rules and procedures
FSS 11.2
PFMI/FSS HOW ASX SECURITIES SETTLEMENT FACILITIES COMPLY
≥ Not applicable for the SSFs
≥ Not applicable for the SSFs PFMI 13 – KEY CONSIDERATION 4
An FMI should involve its participants and other
stakeholders in the testing and review of the FMI’s default procedures, including any close out procedures. Such testing and review should be conducted at least annually and following material changes to the rules and procedures to ensure that they are practical and effective
FSS 11.4
A SSF should demonstrate that its default management procedures take appropriate account of interests in relevant jurisdictions and, in particular, any implications for pricing, liquidity and stability in relevant financial markets FSS 11.5
PRINCIPLE 14 – SEGREGATION AND PORTABILITY:
A CCP should have rules and procedures that enable the segregation and portability of positions of a participant’s customers and the collateral provided to the CCP with respect to those positions
Not applicable to ASX’s SSFs. No corresponding FSS for SSFs
≥ ASX’s SSFs have robust management and control systems to identify, monitor and manage their general business risks
≥ Business unit risk profiling is conducted twice yearly. Sources of business risk and their potential impact on operations and services are identified and assessed. Potential impacts on cash flow, liquidity and capital position are analysed
≥ Annual financial planning and budgeting processes are in place. Major loss analysis is undertaken periodically. Capital forecasting and cash flow sensitivity analysis is undertaken and presented to the Capital & Liquidity Committee (CALCO) every quarter
≥ ASX has set aside capital for operational and business risk across the two SSFs if they incur general business losses.
Each SSF has a separate allocation - $113 million for ASX Settlement and $116 million for Austraclear - for business risk capital that is explicitly made available to the SSFs from ASX Limited.
≥ In determining the sufficiency of the operational and business risk capital set aside for ASX’s SSFs, ASX has adopted a methodology that applies a capital charge for operational and business risk to the value of securities held in the facility. The calculated percentage of required risk resources declines as the level of assets increases – recognising that a significant part of the risk resources required will represent a minimum fixed amount. At the ASX Limited level, the total capital held has been determined noting that the two facilities’ are uncorrelated and so they will not both require their allocated risk funds at the same time
≥ ASX’s SSF business/ operational risk capital is determined and reviewed by CALCO periodically and monitored quarterly
≥ Annual financial forecasts, budgets, major loss scenario assessments etc. are undertaken to ensure the SSFs have adequate liquid assets to continue as a going concern should business risks eventuate
HOW ASX SECURITIES SETTLEMENT FACILITIES COMPLY PFMI/FSS
PRINCIPLE 15 – GENERAL BUSINESS RISK:
An FMI should identify, monitor and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can continue operations and services as a going concern if those losses materialise. Further, liquid net assets should at all times be sufficient to ensure a recovery or orderly wind-down of critical operations and services
PFMI 15 – KEY CONSIDERATION 1 An FMI should have robust management and control systems to identify, monitor and manage general business risks, including losses from poor execution of business strategy, negative cash flows or unexpected and excessively large operating expenses
FSS 12.1
PFMI 15 – KEY CONSIDERATION 2 An FMI should hold liquid net assets funded by equity (such as common stock, disclosed reserves or other retained earnings) so that it can continue operations and services as a going concern if it incurs general business losses.
The amount of liquid net assets funded by equity an FMI should hold should be determined by its general business risk profile and the length of time required to achieve a recovery or orderly wind-down, as appropriate, of its critical operations and services if such action is taken
FSS 12.2
PFMI/FSS HOW ASX SECURITIES SETTLEMENT FACILITIES COMPLY
≥ The SSFs have developed recovery plans which identified scenarios that may prevent them from providing their critical services as a going concern and the available options for recovery or orderly wind-down. ASX is in the process of updating its recovery plans in line with CPMI-IOSCO guidance. As part of this process, ASX will also implement arrangements for review and testing of the recovery plans.
≥ General business risk capital is held on behalf of the SSFs at the ASX Group level to ensure that it cannot be applied to meet losses caused by a participant default. A group-wide capital buffer provides protection to allocated business risk capital against potential losses sustained elsewhere in the group. This arrangement has been included in the ASX Group Support Agreement
≥ The amount of operational and business risk capital set aside for the SSFs has been estimated as the capital required to cover six months of current operating expenses, with an additional buffer to allow for future growth. These funds are also sufficient to cover the estimated largest general business loss that the SSFs may incur. Loss scenarios considered include closure due to external events such as pandemics, the fraudulent redirection of payments, or the unauthorised transfer of funds
≥ The assets held to cover general business risks are liquid net assets funded by equity and reserves
≥ The liquid net assets comprise at call and fixed term bank deposits, bank bills and negotiable certificates of deposits
≥ The ASX Investment Mandate sets out allowed asset types and liquidity limits. Compliance with the mandate is reviewed quarterly by CALCO and approved by the Board
PFMI 15 – KEY CONSIDERATION 3 An FMI should maintain a viable recovery or orderly wind-down plan and should hold sufficient liquid net assets funded by equity to implement this plan.
At a minimum, an FMI should hold liquid net assets funded by equity equal to at least six months of current operating expenses. These assets are in addition to resources held to cover participant defaults or other risks covered under the financial resources principles. However, equity held under international risk-based capital standards can be included where relevant and appropriate to avoid duplicate capital requirements
FSS 12.3
PFMI 15 – KEY CONSIDERATION 4 Assets held to cover general business risk should be of high quality and sufficiently liquid in order to allow the FMI to meet its current and projected operating expenses under a range of scenarios, including in adverse market conditions FSS 12.4
PFMI/FSS HOW ASX SECURITIES SETTLEMENT FACILITIES COMPLY
≥ ASX Limited manages its operational and business risk capital at the group level. The ASX Limited Board monitors the ongoing capital adequacy of the ASX Group as part of its regular capital planning activities. The Board determines the most appropriate means of raising additional capital when needed, giving due consideration to prevailing market conditions and available alternative financing mechanisms. For example, in mid-2013 ASX Limited conducted a capital raising in the form of a $553 million share entitlement offer, with the bulk of the funds being used to increase the risk capital and default funds of the CS facilities. ASX is reviewing its recapitalisation arrangements as part of the update of its recovery plans.
PFMI 15 – KEY CONSIDERATION 5 An FMI should maintain a viable plan for raising additional equity should its equity fall close to or below the amount needed. This plan should be approved by the board of directors and updated regularly
FSS 12.5
≥ Austraclear’s cash assets are invested in accordance with the Austraclear Investment Mandate. It does not have non-cash assets
≥ ASX Settlement does not have cash or non-cash assets
≥ Austraclear’s cash assets are invested in accordance with the Austraclear Investment Mandate which defines its liquidity requirements. It does not have non-cash assets
≥ Austraclear and ASX Settlement have no legal rights to access Participants’ assets. They can, however, facilitate movements of Participants’ assets through Austraclear and CHESS, if required
≥ ASX’s SSFs do not use the services of external custodians
≥ Austraclear’s cash assets are invested in accordance with the Austraclear Investment Mandate which defines its liquidity requirements. It does not have non-cash assets
≥ ASX Settlement does not have investments
≥ ASX Settlement does not have cash or non-cash assets HOW ASX SECURITIES SETTLEMENT FACILITIES COMPLY PFMI/FSS