This document provides summaries and analyses of certain rules of the relevant central counterparty (CCP) in a standardized format to facilitate comparison across a range of CCPs and CCP Services. It is not a complete or comprehensive statement of the rights and obligations of a CM or its Clients under such rules and applicable law and does not constitute legal advice. A complete and comprehensive understanding of such matters requires a review of the rules and other relevant CCP documentation and specific legal advice from counsel. The answers that follow are based on a review and analysis of the documents specified below and are current as of the date specified above. We have also included, where strictly necessary, high-level discussions of background law. However, the below does not purport, and should not be considered, to be an analysis of all relevant legal requirements applicable to the CCP or its CMs. We expect that the rules of the CCP may change in response to regulatory and other requirements, and these responses will be periodically updated to the extent they are impacted by any subsequent rule changes.
Contents(hide)
| 0. Overview | |
| 0.0 Date Finalised and Effective Date | Date Finalised: April 30, 2015Date of Most Recent Update: January 23, 2026 |
| 0.1 Products Cleared | ServiceThe clearing service for OTC interest rate derivatives (the “Service”). ProductsThe product types that are currently eligible for clearing are:A$ Fixed vs Floating BBSW IRS;(BBSW is a screen rate published by Reuters each trading day (i.e. similar to LIBOR). It is used by many market participants to determine the bank bill rate. It is calculated by reference to actual bid and offer rates quoted by 8 banks for bills of exchange.);A$ Overnight Index Swaps;A$ Basis Swaps;Asset Swaps; andBBSW vs AONIA Basis SwapsBased on the CCP’s website, the Service will be extended to additional currencies (e.g. $NZ) and additional products (e.g. FRAs) over time.All responses apply to all product classes/types, unless otherwise specified. |
| 0.2 Other products and clearing services of the CCP | |
| 0.3 Regulators & Key Statutes/Regulations | RegulatorsThe CCP is regulated by:Australia: the RBA; andAustralia: the ASICRule amendments are subject to Ministerial disallowance.Additional responsibility for regulation of the Australian financial system lies with:Australia: the TreasuryAustralia: the APRAThe CCP is recognised in Switzerland and is applying for designation by the Reserve Bank of New Zealand in order to benefit from additional settlement finality protections under the Reserve Bank of New Zealand Act 1989. Key statutes and regulationsThe CCP is subject to Parts 7.3 and 7.4 of the Corporations Act. Part 7.5A of the Corporations Act gives the ASIC the power to make derivative transaction rules. The Minister for Revenue and Financial Services is the responsible Minister for these parts of the Corporations Act; however the responsible Minister has delegated some of the regulatory matters under these parts of the Corporations Act to authorised officers of the ASIC.Australia has committed to implementing the OTC derivatives reforms recommended by the 2009 G20 Pittsburgh Summit. Changes to transaction reporting requirements have been implemented for certain entities, and centralised clearing requirements for certain OTC interest rate derivatives have also been implemented.Amendments to the Corporations Regulations 2001 became effective on 10 September 2015. These provide a framework for the ASIC to implement centralised clearing rules for OTC interest rate derivatives. On 28 May 2015, the ASIC released draft clearing rules for public consultation. The ASIC Derivative Transaction Rules (Clearing) 2015 were implemented on 11 December 2015 and under these rules mandatory clearing came into effect from 4 April 2016. |
| 0.4 US/EU registration Status | US registration statusDifferent services have different US regulatory treatments.In respect of the Service:The CFTC has issued an order of exemption on 18 August 2015, as amended on 28 January 2016. from registration as a derivatives clearing organisation (DCO) to the CCP. See https://cftc.gov/PressRoom/PressReleases/7214-15. CFTC has made this exemption from DCO registration for the clearing of swaps because it determined that the CCP is subject to comparable, comprehensive supervision by appropriate government authorities in the CCP’s home country. Subject to the terms and conditions of the order, the CCP is permitted to clear proprietary swap positions for its U.S. clearing members.In respect of the Futures Service (as defined below), please see the survey relating to the Futures Service. EU authorisation/recognition StatusThis item primarily addresses QCCP status in the jurisdiction of the CCP. It also addresses QCCP status in the EU.Recognised under EMIR as of 27 April 2015.Under EMIR, as the CCP is established outside the European Union, it may only provide clearing services to clearing members established in the European Union if it is recognised as a third country CCP by ESMA. |
| 0.5 QCCP status | Treated as a QCCP under the EU Capital Requirements Regulation by virtue of its recognition by ESMA as a third country CCP. The CCP has been designated as a QCCP on 23 April 2013 by the Australian Prudential Regulation Authority (the “APRA”) based on advice given by the Reserve Bank of Australia (the “RBA”) and the Australian Securities and Investments Commission (the “ASIC”). |
| 0.6 Documents Reviewed | 1. OTC Rulebook12. OTC Handbook23. Futures Rules34. Future Rules – Schedules45. Procedures56. ASX Clear (Futures) Operating Rules – Guidance Note 1 (Admission as a Participant)67. ASX Clear (Futures) Operating Rules – Guidance Note 8 (Notification Obligations)78. ASX Clear (Futures) Operating Rules – Guidance Note 9 (Offshoring and Outsourcing)89. ASX Clear (Futures) Operating Rules – Guidance Note 10 (Business Continuity and Disaster Recovery)910. ASX Recovery Rulebook1011. ASX Recovery Rulebook – Schedules1112. ASX Recovery Handbook1213. RBA 2024/2025 Assessment1314. RBA 2022/2023 Assessment1415. RBA 2021/2022 Assessment1516. RBA 2018/2019 Assessment Appendix C11617. ASX Limited Board Charter1718. Clearing and Settlement Boards Charter1819. Audit and Supervision Committee Charter1920. Internal Audit Charter2021. Technology Committee Charter2122. People and Culture Committee Charter2223. Nomination Committee Charter2324. Risk Committee Charter2425. ASXCC Investment Policy25*Hide note1 ASX OTC Rulebook; last updated as of 27 June 2022;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 2 ASX OTC Handbook; 11 November 2024;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 3 ASX Clear (Futures) Operating Rules (The ASX Clear (Futures) Operating Rules comprise rules governing the Service as well as rules governing the Futures Service (the latter is the subject of a separate survey)); 11 November 2024;https://www2.asx.com.au/about/regulation/rules n-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 4 ASX Clear (Futures) Operating Rules – Schedules; 13 October 2025;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 5 ASX Clear (Futures) Operating Rules – Procedures Determinations and Practice Notes; 13 October 2025;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 6 ASX Clear (Futures) Operating Rules – Guidance Note 1 (Admission as a Participant); 4 March 2024;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 7 ASX Clear (Futures) Operating Rules – Guidance Note 8 (Notification Obligations); 15 December 2023;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 8 ASX Clear (Futures) Operating Rules – Guidance Note 9 (Offshoring and Outsourcing); 15 June 2015;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 9 ASX Clear (Futures) Operating Rules – Guidance Note 10 (Business Continuity and Disaster Recovery); 8 March 2022;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers 10 ASX Recovery Rulebook; 26 February 2024;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-recovery-rules11 ASX Recovery Rulebook – Schedules; 1 June 2016;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-recovery-rules12 ASX Recovery Handbook; 11 November 2024;https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-recovery-rules13 Reserve Bank of Australia, 2024/2025 Assessment of ASX Clearing and Settlement Facilities; September 2025;https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/assessments/asx/14 Reserve Bank of Australia, 2022/2023 Assessment of ASX Clearing and Settlement Facilities; October 2023;https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/assessments/asx/15 Reserve Bank of Australia, 