in the system. To achieve this objective, a securities settlement facility should adopt and disclose written rules, policies and procedures that are clear and comprehensive and that include explanatory material written in plain language so that participants can fully understand the system's design and operations, their rights and obligations, and the risks of participating in the system. A securities settlement facility's rules, policies, procedures and explanatory material need to be accurate, up to date and readily available to all current and prospective participants. Moreover, a securities settlement facility should disclose to participants and the public basic operational information and responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures.

18.1.1 A securities settlement facility should adopt clear and comprehensive rules, policies and procedures that are fully disclosed to participants. Relevant rules and key policies and procedures should also be publicly disclosed. A securities settlement facility's rules, policies and procedures are typically the foundation of the securities settlement facility and provide the basis for participants' understanding of the risks they incur by participating in the securities settlement facility.

18.2.1 Relevant rules, policies and procedures should include clear descriptions of the system's design and operations, as well as the rights and obligations of the securities settlement facility and its participants, so that participants can assess the risk they would incur by participating in the securities settlement facility.^[45] They should clearly outline the respective roles of participants and the securities settlement facility as well as the rules, policies and procedures that will be followed in routine operations and non-routine, though foreseeable, events, such as a participant default (see SSF Standard 11 on participant default rules and procedures). In particular, a securities settlement facility should have clear and comprehensive rules, policies and procedures for addressing financial and operational problems within the system. For example, rules, policies and procedures should identify which parties are to be notified of specific events and the timetables for decision-making and notification. They should make clear the degree of discretion parties are able to exercise in taking decisions that can have a direct effect on the operation of the system.

18.2.2 In addition to disclosing all relevant rules, and key policies and procedures, a securities settlement facility should have a clear and fully disclosed process for proposing and implementing changes to its rules, policies and procedures and for informing participants, and the Reserve Bank and other relevant authorities, of these changes. Similarly, the rules, policies and procedures should clearly disclose the degree of discretion that a securities settlement facility can exercise over key decisions that directly affect the operation of the system, including in crises and emergencies (see also SSF Standard 1 on legal basis and SSF Standard 2 on governance). For example, a securities settlement facility's procedures may provide for discretion regarding the extension of operating hours to accommodate unforeseen market or operational problems. A securities settlement facility also should have appropriate procedures to minimise any conflict of interest issues that may arise when authorised to exercise its discretion.

18.3.1 Participants bear primary responsibility for understanding the rules, policies, procedures and risks of participating in a securities settlement facility as well as the risks they may incur when the securities settlement facility has links with other FMIs. A securities settlement facility, however, should provide all documentation, training and information necessary to facilitate participants' understanding of the securities settlement facility's rules, policies and procedures and the risks they face from participation. New participants should receive training before using the system, and existing participants should receive, as needed, additional periodic training. A securities settlement facility should disclose to each individual participant data to help each participant understand and manage the potential financial risks stemming from participation in the securities settlement facility. For instance, participants should have access to sufficiently timely and broadly comprehensive data on equities securities lending to enable them to assess the potential implications for settlement risk. This is particularly important where equities securities loans are bilaterally negotiated and not novated to (or otherwise cleared through) a central counterparty, but nevertheless settled alongside centrally cleared exchange-traded transactions. Other relevant information that should be disclosed to participants, but typically not to the public, includes relevant aspects of the securities settlement facility's business continuity arrangements.^[46]

18.3.2 A securities settlement facility is well placed to observe the performance of its participants and should promptly identify those participants whose behaviour demonstrates a lack of understanding of, or compliance with, applicable rules, policies, procedures and risks of participation. In such cases, a securities settlement facility should take steps to rectify any perceived lack of understanding by the participant and take other remedial action necessary to protect the securities settlement facility and its participants. This may include notifying senior management within the participant institution. In cases in which the participant's actions present significant risk or present cause for the participant's suspension, the securities settlement facility should notify the Reserve Bank and other relevant authorities.

Disclosure framework and other information

18.4.1 A securities settlement facility should complete regularly, and disclose publicly, responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures. The securities settlement facility should provide comprehensive and appropriately detailed disclosures to support the overall transparency of the securities settlement facility, its governance, operations and risk management framework. In order for the disclosures to reflect correctly the securities settlement facility's current rules, policies, procedures and operations, the securities settlement facility should update its responses following material changes to the system or its environment. At a minimum, a securities settlement facility should review its responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures each year to ensure continued accuracy and usefulness.

18.4.2 Other relevant information for participants and, more generally, the public could include general information on the securities settlement facility's full range of activities and operations, such as the names of direct participants in the securities settlement facility, key times and dates in its operations, and its overall risk management framework.^[47] A securities settlement facility should also disclose its financial condition, financial resources to withstand potential losses (where relevant), timeliness of settlements and other performance statistics. With respect to data, a securities settlement facility should, at a minimum, disclose basic data on transaction volumes and values. The securities settlement facility should also disclose any additional data that the Reserve Bank may direct it to disclose from time to time.

Forms of disclosure

18.4.3 A securities settlement facility should make the relevant information and data it discloses as set forth in these SSF Standards readily available through generally accessible media, such as the internet, in English in addition to any other language(s) relevant to the scope of its operations. The data should be accompanied by robust explanatory documentation that enables users to understand and interpret the data correctly.