Assessment of ASX Clearing and Settlement Facilities – September 2019 Appendix C2. Financial Stability Standards for Securities Settlement Facilities

Standard 18: Disclosure of rules, key policies and procedures, and market data

A securities settlement facility 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 securities settlement facility. All relevant rules and key policies and procedures should be publicly disclosed.

18.1 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 (including specific requirements relating to SSF Standards 1.4, 2.2, 11.3, 13.4, 15.2 and 15.3).

ASX Settlement's Operating Rules and Procedures and Austraclear's Regulations and Procedures form the basis of all material aspects of the SSFs' service to participants. These, together with associated Guidance Notes, are disclosed on ASX's public website.^[22] The rules and procedures are also posted on the Customer Portal, ASX's participant website. The Customer Portal also supports the dissemination of non-public information to participants. As the Customer Portal is currently not available to Austraclear-only participants, ASX circulates non-public information to these participants via email. ASX has plans to migrate Austraclear-only participants to the Customer Portal in the longer term.

To assist participants in their understanding of the risks of participating in ASX Settlement and Austraclear, 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 Settlement and Austraclear includes information about participant requirements, trade and settlement monitoring systems, known software release issues and change requests, default management and business continuity arrangements. In addition, ASX publishes information on SWIFT message protocols, which is specific to Austraclear. 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 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 SSF Standards 1.4, 2.2, 11.3, 13.4, 15.2 and 15.3.

18.2 A securities settlement facility should disclose clear descriptions of the system's design and operations, as well as the securities settlement facility's and participants' rights and obligations, so that participants can assess the risks they would incur by participating in the securities settlement facility (see SSF Standards 2.8 and 8.5).

General descriptions of ASX Settlement's and Austraclear's system design and operations are available on ASX's public website, including as part of ASX's response to the CPMI-IOSCO Disclosure Framework (see SSF Standard 18.4). 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 a description of the cash market settlement process in ASX Settlement.

The rights and obligations of ASX Settlement and its participants are defined in the ASX Settlement Operating Rules and Procedures, which are published on the ASX public website and the Customer Portal. Similarly, the rights and obligations of Austraclear and its participants are defined in the Austraclear Regulations and Procedures, and are also published on the ASX public website and the Customer Portal. There is a transparent process for changing ASX Settlement's Operating Rules and Procedures and Austraclear's Regulations and Procedures, with changes notified to participants via the ASX website (see SSF 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 Settlement updated its guidance notes on participants' admission requirements and notification obligations.

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

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

ASX Settlement publishes aggregate securities lending data on its website daily, enabling participants to better understand the risks associated with these activities. For this purpose, ASX Settlement requires that participants ‘tag’ settlement instructions submitted to CHESS that are related to securities lending, and participants must disclose outstanding positions, both borrowed and lent.

If either ASX Settlement or Austraclear became aware or suspected that a participant lacked a satisfactory understanding of its rules or procedures, or the risks of participation, it would generally work collaboratively with the participant to educate them on their obligations. The SSFs may become aware of issues through their routine risk monitoring activities or through their regular discussions with participants (see SSF Standard 14.5).

18.4 A securities settlement facility should complete regularly and disclose publicly responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures.^[23] A securities settlement facility 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.^[24] 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.

Footnotes

Available at <http://www.asx.com.au/regulation/rules/asx-settlement-operating-rules.htm> for ASX Settlement and at <http://www.asx.com.au/regulation/rules/austraclear-regulations.htm> for Austraclear. [22]

The CPSS was renamed the CPMI in October 2014 [23]

Available at <http://www.asx.com.au/documents/asx-compliance/pfmi-disclosure-framework.pdf>. [24]