2021/2022 Assessment of ASX Clearing and Settlement Facilities; September 2022;https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/assessments/asx/16 Reserve Bank of Australia, 2018/2019 Assessment of ASX Clearing and Settlement Facilities Appendix C1; September 2019;https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/clearing-and-settlement-facilities/assessments/2018-2019/17 ASX Limited Board Charter; 12 August 2025;https://www2.asx.com.au/content/dam/asx/about/asx-board-charter.pdf18 Clearing and Settlement Boards Charter; 24 June 2025;https://www.asx.com.au/content/dam/asx/about/cs-boards-charter.pdf19 Audit and Supervision Committee Charter; 3 June 2025;https://www.asx.com.au/content/dam/asx/about/audit-and-supervision-committee-charter.pdf20 Internal Audit Charter; May 2025;https://www.asx.com.au/content/dam/asx/about/asx-internal-audit-charter.pdf21 Technology Committee Charter; 3 June 2025;https://www.asx.com.au/content/dam/asx/about/technology-committee-charter.pdf22 People and Culture Committee Charter; 3 June 2025;https://www.asx.com.au/content/dam/asx/about/people-and-culture-committee-charter.pdf23 Nomination Committee Charter; 3 June 2025;https://www.asx.com.au/content/dam/asx/about/nomination-committee-charter.pdf24 Risk Committee Charter; 3 June 2025;https://www.asx.com.au/content/dam/asx/about/risk-committee-charter.pdf25 ASX Clearing Corporation Investment Policy; July 2017;https://www.asx.com.au/documents/clearing/asxcc-investment-policy.pdf* For the purposes of this survey, each of the documents listed in 1 to 12 above are together referred to as the “Rules”; and each of the documents listed in 1 and 2 above are together referred to as the “OTC Rules”. The OTC Rulebook prevails in the event of inconsistency between the OTC Rulebook and the OTC Handbook.The OTC Rules prevail if they are inconsistent with, or vary from, the Futures Rules.Each of the documents listed in 10 to 12 above are together referred to as the “Recovery Rules”. |
| 0.7 Reviewing Law Firms | Primary Reviewer (A18973603)Linklaters LLP Secondary Reviewer Milbank, Tweed, Hadley & McCloy LLP Australian law adviceAllensThe CCP has not yet reviewed the updated version of this survey and its contents remain subject to the CCP’s further comment. |
| 1. Governing law | |
| 1.1 What is the governing law of the Rules? | New South Wales law.The Clear (Futures) Rules are governed by, and will be interpreted in accordance with, the laws in force in New South Wales. The Recovery Rules and the OTC Rulebook are explicitly governed by New South Wales law.Hide noteFutures Rule 92 (Governing law and submission to jurisdiction) (as varied and/or supplemented by OTC Rulebook Rule 8.12 (Governing Law))ASX Clear (Futures) Rules, Rule 92.1ASX Recovery Rulebook, Rule 12.15 (Governing law) |
| 1.2 What is the governing law of the Contracts? | New South Wales law.Hide noteOTC Handbook Schedule 2 (OTC Terms) Para 3.9 (Governing law) |
| 2. Language(s) of the Rules | |
| 2.1 In which language are the Rules written? | English only. |
| 2.2 If the Rules are in more than one language, which one governs? | N/A |
| 3. Branches or operations in other jurisdictions | |
| 3.1 In what jurisdiction(s) other than its home jurisdiction does the CCP have branches or operations? | The CCP has offices in Hong Kong, London and Chicago.Hide noteCCP responses of 27 January 2017 |
| 3.2 If the CCP has branches or operates in multiple jurisdictions, please describe any CCP Rules pertaining to conflict of laws or choice of law. | N/A |
| 4. Legal opinions | |
| 4.1 Are any legal opinions or any other form of legal comfort in relation to any of the following publicly available? | No.Enforceability of the Rules (including settlement finality issues)No. Close-out netting in the event of a CM default (including in the context of or outside of insolvency)No. Close-out netting in the event of a CCP default (including in the context of or outside of insolvency)No. Bankruptcy remoteness of initial marginNo. IAS 32 issuesNo. Characterisation and enforceability of variation marginNo. Other (please specify)1No.The RBA 2018/19 Appendix C1 Assessment addresses the legal basis of the CCP and covers, amongst other areas, the enforceability of the Rules. Enforceability of the Rules (including settlement finality issues)2Based on the RBA 2018/19 Assessment Appendix C1:the Rules have legal effect under section 822B of the Corporations Act, having effect as a contract under seal between the CCP and each of its CMs, as well as each CM and each other CM; and each CM and each issuer;the legal certainty of settlement finality is supported by Austraclear’s approval as a real-time gross settlement system under Part 2 of the Payment Systems and Netting Act 1998 (Cth) (the “PSNA”), the approval of ASX Settlement Pty Limited’s netting arrangements under Part 3 of the PSNA and the Financial Legislation Amendment (Resilience and Collateral Protection) Act (2016) which amends the PSNA to provide additional legal certainty for real-time gross settlement systems that have been approved under the PSNA;the enforcement of security interests held by the CCP in the event of a CM default is protected by Part 5 of the PSNA;by virtue of the CCP’s status as an approved netting market, the effectiveness of: (i) market netting contracts, including contracts entered into in accordance with the rules of a netting market; and (ii) the process of novation outlined in the Rules, are protected by Part 5 of the PSNA; andthe enforceability of the CCP’s Rules in circumstances when a CM has entered external administration is protected by Part 5 of the PSNA.Hide note1 RBA 2018/19 Assessment Appendix C1, Standard 1 (Legal Basis)2 RBA 2018/19 Assessment Appendix C1, Standards 1.2 and 8.2 |
| 4.2 If not publicly available, are legal opinions or other form of legal comfort available if CMs take certain steps (e.g., sign a confidentiality agreement)? | Available via FIAFIA has obtained a number of different types of legal opinions for regulatory capital purposes that market participants are subject to. Generally, access to the legal opinions is through FIA’s online repository, which is password protected and open to paying documentation members subscribed to those particular opinions. Further information can be found on the FIA Documentation Services website (here) [Note to Integreon: please insert hyperlink here]. The full list of opinions is available here and here. [Note to Integreon: please insert hyperlinks here]. Please note that the FIA/ISDA netting opinions for US FCMs are available free of charge here. [Note to Integreon: please insert hyperlink here] For more information, please contact Mitja Siraj at FIA. Available from the CCPThe CCP has commissioned a number of legal opinions for the benefit of CMs and their Clients. However, these opinions are not publicly available and are only available on request. Enforceability of the Rules (including settlement finality issues)Yes. The CCP has obtained an opinion on the validity of the rights to port, and to terminate, Contracts on the default of the CM in accordance with Part 10 of the Rules. Close-out netting in the event of a CM default (including in the context of or outside of insolvency)Yes. Close-out netting in the event of a CCP default (including in the context of or outside of insolvency)Yes Bankruptcy remoteness of initial marginNo. IAS 32 issuesYes. Characterisation and enforceability of variation marginNo. Other (please specify):The CCP has commissioned a number of Australian law legal opinions relating to the Service. In summary, in these legal opinions, it is confirmed that: 1. Close-out netting between CM and Client under Client Clearing AgreementThe CCP’s client clearing legal model (the client protection model) does not affect the application of the PSNA to close-out netting of obligations owed between a CM and its Client under a close-out netting contract between them. 2. Enforceability of PortingThe transfer (porting) of rights and obligations of a CM, Client and the CCP, and the termination, valuation and netting of obligations of those parties, in accordance with the CPM Provisions of the Rules, would be validated by the PSNA. 3. APS 112 for ADI Clients with an individual Client AccountThe CPM Provisions as they apply to an individual Client Account satisfy the legal requirements underlying the matters set out in paragraph 25 of APRA’s Prudential Standard APS 112 (Capital Adequacy: Standardised Approach to Credit Risk) on which APRA may require an ADI to produce an independent legal opinion in order to obtain a concessional risk weighting. 