Assessment of ASX Clearing and Settlement Facilities – September 2019 Appendix C1. Financial Stability Standards for Central Counterparties

Standard 20: Disclosure of rules, key policies and procedures, and market data

A central counterparty should have clear and comprehensive rules, policies and procedures and should provide sufficient information and data to enable participants to have an accurate understanding of the risks they incur by participating in the central counterparty. All relevant rules and key policies and procedures should be publicly disclosed.

20.1 A central counterparty 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 (including specific requirements relating to CCP Standards 1.4, 2.2, 12.3, 13.4, 15.4, 17.2 and 17.3).

ASX Clear's and ASX Clear (Futures)' Operating Rules and Procedures form the basis of all material aspects of the CCPs' service to participants. The Operating Rules and Procedures, associated Guidance Notes, and the OTC Rules and OTC Handbook, are disclosed on the ASX public website.^[44] The Operating Rules and Procedures are also made available on the Customer Portal, ASX's participant website. The Customer Portal also supports the dissemination of non-public information to participants.

To assist participants in their understanding of the risks of participating in ASX Clear and ASX Clear (Futures), and for the information of other interested stakeholders, ASX publishes a range of additional material on its public website; this includes information required to be disclosed under the FSS. Information specific to ASX Clear and ASX Clear (Futures) includes information about risk management, default management, margin and CBPLs, and business continuity arrangements. More general information includes: the ASX Group's regulatory framework; requirements of the FSS; requirements of the Corporations Act for provision of services in a ‘fair and effective’ way; the ASX Group's other obligations under the Corporations Act; and the ASX Group's observance of the Principles. ASX provides a centralised list of links on its website to information related to its clearing risk management arrangements. ASX also operates a dedicated website that discloses information relevant to the clearing and settlement of cash equities, to support its disclosure commitments under the Code of Practice.

Specific disclosure requirements are dealt with under CCP Standards 1.4, 2.2, 12.3, 13.4, 15.4, 17.2 and 17.3.

20.2 A central counterparty's rules, policies and procedures should clearly identify the nature and scope of the risk exposure assumed by the central counterparty, such as by novation, open offer or other similar legal devices. A central counterparty's rules, policies and procedures should clearly identify the point in the clearing process at which the central counterparty assumes the risk exposure.

ASX maintains on its public website an overview of how the CCPs would manage a clearing participant default; this includes information about the purpose of novation, the point at which novation occurs, and the scope of contractual arrangements. Section 12 of ASX Clear's Operating Rules and Part 3 of the ASX Clear (Futures) Operating Rules set out the arrangements for registration of market contracts, including the point at which a contract is considered to be registered and at which each ASX CCP assumes the risk exposure of a trade. These arrangements apply to transactions of ASX-quoted securities on the ASX and Chi-X markets and OTC equity options (see CCP Standard 1.5). The conditions and timing for the novation of an OTC derivatives trade are outlined in the OTC Rules and the OTC Handbook. During the assessment period, ASX published a document explaining the process of novation for ASX Clear on its public website.^[45] The document brings together a description of the specific timing of novation, as well as the circumstances in which novation may cease. ASX intends to publish a similar document for ASX Clear (Futures) during the next assessment period.

20.3 A central counterparty should disclose clear descriptions of the system's design and operations, as well as the central counterparty's and participants' rights and obligations, so that participants can assess the risks they would incur by participating in the central counterparty (see CCP Standards 2.8 and 9.5).

General descriptions of ASX Clear's and ASX Clear (Futures)' system design and operations are available on the ASX public website, including as part of ASX's response to the CPMI-IOSCO Disclosure Framework (see CCP Standard 20.5). ASX's disclosure framework document describes the ASX group structure, provides a general description of the ASX CS facilities and their roles, system design and operations, outlines the legal and regulatory framework for clearing and settlement, and provides a description of steps taken by ASX to implement the Principles and the corresponding FSS. The ASX public website provides additional information on system design and operations, including descriptions of the cash market clearing process and margining approaches for both securities and derivatives products in ASX Clear, and ASX Clear (Futures)' exchange-traded and OTC derivatives clearing processes and margining approaches.

