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A CSD should have appropriate rules and procedures to help ensure the integrity of securities issues and minimise and manage the risks associated with the safekeeping and transfer of securities. A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry.

HOW ASX CENTRAL COUNTERPARTIES COMPLY PFMI/FSS

PRINCIPLE 12 – EXCHANGE-OF-VALUE SETTLEMENT SYSTEMS

If an FMI settles transactions that involve the settlement of two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by conditioning the final settlement of one obligation upon the final settlement of the other

PFMI 12 – KEY CONSIDERATION 1

An FMI that is an exchange-of-value settlement system should eliminate principal risk by ensuring that the final settlement of one obligation occurs, regardless of whether the FMI settles on a gross or net basis and when finality occurs

FSS 11.1

A CCP should eliminate principal risk associated with the settlement of linked obligations by ensuring that it employs an appropriate delivery versus payment (DvP), delivery versus delivery (DvD) or payment versus payment (PvP) settlement mechanism

FSS 11.2

≥ Model 1 (Austraclear – for ASX Clear (Futures) and ASXCC Treasury settlements) and Model 3 (Equities – ASX Clear only) settlement systems used

≥ Electronic dematerialised DvP settlement

≥ Movement of securities in Austraclear (ASX Clear (Futures) or ASXCC treasury settlements) will only occur once a message is received from RITS that the cash leg has settled across ESA accounts

≥ Movement of equity securities in CHESS (ASX clear only) from delivering settlement Entrepot accounts to receiving Entrepot accounts will only occur after receipt of a message from RITS indicating that cash has settled across ESA accounts

≥ ASX Settlement Operating Rules, Section 10

≥ ASX Clear Operating Rules, Section 12

≥ Austraclear Regulations, Sections 14, 15 and 16

≥ DvP Model 1 (Austraclear– for ASX Clear (Futures) and ASXCC Treasury settlements) and Model 3 (Equities – ASX Clear only) settlement systems used

≥ Electronic dematerialised DvP settlement

≥ Movement of securities in Austraclear (ASX Clear (Futures) or ASXCC treasury settlements) will only occur once a message is received from RITS that the cash leg has settled across ESA accounts

≥ Movement of equity securities in CHESS (ASX clear only) from delivering settlement Entrepot accounts to receiving Entrepot accounts will only occur after receipt of a message from RITS indicating that cash has settled across ESA accounts

≥ ASX Settlement Operating Rules, Section 10

≥ ASX Clear Operating Rules, Section 12

HOW ASX CENTRAL COUNTERPARTIES COMPLY PFMI/FSS

PRINCIPLE 13 – PARTICIPANT-DEFAULT RULES AND PROCEDURES:

An FMI should have effective and clearly defined rules and procedures to manage a participant default. These rules and procedures should be designed to ensure that the FMI can take timely action to contain losses and liquidity pressures and continue to meet its obligations

PFMI 13 – KEY CONSIDERATION 1

An FMI should have default rules and procedures that enable the FMI to continue to meet its obligations in the event of a participant default and that address the replenishment of resources following a default

FSS 12.1

PFMI 13 – KEY CONSIDERATION 2

An FMI should be well prepared to implement its default rules and procedures, including any appropriate discretionary procedures provided for in its rules

FSS 12.2

PFMI 13 – KEY CONSIDERATION 3

An FMI should publicly disclose key aspects of its default rules and procedures

FSS 12.3

≥ The ASX Operating Rules detail the powers and actions available to a CCP in the event of a default

≥ A Participant Incident Review Committee (PIRC) is called upon an incident with a Participant becoming apparent

≥ In the event of a potential default, the PIRC will refer the matter to the Default Management committee (DMC)

• ASX Clear Clearing Participant or ASX Clear (Futures) futures Clearing Participant default: once the DMC has determined that the Clearing Participant involved is in default then (following notification to the market) ASX will liaise with one of its brokers (authorised to act on behalf of ASX in the event of a default) to close out or hedge the defaulting Clearing Participant’s outstanding obligations to the Clearing House;

• OTC Clearing Participant default: once the DMC has determined that the Clearing Participant involved is in default then ASX will convene the Default Management Group (comprising representatives from each of the OTC Clearing Participant entities of ASX Clear (Futures)) to provide guidance and advice (such advice will be referred back to the DMC for consideration) on the best way to hedge, and subsequently auction, the defaulter’s portfolio

≥ ASX maintains a documented ‘Default Management Framework’ and comprehensive default management procedures

≥ Default management processes for both CCPs are documented on the ASX website at:

www.asx.com.au/services/clearing/default-management.htm

≥ The ASX operating rule framework places an obligation on all Participants to self-report to ASX if they become aware of any circumstances which may prevent them being able to continue their obligations as an ASX Clearing Participant

≥ A PIRC is called upon an incident with a Participant becoming apparent

≥ In the event of a potential default, the PIRC will refer the matter to the DMC

≥ Under the Default Management Framework, ASX has the power to close out or hedge a Participant’s open contracts in order to appropriately control the risk of the participant

≥ Default management processes for both CCPs are documented on the ASX website at:

www.asx.com.au/services/clearing/default-management.htm

≥ The Rules that cover the default processes in each of the CCP’s are:

• ASX Clear Operating Rules & Procedures – Section 15 - Default

• ASX Clear Operating Rules & Procedures – Section 8 – Emergency Assessment • ASX Clear (Futures) Operating Rules & Procedures – Part 7 – Procedures on Default

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 12.4

A CCP 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 12.5

≥ Involvement in the testing and review of default procedures by Clearing Participants is not catered for, due to the confidential nature of, and real-time information discussed in default management fire drill processes

≥ In the event of default by a non-OTC Clearing Participant, the default management fire drills procedures require the default brokers authorised to close out positions on behalf of ASX to verify that they can accept the order formats provided by ASX

≥ In the event of default by an OTC Clearing Participant, A Default Management Group (DMG) would be established, comprising representatives from each of the OTC Clearing Participant entities of ASX Clear (Futures). The DMG would provide advice on hedging and auctioning of the defaulting participant’s portfolio

≥ ASX have a documented Default Management Framework and comprehensive default management procedures

HOW ASX CENTRAL COUNTERPARTIES COMPLY PFMI/FSS

HOW ASX CENTRAL COUNTERPARTIES COMPLY PFMI/FSS