4. APS 112/IAS 32 – Close-out netting against the CCPIf the CCP was subject to a payment default or insolvency event (as defined in the opinion), close-out netting of obligations under Contracts against the CCP in accordance with the relevant Rules would be validated by the PSNA.This summary is subject to the full content of the legal opinions, including the customary assumptions and qualifications.In addition, based on the RBA 2018/19 Assessment Appendix C1, the CCP may seek independent legal opinions on relevant legal matters relating to significant new services, including any implications that their introduction may have for the legal basis of existing functionality. These opinions may, in some circumstances, be shared with CMs or other stakeholders for their information, particularly to demonstrate that new Rules will have the intended legal effect1.The CCP analysis of potential conflicts of law across jurisdictions has identified no material legal risks. ASX Legal reviews existing legal opinions on a case-by-case basis where there are changes to legislation covered by the opinions, material changes to the Rules or new business initiatives that may impact the scope of the opinions. Additionally, ASX Legal management periodically meet to assess whether any changes in law or business activities mean that existing legal opinions should be updated2.Hide noteCCP responses of 6, 16 February and 20 April 20151 RBA 2018/19 Assessment, Appendix C1, Standard 1.42 RBA 2018/19 Assessment, Appendix C1, Standard 1.6 |
| 5. CM legal opinions | |
| 5.1 Is a CM required to deliver opinions regarding the enforceability of the Rules against the CM in the CM’s jurisdiction? | Yes, an applicant intending to become a CM under the Service must provide such legal opinions in respect of the enforceability of the OTC Rules, the OTC Handbook and, if necessary, the Futures Rules against it as the CCP requires.Hide noteOTC Handbook Para 2.4 (Application to become an OTC Participant) |
| 6. CMs incorporated in different jurisdictions to the CCP | |
| 6.1 Are CMs not incorporated in the jurisdiction of the CCP permitted? | Yes. CMs not incorporated in the jurisdiction of the CCP (Australia) are permitted under the Rules. However, the applicant is required to either be:an Australian bank or an Australian subsidiary of an Australian bank;a bank which is regulated by the Reserve Bank of New Zealand in accordance with the Reserve Bank of New Zealand Act 1989 (New Zealand); orhold an Australian Financial Services Licence (a licence granted by the Australian Securities and Investments Commission (ASIC) that authorises a person who carries on a financial services business to provide financial services), or a similar licence issued in a jurisdiction other than Australia, on the basis of which it is exempt from the requirement to hold an Australian Financial Services Licence.1In addition, as a matter of policy, the CCP does not currently accept applications for admission to the CCP from entities incorporated outside Australia unless they are a branch of a foreign bank from an approved jurisdiction* and they are authorised to carry on banking business in Australia. The CCP’s policy reflects the fact that banks as prudentially regulated entities are highly capitalised and well regulated. The CCP has a discretion under the Futures Rules to admit entities incorporated outside of Australia that do not satisfy the above policy.2Notwithstanding the requirement and CCP’s policy position above, the Rules contain several additional requirements relating to foreign CMs. These requirements are described below. Note also that the CCP has a discretion to impose additional requirements.3*Note: The Rules do not provide guidance on the meaning of the term “approved jurisdiction”. However, the CCP has stated the following4:““Approved jurisdiction” refers to a jurisdiction approved by ASX from time to time. ASX “approves” jurisdictions that exhibit prudential and securities and market regulation that aligns with international standards.”CM requirements: Foreign CMs and other CMs with overseas activityNotifications and approvals 5A CM that proposes to locate or relocate any part of its business as a CM outside Australia must comply with the requirements set out in the Procedures. The relevant Procedure requires the relevant CM to:provide prior written notification to the CCP including details of the proposed overseas activity;obtain and maintain all necessary regulatory approvals from any relevant governmental agency or regulatory authority in Australia or elsewhere in respect of the overseas activity and provide a copy of those regulatory approvals to the CCP upon request;comply with the directions of the CCP and any relevant governmental agency or regulatory authority in Australia or elsewhere concerning the conduct and supervision of the overseas activity; andnot engage in overseas activity of a type which would result in the CCP becoming subject to the jurisdiction of any relevant government agency or regulatory authority outside Australia without the prior written consent of the CCP.Note that the above requirements apply to all CMs who locate aspects of their activities as a CM overseas, regardless of whether they are incorporated or carry on business overseas. Tax disclosure 6If a CM is incorporated outside Australia (or conducts any part of its business as a CM outside Australia), the CM will be required to disclose certain forthcoming tax liabilities.By way of high-level summary of the relevant provisions, when any duty or tax is or may be payable (or when any withholding or deduction may need to be made) and before the transaction or agreement giving rise to such tax, withholding or deduction is entered into or accepted, CMs must disclose to various specified entities the nature of such tax, withholding or deduction together with the amount of the likely duty, tax or withholding or the appropriate rate of duty or tax. Indemnity 7Without limiting any other indemnity given by a CM under the Rules, each CM must indemnify the CCP in respect of any loss or damage (including but not limited to any tax or duty of any kind) caused to the CCP as a result of a failure by that CM to observe the requirements described above, under the headings “Notifications and approvals” and “Tax disclosure”. Personnel 8A CM must ensure, even if part of its business as a CM or some of its Employees are located outside Australia, that it has in place appropriate arrangements so that the CM and the CCP (and Related Bodies Corporate of the CCP) can communicate with each other and receive each other’s responses quickly on a day-to-day operational basis and so that the CM can promptly comply with the Rules or a request of the CCP (or a related body corporate of the CCP). Agent appointment 9A CM that is not incorporated or registered as a foreign company under the Corporations Act must:appoint an agent, approved by the CCP, which is resident in Australia for service of process in Australia generally (including, without limitation, by ASX and the ASIC);provide the CCP as soon as practicable with a copy of any agent’s acceptance of such appointment;inform the CCP of the intended effective date of any agent ceasing for any reason to act as agent for the CM; andif the agent informs the CCP of its intention to cease acting as agent as described in the third bullet point above, appoint as soon as practicable, and in any case before an outgoing agent ceases acting as agent for the CM, a new agent, approved by the CCP.Hide note1 OTC Rulebook Rule 2.3(a)(ii)-(iii) (Conditions to become an OTC Participant) Guidance Note 1 (Admission as a Participant)2 CCP responses of 27 January 20173 Rule 4.3A (Admission Requirements) 4 CCP responses of 27 January 20175 Futures Procedure 4.15A (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)6 Futures Rule 4.15A(a) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)Futures Rule 4.15A(b) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)7 Futures Rule 4.15A(c) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)8 Futures Rule 4.15A(d) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)9 Futures Rule 4.15A(e) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity) |
