MIL-OSI Banking: Assessment of ASX Clearing and Settlement Facilities – September 2021

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Source: Reserve Bank of Australia

The Reserve Bank today released the 2021 Assessment of the ASX Clearing and Settlement Facilities. The Bank concluded that ASX’s clearing and settlement (CS) facilities have conducted their affairs in a way that promotes overall stability in the Australian financial system. However, ASX will need to place a high priority on addressing recommendations related to operational risk and margin standards.

In November 2020, ASX experienced an outage to its equities trading platform shortly after a major upgrade. The Bank has recommended that ASX address the findings of an independent review of the ASX trading platform upgrade project. As part of this, ASX should identify and carry across those findings that are relevant to its project to replace the CHESS system for equities clearing and settlement. The application of these findings to the CHESS replacement program should be subject to an independent external review. The Bank will continue to work closely with ASIC in supervising ASX’s response to these matters.

This year, the Bank conducted a special topic review of governance arrangements at the ASX CS facilities. ASX benefits from skilled and experienced Boards governing the CS facilities and the broader ASX Group. There are, however, a number of areas that ASX should address, including:

  • ensuring the CS facilities’ business and their regulatory and stakeholder obligations receive appropriate attention and focus within the broader ASX Group
  • clarifying lines of responsibility and accountability for the operation of the CS facilities
  • filling gaps in the ASX Boards’ access to the skills, experience and understanding needed to supervise ASX’s program of technology upgrades, including the replacement of CHESS
  • broadening its ‘customer’ focus to include all stakeholders.

RBA Assistant Governor (Financial System) Michele Bullock said, ‘The ASX clearing and settlement facilities underpin well-functioning financial markets and a stable financial system. While these facilities have contributed to overall financial stability during the past year, the Bank’s 2021 Assessment recommends a number of important steps for ASX to further strengthen their resilience.’

The Assessment also describes progress made by the ASX CS facilities in addressing recommendations from the 2020 Assessment. This includes steps taken by ASX to increase the capacity of CHESS while it progresses work on its replacement system.

Background

The Reserve Bank is responsible for the supervision of Australian-licensed CS facilities, focusing on the reduction of systemic risk. Systemically important CS facilities are assessed on a regular basis against the Financial Stability Standards (FSS) set by the Bank.

In the case of the ASX Group, the Bank conducts annual assessments of its four CS facilities: two central counterparties – ASX Clear Pty Limited and ASX Clear (Futures) Pty Limited – and two securities settlement facilities – ASX Settlement Pty Limited and Austraclear Limited. These assessments include a rating of the CS facilities’ observance of each of the FSS.

For more information on the Bank’s approach to assessing CS facilities, see: The Reserve Bank’s Approach to Supervising and Assessing Clearing and Settlement Facility Licensees.

ASIC has separate, but complementary, responsibilities for the supervision of CS facilities. In carrying out supervision of CS facilities, the RBA works closely with ASIC.

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