The rights and obligations of ASX Clear, ASX Clear (Futures) and their participants are defined in the ASX Clear and ASX Clear (Futures) Operating Rules and Procedures, and ASX Clear (Futures) OTC Rules and OTC Handbook, which are published on the ASX public website and the Customer Portal. There is a transparent process for changing ASX Clear's and ASX Clear (Futures)' Operating Rules and Procedures, with any changes notified to participants via the ASX website (see CCP Standard 1.3). These documents are supplemented with guidance notes to support participants' understanding of the risks they face by participating in the system. During the assessment period, ASX Clear and ASX Clear (Futures) updated guidance notes on participants' admission requirements and notification obligations. ASX Clear also updated its guidance notes on resigning participation, settlement risks for participants where financial products are controlled by third parties, and participant obligations in relation to trust and client segregated accounts.

The CCPs provide disclosures to assist participants in understanding their contingent exposure to the use of the ASX CCPs' suite of recovery tools, including tools to address uncovered credit losses and liquidity shortfalls.

20.4 A central counterparty should provide all necessary and appropriate documentation and training to facilitate participants' understanding of the central counterparty's rules, policies and procedures and the risks they face from participating in the central counterparty.

All applicants for participation in ASX Clear and ASX Clear (Futures) are provided with an application pack, which includes information regarding key requirements of the facilities. Applicants have access to the Operating Rules, Procedures and guidance notes via the ASX website, as well as other publicly available information about the facilities, services and participation requirements. When ASX Clear or ASX Clear (Futures) has completed an initial assessment of an application, the applicant is also invited to attend formal ‘on boarding’ meetings with staff from ASX Compliance, CRPM and Operations functions to discuss key areas of importance for participants.

If either ASX Clear or ASX Clear (Futures) became aware or suspected that a participant lacked a satisfactory understanding of the Operating Rules and Procedures or the risks of participation, it would generally work collaboratively with the participant to educate them on their obligations. The CCPs may become aware of issues through their routine risk monitoring activities or through their regular discussions with participants.

20.5 A central counterparty should complete regularly and disclose publicly responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures.^[46] A central counterparty also should, at a minimum, disclose basic risk and activity data, as directed by the Reserve Bank from time to time.

ASX has published its response to the CPMI-IOSCO Disclosure Framework, including information describing how its CS facilities observe the applicable Principles.^[47] This document was last updated in December 2017. ASX updates this document periodically.

ASX publicly reports basic risk and activity data for the ASX CS facilities via a monthly activity report, as well as through additional data published on both its main website and a dedicated website on clearing and settlement of cash equities. ASX Clear and ASX Clear (Futures) also publish a set of quantitative risk and activity data in accordance with the CPMI-IOSCO Public quantitative disclosure standards for central counterparties, which are intended to complement the descriptive disclosures under the Disclosure Framework; these data are updated on a quarterly basis.^[48]

Footnotes

Available at <http://www.asx.com.au/regulation/rules/asx-clear-operating-rules.htm> for ASX Clear, and at <http://www.asx.com.au/regulation/rules/asx-clear-futures-operating-rules.htm> for ASX Clear (Futures). [44]

Available at <https://www.asx.com.au/documents/clearing/novation-description.pdf>. [45]

The CPSS was renamed the CPMI in October 2014. [46]

Available at <http://www.asx.com.au/documents/asx-compliance/pfmi-disclosure-framework.pdf>. [47]

The quantitative disclosures for ASX Clear are available at <http://www.asx.com.au/regulation/regulatory-compliance/asx-clear.htm>. The quantitative disclosures for ASX Clear (Futures) are available at <http://www.asx.com.au/regulation/regulatory-compliance/asx-clear-futures.htm>. [48]