| 6.2 If so, is such a CM subject to any licensing or registration requirements in the jurisdiction of the CCP as a result of its status as a CM of the CCP? | By way of extremely high level summary (and therefore subject to qualifications and exceptions):a CM established in Australia or operating a financial services business or business in Australia that includes acting as a CM will almost certainly be subject to regulatory requirements (under the Corporations Act) in Australia; anda CM that is not established in Australia and is not operating a financial services business or business or conducting business activities (including providing services to Clients in Australia) in Australia will not be subject to regulatory requirements in Australia merely by reason of being a CM if the CM holds a licence issued in a jurisdiction other than Australia such that the CM is exempt from the requirement to hold an Australian Financial Services Licence.Hide noteOTC Rulebook Rule 2.3(a)(iii) (Conditions to become an OTC Participant)Corporations Act, section 21, 601CD and Chapter 5B.2 Division 2 more generallyCorporations Act, section 911A(1) and Part 7.6 more generallyASIC Regulatory Guide 121 |
| 7. Forum selection and submission to jurisdiction | |
| 7.1 Describe any CCP rules pertaining to forum selection and submission to jurisdiction. | The CCP, each CM and each CPM Client to which the CPM Provisions apply submit to the exclusive jurisdiction of the courts in New South Wales.Hide noteFutures Rule 92.2 (Governing law and submission to jurisdiction) |
| 8. Dispute resolution | |
| 8.1 Describe the dispute resolution provisions in the Rules, if any. | All disputes to be adjudicated by the courts as specified in item 7.Hide noteFutures Rule 92.2 (Governing law and submission to jurisdiction) |
| 9. CCP disclaimers | |
| 9.1 Describe any disclaimers of the CCP’s liability set out in the Rules. | The below are disclaimers of the CCP’s liability set out in the Rules. Please see item 148 for the limited recourse disclaimer set out in the Rules. General disclaimer1Yes.The Rules provide that if there is a breach, in relation to services, of any term, condition or warranty implied in the Competition and Consumer Act 2010 (Cth) or the Commerce Act of New Zealand, the liability of the CCP will be limited to the supplying of services again or payment of the cost of having the services supplied again.Where the Rules exclude or limit the liability of the CCP, releases the CCP from liability, or provides for an indemnity in favour of the CCP, then to the extent permitted by law, that exclusion, limitation, release or indemnity (as applicable) extends to the CCP’s officer, agent, delegate, person acting for or on behalf of the CCP and the CCP’s contractors as well as the CCP’s related body corporates and all their officers, persons acting for or on behalf of such related bodies corporate, agents, delegates or contractors of such related bodies corporate.Limit on CCP’s obligationsThe Rules provide that the CCP will not accept or bear any liability whatsoever in respect of the operation of any clearing system or otherwise, whether for any breach of a provision of any relevant legislation, any act or omission (whether negligent or not), injury, death, damage to physical property, any direct or indirect losses but not limited to lost profits, loss of files, loss of contracts, loss of data or use of data (including any error in information supplied or made available), loss of operation time or loss of equipment or process, economic loss, loss of reputation, or losses or damages incidental or consequential to the installation, use or operation of any clearing system.The Rules also provide that the CCP will not accept or bear any liability whatsoever in respect of any act done or omitted, in good faith and in the performance or purported performance of a function or power conferred on it by the Corporations Act or by any other legislative instrument or direction of any legislature or government authority having jurisdiction over it. Failure to supply dataYes. See under “General disclaimer” above and “Force majeure” below. Suspension of serviceYes. See under “General disclaimer” above and “Force majeure” below. System failure2Yes.The CCP makes no warranty (and accepts no liability) as to the effectiveness or performance or any other aspect or matter in connection with a Trade Source or a credit hub (as described in the OTC Handbook). The CCP is not liable or responsible for any corruption or alteration of messages or loss of data which may take place within any Trade Source or a credit hub.See also “General disclaimer” above and “Force majeure” below. Force majeure3Yes.Where the business of the CCP is materially adversely affected for any reason including, without limiting the generality of the foregoing, the intervention of any government or government authority or agency, fire, power failure or restrictions, communication breakdown, accident, flood, war or the threat of war, embargoes, boycotts, labour disputes, unavailability of data processing or bank clearance systems or act of God such that the CCP is unable to properly conduct the business of the CCP in whole or in part, the CCP will be released from its obligations under the Rules to the extent that the performance of such obligations are prevented or hindered in whole or in part by circumstances referred to above. See item 82.1 under Force Majeure – the CCP has the power to vary or modify the Rules to the extent that in its opinion is reasonably necessary in the circumstances and to take other steps. Physical emergenciesYes. A physical emergency occurs when a situation arises where the physical functions of the CCP are or are threatened to be severely and adversely affected by an event external to the trading of the CCP such as (but not limited to) fire, accident, flood, bomb threat, threat of violence, substantially inclement weather, power failure, communication breakdown, computer malfunction or danger to personnel.The Rules provide that no person will be entitled to make any claim or commence any action against the CCP, the Board or the person making the relevant decisions in respect of any decision made or action taken pursuant to the Rule relating to physical emergencies. Consequential lossYes. See under “General disclaimer” above. NegligenceNo. Agents/custodians/third parties4Yes. A CM may not assign, charge or declare a trust in respect of, or otherwise deal with its rights or privileges under the Rules. Subject to the CPM Provisions (to the extent to which they apply), the CCP need not recognise the interests of any person who claims to have an interest in the rights which a CM has under the Rules or against the CCP, and the CCP is not responsible for the performance or liabilities of any CM to any person. Market emergencyNo. Bespoke compression5The CCP makes no warranty and accepts no liability as to the effectiveness or performance or any other aspect or matter in connection with an approved compression service provider.Foreign Trading venuesNo. Statute of limitationsNo. Physical deliveriesNo. Other6Monies deposited with the CCPAny failure to invest or to invest in a particular way. Incorrectly registered TransactionsCorrections made to any incorrectly registered Transactions. Errors, corrections and related disputesYes. Adjustment, correction, imposition of condition(s), action, consequent impact (actual or potential) or determination made or taken by the CCP arising from its determination that an error has been made in relation to a calculation, payment, amount or similar under the Rules. Attestation of Delivery Readiness CMs must have an account at the Environmental Registry to be involved in delivery. Those without an account must have procedures to close out open client positions before the Final Trading Day cut-off, as specified in the Exchange’s Operating Rules. Additionally, they must provide an attestation as required by the Exchange.7 Exercise of its powers under the Recovery Rules8Yes. None of the CCP, any of its affiliates or any officers, employees, representatives, agents or contractors of the CCP or its affiliates is liable for any direct, indirect or consequential loss, liability, damage, cost or expense (including legal costs) whatsoever arising in any way (including but not limited to by negligence) from the exercise or attempted exercise of, failure to exercise, or delay in exercising, a power, right, discretion or remedy under the Recovery Rules of the CCP.Hide note1 Futures Rules 94.3 and 94.5 (Limit on Obligations of ASX Clear (Futures)) and Rule 23 (Extension of Indemnities and Disclaimers)2 OTC Rulebook Rule 4.3 (Submission of OTC Transactions)3 Futures Rules 81 (Emergency Situations – Physical Emergencies) and 82 (Force Majeure)4 OTC Rulebook Rule 2.10 (Relationship with ASX Clear (Futures))5 OTC Rulebook Rule 4.146 Futures Rules Rule 3.2.3 (Monies deposited with ASX Clear (Futures));7 ASX Clear (Futures) Operating Rules Rule 67.4 (Environmental Futures Contracts);8 OTC Rulebook Rules 4.7 (Incorrectly registered OTC Transactions) and 5.11 (Errors, corrections and related disputes)9 ASX Recovery Rulebook, Rule 12.7 (No liability for loss) |
| 10. CM recovery and resolution | |
| 10.1 Do the Rules contain provisions in respect of recovery and resolution procedures for CMs? | No. |
| 11 CM categories and membership requirements | |
| 11.1 Are there different categories of membership? | No. The CCP only offers 1 category of membership: admission as a “Clearing Participant”. In this survey, “Clearing Participants” are referred to as “CMs”.However, depending on the products cleared, the CM membership category is further divided into the following 3 sub-categories:BRC Participant;Futures Participant; andOTC Participant. BRC ParticipantA CM who notifies the CCP of its intention to undertake Bond and Repurchase Clearing and who complies with the Rules regarding Bond and Repurchase Clearing. * Futures ParticipantA CM who has been authorised to clear Futures Contracts and/or a BRC Participant. Such a CM does not have to be a Trading Participant (see below). * OTC ParticipantA CM who has been authorised to clear OTC Transactions through the CCP.There are 3 further categories based on approvals granted to the relevant CM and the functions it performs:Facility Participant;Guarantor Clearing Participant; andTrading Participant.To be an OTC Participant, an entity must be admitted as a Clearing Participant under the Futures Rules and authorised by the CCP to participate in OTC clearing in accordance with the Rules. Authorisation may be given to clear Transactions under the Service generally, or certain OTC transaction types only.If an entity which was an OTC Participant ceases to be a Clearing Participant, then it also ceases to be an OTC Participant.An OTC Participant need not be a Futures Participant. However, if a Clearing Participant who applies to be an OTC Participant is not a Futures Participant, it must have in place arrangements (which may not be withdrawn without the CCP’s consent) for a Futures Participant to clear Transactions which the applicant acquires in any default management auction.The CCP has stated that the aforementioned arrangements must be in place at the point of admission of the CM tothe CCP. Facility ParticipantA CM that has been approved by the Australian Securities Exchange Limited and holds an Australian Clearing and Settlement (CS) Facility Licence (a licence granted to the operator of a clearing and settlement facility in accordance with the Corporations Act that authorises it to operate a facility providing clearing and settlement services in respect of all products traded on the Australian Securities Exchange Limited). Guarantor Clearing ParticipantA CM who in accordance with the Exchange Operating Rules is the guarantor of Transactions of a Participant who is not a CM and who enters into or receives an allocation of a Transaction in accordance with the Exchange Operating Rules. A reference to a Guarantor Clearing Participant will include a Facility Participant. Trading ParticipantA Trading Participant of the Australian Securities Exchange Limited and/or the New Zealand Futures & Options Exchange Limited pursuant to the Exchange Operating Rules. A Trading Participant may or may not be a CM. Note: As discussed above, the CCP offers two services: the Service and the Futures Service (the latter being the subject of a separate survey). The Futures Rules comprise rules governing the Service as well as rules governing the Futures Service, and some provisions apply to CMs of the Service, as well as CMs of the Futures Service. In this survey which relates to the Service, CM has been used primarily (although not exclusively) to refer to an OTC Participant. Where CM is used to refer to a Futures Participant or either an OTC Participant or a Futures Participant, we will make it clear that this is the case.*Note: The rules covering BRC Participants and Futures Participants are the subject of a separate survey and are beyond the scope of this survey.Hide noteFutures Rule 1 (Definitions)CCP responses of 27 January 2017CCP responses of 18 February 2015OTC Rulebook Rules 2.2 (Becoming an OTC Participant) and 2.3(d) (Conditions to become an OTC Participant) |
| 11.2 What are the key requirements to become a member for each category of membership? Please include any operational, financial, or legal requirements. | Subject to its absolute discretion to grant or refuse admission, the CCP will admit an applicant as a CM if the applicant:applies to the CCP by completing an application form in the form prescribed by the CCP (as described in item 11.3);satisfies the applicable admission requirements; andpays the relevant application fee, determined by the CCP and set out in the CCP’s published schedule of fees, available at: https://asxonline.com/content/dam/asxonline/public/documents/schedule-of-fees/asx-clearing-and-settlement-schedule-of-fees.pdf.1A high-level summary of the admission requirements is set out below. Detailed guidance on the requirements for admission, the admission procedure and how to prepare an application form are set out in the CCP’s Guidance Note 1 (Admission as a Participant), available at: .https://www.asx.com.au/documents/rules/asx_clear_futures_guidance_note_01.pdfhttps://www2.asx.com.au/content/dam/asx/rules-guidance-notes-waivers/asx-clear-(futures)-operating-rules/guidance-notes/asx_clear_futures_guidance_note_01.pdf. Exchange requirements2None. A CM does not have to be a Trading Participant of the Australian Securities Exchange Limited and/or the New Zealand Futures & Options Exchange Limited. Authorisation/licensing requirements3For applicants to be eligible for admission as a CM, the applicant must satisfy the CCP that it:is a body corporate carrying on business in its own right and not in the capacity of a trustee of a trust; andholds an Australian financial services licence which authorises the applicant to carry on its business as a CM (unless such a licence is not required by the Corporations Act).The above requirements are continuing requirements that must be satisfied by CMs at all times.The CCP may request an applicant to provide such information as the CCP considers necessary to establish whether the applicant satisfies the admission requirements.4See items 6.1 and 6.2 for authorisation/licensing requirements in respect of CMs not incorporated in Australia. Financial requirements5A CM must:have:if it is an Australian bank, a minimum Tier 1 capital of A$50,000,000; orif it is not an Australian bank, a minimum level of Net Tangible Assets equal to A$50,000,000; andlodge with the CCP the following financial information:if it is an Australian bank, the financial information prescribed in the OTC Handbook*; oror if it is not an Australian bank, the financial information required of a Clearing Participant in accordance with the Futures Rules.**The Financial Requirements of a particular CM may be determined by the CCP to be in excess of these requirements, having regard to:the number or value of Contracts held by the CM under the Service (where a CM is also a Futures Participant, the CCP may also have regard to both Contracts under the Service and contracts under the Futures Service)the CCP’s assessment of the CM’s risk under Contracts relating to the Servicethe requirement of insurersany other relevant factorA CM who is also a Futures Participant will only be required to comply with an amount equal to the greater of:the Financial Requirements applicable to it as a Futures Participant; andthe Financial Requirements applicable to it a CM under the Service.*No information is currently prescribed.**Note that in its notice reference number 0108.18.02 the CCP has provided for a waiver of this requirement for certain non-ADI CMs, subject to certain conditions.Technical requirementsSee the requirements described under the heading “Operational requirements” below. Operational requirements6Before its admission as a CM, applicants must provide to the CCP certification (in the form prescribed by the CCP) that it has adequate resources and processes in place to comply with its obligations as a CM under the Rules. For these purposes, “resources” include financial, technological and human resources and “processes” include management supervision, training, compliance, risk management, business continuity and disaster recovery processes.When assessing whether the applicant meets these requirements, the CCP may have regard to the matters set out in the Procedures and any other matters it considers appropriate.The Procedures require the applicant to have regard to:the Rules;the following guidance notes issued by the CCP:Guidance Note 1 (Admission as a Participant);Guidance Note 9 (Offshoring and Outsourcing) (see “Offshoring and outsourcing requirements” below); andGuidance Note 10 (Business Continuity and Disaster Recovery) (see “Business continuity requirements” below;the standards expected of financial services licensees set out in ASIC Regulatory Guide 104 (AFS licensing: Meeting the general obligations) and ASIC Regulatory Guide 105 (AFS licensing: Organisational competence) (which applies even if the applicant does not hold an Australian financial services licence); andany other matters specified in the form prescribed by the CCP for the purposes of certifying that the applicant has adequate resources and processes.If required by the CCP, the applicant must be able to demonstrate to the satisfaction of the CCP, at any time, the basis on which the certification is or was provided.Note that the adequate resource and processes requirements described above are continuing requirements that must be satisfied by CMs at all times.See also item 11.3 under the heading “Certification of the applicant’s resources and processes”. Key management requirements7For an applicant to be eligible for admission as a CM, the applicant must satisfy the CCP that it is of high business integrity. In order to do so, an applicant must provide to the CCP one of the following:if the applicant is an ADI, the applicant must confirm to the CCP that it has in place a ‘fit and proper’ policy that meets the requirements of the APRA Prudential Standard CPS 520. The applicant must be able to provide evidence of that policy to the CCP upon request at any time;if the applicant holds an Australian financial services licence which authorises it to carry on business as a CM, then the applicant must confirm to the CCP that it has in place measures to ensure its responsible managers are fit and proper persons, as required in the ASIC Regulatory Guides 105 and 2, which are also applied to any of its directors who are not responsible managers. The applicant must be able to provide evidence of those measures to the CCP upon request at any time;if the applicant is an existing participant of any ASX market or clearing settlement facility; orin any other case, the applicant must provide a statutory declaration to the CCP in relation to itself and from each of its directors.The applicant must indicate in its response to question A.4.1 of the application form which of these 3 opinions it is taking. If the application indicates it is taking the fourth opinion, the required statutory declarations must be attached to the application form as Annexure A6.The applicant must also consent to the CCP obtaining information on the credit worthiness of the applicant.The CCP may have regard to any other information in its possession from any source in assessing whether the applicant meets the business integrity requirement in the Rules.Note that the high business integrity requirements described above are continuing requirements that must be satisfied by CMs at all times.Market knowledge requirementsNot addressed in the Rules.Risk requirementsSee the requirements described under “Business continuity requirements”.Suitability requirementsSee the requirements described under “Key management requirements”.Offshoring and outsourcing requirements8Applicants intending to enter into offshoring or outsourcing arrangements must be able to demonstrate that they have complied with the CCP’s offshoring and outsourcing requirements.As described under the heading “Operational requirements” above, this is because:applicants are required to provide, before its admission as a CM, certification that it has adequate resources and processes in place to comply with its obligations as a CM under the Rules; andwhen providing such certification, the Procedures require applicants to have regard to the CCP’s Guidance Note 9 (Offshoring and Outsourcing) and, “key processes” set out in Schedule 1 to Guidance Note 1 (Admission as a Participant).By way of high-level summary of the CCP’s Guidance Note 9 (Offshoring and Outsourcing) (see http://www.asx.com.au/documents/rules/asx_clear_futures_guidance_note_09.pdfhttps://www2.asx.com.au/content/dam/asx/rules-guidance-notes-waivers/asx-clear-(futures)-operating-rules/guidance-notes/asx_clear_futures_guidance_note_09.pdf for further details):CMs may enter into “offshoring” or “outsourcing” arrangements (broadly, where the CM enters into arrangements with another party to perform, on a continuing basis, a business activity that could be performed by the CM, either inside or outside Australia) to conduct their business as a CM;CMs are responsible under the Rules for all actions and omissions of persons involved in its business as a CM (including, without limitation, its Employees), irrespective of where the business activities are conducted and by whom;accordingly, where applicants intend to enter into offshoring or outsourcing arrangements, the applicant must be able to demonstrate that it has appropriate processes to supervise those arrangements, so that they comply with all applicable obligations under the Rules;in order to demonstrate its supervision processes, the CCP expects applicants to:have a policy in place that requires the entry, variation or termination of a material offshoring or outsourcing arrangement to be approved at a senior level (e.g. by the board of directors or by a senior manager with delegated authority to enter into such arrangements) and which, if the entity is likely to enter into more than one offshoring or outsourcing arrangement, covers the below issues;establish clear guidelines for identifying what is material offshoring or outsourcing (the CCP considers an offshoring or outsourcing to be material if it involves a material business activity, i.e. a business activity which has the potential, if disrupted, to have a material impact on the ability of a CM to comply with its obligations under the Rules);undertake appropriate due diligence enquires before entering into an offshoring arrangement with a wholly-owned group entity or an outsourcing arrangement with another party;where outsourcing to a related body corporate or an unrelated third party, enter into legally binding service level agreements which, if material, address certain minimum requirements specified by the CCP;in respect of material offshoring arrangements, agree documented processes and procedures with the CM and the service provider which address certain minimum requirements specified by the CCP;comply with the notification requirements described in item 16 under the heading “Overseas activity and taxes”;have appropriate management supervision processes to ensure that any offshored or outsourced activities comply with all applicable obligations under the Rules; andconsider the impact that the entry into or termination of any offshoring or outsourcing arrangements may have on its various policies, procedures and processes. Business continuity requirements9Applicants must be able to demonstrate that they have complied with the CCP’s business continuity and disaster recovery requirements.As described under the heading “Operational requirements” above, this is because:applicants are required to provide, on or before its admission as a CM, certification that it has adequate resources and processes in place to comply with its obligations as a CM under the Rules; andwhen providing such certification, the Procedures require applicants to have regard to the CCP’s Guidance Note 10 (Business Continuity and Disaster Recovery) and, if required by the CCP, be able to demonstrate to the satisfaction of the CCP, at any time, the basis on which the certification is or was provided.By way of high-level summary of the CCP’s Guidance Note 10 (Business Continuity and Disaster Recovery) (see https://www2.asx.com.au/content/dam/asx/rules-guidance-notes-waivers/asx-clear-(futures)-operating-rules/guidance-notes/asx_clear_futures_guidance_note_10.pdf for further details):the CCP’s business continuity and disaster recovery requirements vary depending on whether the CM is classified as a “tier 1” or “tier 2”. A “tier 1” CM is a CM (other than an OTC-only CM) that: (i) clears or expects to clear more than 500,000 transactions per annum through the CCP; (ii) is a guarantor CM; or (iii) is advised by the CM that it is a tier 1 CM. Conversely, a “tier 2” CM is a CM that is not a tier 1 CM;all CMs must allocate overall responsibility for disaster recovery and business continuity to a nominated business continuity officer who is a senior member of the CM’s management team with the appropriate delegated authority and the requisite qualifications, skills and experience to understand and validate the design and performance of the CM’s disaster recovery and business continuity arrangements, and is responsible for overseeing the preparation, review, updating and approval of the CM’s disaster recovery and business continuity arrangements and ensuring that the CM meets the CCP’s business continuity and disaster recovery requirements. The nominated business continuity officer should (i) identify the core personnel needed to manage, recover and resume their clearing operations following a disruption and provide them with the facilities they need to do so within the recovery time objective stated in their business continuity plan; (ii) ensure that those core personnel have clearly defined roles and responsibilities under the business continuity plan and participate in business continuity fire drills to prepare them to perform those roles and responsibilities in the event of a disruption; (iii) keep an up-to-date allocation matrix indicating which core personnel are to relocate to alternate site or to work from home in the event of a disruption affecting a primary site; and (iv) ensure that all relevant personnel receive awareness training on what to do in the event of a disruption;the nominated business continuity officer may act as the CCP’s primary point of contact for discussions related to the participant’s disaster recovery and business continuity arrangements and any disruptions that may occur, or may appoint another person with the requisite knowledge and skills (a “primary business continuity contact”) to perform that role, A participant should notify the CCP within 10 business days of the appointment and any subsequent departure of its nominated business continuity officer and any other primary business continuity contactall CMs must have an up to date high level infrastructure diagram which represents the current state of the technology and communications infrastructure used to conduct the CCP’s operations. The diagram must identify the location of all primary and alternate sites that house the CM’s key technology components and personnel involved in the CCP’s operations and the communication links between each of those sites. Where a CM’s infrastructure is housed across multiple primary and/or alternate sites, the diagrams must clearly identify which elements of the CCP’s operations are housed at or connected to each relevant site. The infrastructure diagrams (for both current and future state arrangements, as applicable) must be provided to the CCP upon request;all CMs must have and maintain proper records of their key clearing systems and technology, including but not limited to records showing (i) hardware, software and infrastructure used to conduct the CCP’s operations; (ii) asset ownership and location; and (iii) support and maintenance arrangements, including indication of whether the arrangements are outsourced or offshored. The records and supporting documentation must be provided to the CCP upon request;all CMs must have a clearly identified system and technology replacement policy which includes a process to identify when assets are nearing their end of life;all CMs must conduct a business impact analysis covering a full range of potential disruption scenarios to their CCP operations and establish a business continuity plan which seeks to ensure that their CCP operations can be recovered and resumed following a disruption within the recovery time objective. The business continuity plan and any changes to it from time to time, should be signed-off by the nominated business continuity officer and approved by the appropriate senior management body. Each CM should ensure that its business continuity plan is securely stored in locations known to, and that can be readily accessed by all core personnel in the event of a disruption;all CMs must specify a recovery time objective following the initiation of its business continuity plan in their business continuity plans. If the CM (i) is a tier 1 CM, the recovery time objective should be a target of 2 hours (and no more than 4 hours) for critical CCP operations and no more than 4 hours for resumption of business-as-usual CCP operations; and (ii) is a tier 2 CM, the recovery time objective should be a target of 4 hours (and no longer than 6 hours) for critical CCP operations and no more than 6 hours for resumption of business-as-usual CCP operations; the CCP has acknowledged that in some cyber-related incidents there may be exceptions to the recovery time objectives;all CMs must comply with a variety of system resilience requirements in respect of the technology and facilities it employs to support its clearing operations. For example, (i) CMs must configure their technology and have plans and processes in place to ensure that in the event of disruption at their primary site, clearing operations can be recovered and resumed at an alternate site with minimal downtime and within the abovementioned recovery time objective stated in their business continuity plan; (ii) CMs should have error-message logs available at primary and alternate sites to facilitate prompt identification not the cause of disruptions to key systems or processes; (iii) where a CM’s infrastructure is housed across multiple primary and/or alternate sites, the CM must maintain its system resilience across each site to ensure that it can continue its normal levels of business as a CM in the event of a disruption to one or more sites or a loss of connectivity; (iv) CMs should consider whether their communications and network should have, at a minimum, dual communication lines into their working premises that are separated from one another in order to avoid a single point of failure; and (v) CMs should regularly review, at least once annually, how their systems and infrastructure can be designed to improve cyber resilience. CMs are expected to choose and align their arrangements to one or more of the latest global or national cyber standards and guidance. The arrangements should be implemented at all primary and alternate sites to ensure maximum security across all sites and to facilitate continuity of the CCP operations in the event of disruption, including a cyber-attack;in relation to connectivity to the CCP’s facility, the following requirements apply to CMs (other than OTC-only CMs), (i) connections must be in the name of the CM or related body corporate; (ii) connections must be used exclusively for the CM’s activities as a CM in ASX markets and facilities; and (iii) clearing gateways with direct connectivity to the facility must be located within Australia;all CMs should configure their technology and have plans and processes in place so that in the event of a technology disruption at their primary site there is minimal loss of data relevant to their clearing operations;all CMs should develop, maintain and practice a clearing defined and documented incident management plan, which can be applied to each disruption scenario provided for in the CM’s business continuity plan;all CMs must maintain proper records of disruptions impacting their CCP operations;a CM is responsible for all actions and omissions of persons involved in its business as a participant. This applies regardless of where the business activities are conducted and by whom. A CM is also required to have adequate resources and processes, including management supervision processes, to comply with its obligations as a CM under the Rules. This applies to all CM activities, including any that it may have outsourced or offshored. A CM must therefore have appropriate resources and processes to (i) develop its business continuity plan with due consideration to the dependencies on, and recovery of, any processes, systems or infrastructure managed by third parties performing outsourced or offshored activities; (ii) ensure its service level agreement any third party performing outsourced or offshored activities includes a requirement for the third party to have and maintain business continuity arrangements are appropriate and complementary to the CM’s business continuity arrangements and that they are sufficient to enable the CM to meet its recovery time objective stated in their business continuity plan; and (iii) supervise any outsourced or offshored activities to ensure they comply with the CM’s obligations under the CCP’s Rules and Guidance Note 10;all CMs should have and comply with change management policies and procedures that are designed and function to ensure changes to its clearing operations are thoroughly assessed, tested and authorised and that appropriate disaster recovery and roll-back arrangements are in place, before changes are implemented;all CMs should establish a framework which ensure that they are made aware of all material and relevant system and infrastructure changes initiated by vendors or service provides that may impact their CCP operations and that these too are subject to appropriate change management policies and procedures, are thoroughly assessed, tested and authorised, and that appropriate disaster recovery and roll-back arrangements are in place, before the changes are implemented. CMs must make their own independent assessment of the changes and the quality and extent of testing conducted by the vendor or service provider (and not rely on the vendor or service provider alone);all CMs should notify the CCP of any disruption that causes the CM to engage its business continuity plan and of any significant outage regardless of whether it has engaged its business continuity plan. Notifications should be made to the relevant departments within the CCP either via phone call or email;all CMs must also notify the CCP in writing (i) immediately, of any significant breach of, or non-compliance with, the disaster recovery and business continuity requirements using the ‘Self Reporting including Significant Breach’ form; and (ii) as soon as practicable after it has become aware of any fact or matter or intends to take any action that will or may affect its capacity to communicate reliably with the exchange system using the ‘Capacity to Communicate with ASX’ form. Notifications should be made via ASX Online;all CMs must notify the CCP via email (review.team@asx.com.au) of the appointment and any subsequent departure of their nominated business continuity officer and any other primary business continuity contact within 10 business days; andCMs should consider having their disaster recovery and business continuity arrangements reviewed periodically by their compliance function, internal or external auditor, or another part independent of the business unit primarily responsible for overseeing the preparation, review, updating and approval of those arrangements. Additional requirements10The CCP may impose, at the time a CM is admitted or at any later time, any conditions in addition to the above which it considers appropriate.The CCP must notify the applicant or the CM (as applicable) of any such additional condition(s) in writing.Hide note1 Futures Rule 4.1(as varied and/or supplemented by OTC Rulebook Rule 2.2 3 (Becoming an OTC Participant) and 2.3 (Conditions to become an OTC Participant) and 4.4A (Admission Requirements); Guidance Note 1 (Admission as a Participant)2 CCP responses of 18 February 2015; Corporations Act, section 822C3 Futures Rule 4.2(a) 4.2(b) (each as varied and/or supplemented by OTC Rulebook Rule 2.3 (Application to be an OTC Participant)), and 4.10 (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rules 2.5 (Approval of application) and 2.7 (Conditions on authorisation))4 Futures Rules 4.3 (Admission Requirements)5 Futures Rule 4.10 (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.5 (Approval of application) and 2.7 (Conditions on authorisation)); OTC Rulebook Rule 3.3 (Financial Requirements of OTC Participants); Futures Rules 8.2 (Financial Requirements); Schedule 9 (Miscellaneous Prescriptions by Board),6 Futures Rule 4.2(e) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant)) and 4.10 (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.5 (Approval of application); Futures Procedure 4.2(e) (Organisational Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant))7 Futures Rule 4.2(c) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant)) and 4.10 (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.5 (Approval of application); Futures Procedure 4.2(c) (Business Integrity Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant))8 Futures Rule 4.2(e) (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant)); Futures Procedure 4.2(e) (Organisational Requirements) (ay OTC Rs varied and/or supplemented bulebook Rule 2.4 (Application to be an OTC Participant)); Futures Rule 4.11A (Responsibility for individuals involved in business); Guidance Note 9 (Offshoring and Outsourcing); Guidance Note 8 (Notification Requirements)9 Futures Rule 4.2(e) (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant)); Futures Procedure 4.2(e) (Organisational Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant)); Guidance Note 10 (Business Continuity and Disaster Recovery) 10 Futures Rule 4.5 (Admission Requirements) |
| 11.3 What documents must CMs sign or agree to in order to be a CM? | Application form and fee1In order to be admitted as a CM, an applicant must submit:an application in the form required by the CCP duly executed by the applicant;such information and evidence concerning the applicant as the CCP may require;an undertaking by the applicant in the form required by the CCP to abide by the Rules and the Futures Rules as varied from time to time;an application fee of an amount determined by the CCP; andsuch other documents, information or evidence as are set out in the OTC Handbook of the Rules.The application form and the documents included as annexures (described below under the heading “Annexures to the application form”) together address the majority of the CCP’s admission requirements, as described in item 11.2.The CCP’s application form and schedule of fees are available at: https:/www.asxonline.com/public/documents/participant-application-kit/application-documentation-for-asx–asx-24–asx-clear–asx-clear-.html; andhttps://asxonline.com/content/dam/asxonline/public/documents/schedule-of-fees/asx-clearing-and-settlement-schedule-of-fees.pdf Detailed guidance on the requirements for admission, the admission procedure and how to prepare an application form are set out in the CCP’s Guidance Note 1 (Admission as a Participant), available at: https://www2.asx.com.au/content/dam/asx/rules-guidance-notes-waivers/asx-clear-(futures)-operating-rules/guidance-notes/asx_clear_futures_guidance_note_10.pdf. Annexures to the application form2When preparing an application form, applicants must attach or annex the following documents:(1) Objectives statement (as Annexure A1)A statement outlining the applicant’s objectives for becoming a CM, including the types of business it wishes to conduct, the types of products in which it wishes to transact, and its target clients (including whether they are retail and/or wholesale and where they are, or are likely to be, located). (2) Group structure chart (as Annexure A2)A group structure chart showing the applicant’s corporate ownership structure from its ultimate holding company to the applicant and from the applicant to all of its subsidiaries (including any nominee company). It must also show the relationship between the applicant and any other group entity with which it has, or proposes to have, inter-group balances. (3) Management structure chart (as Annexure A3)A management structure chart showing the key personnel involved in managing the applicant’s proposed CCP activities and their titles, roles and reporting lines. (4) Technology process flow diagram (as Annexure A4)A technology process flow diagram showing the key systems that the applicant intends to use to conduct its proposed CCP activities and the process flows between those systems and the CCP’s systems (the technology process flow diagram should also contain sufficient information to allow the CCP to assess whether the applicant will have the necessary technical resources to communicate reliably with the clearing system and correctly process clearing messages). (5) Australian financial services licence(as Annexure A5) 3Depending on the circumstances of the applicant (as described in the CCP’s Guidance Note 1 (Admission as a Participant)), a full copy of the applicant’s existing Australian financial services licence and/or any associated applications, variations and reliefs or, as the case may be, a copy of a legal opinion from a recognised Australian law firm confirming that the applicant is not required to hold an Australian financial services licence. (6) Statutory declarations (as Annexure A6)If the circumstances described in item 11.2 under the heading “Key management requirements” apply, statutory declarations to the CCP in relation to itself and from each of its directors. (7) Certification of the applicant’s resources and processes (as Annexure A7) 4Unless the applicant elects to submit it at a later stage, written certification to the CCP that it has the resources and processes in place to comply with its obligations under the CCP’s Rules (see item 11.2, under the heading “Operational requirements”).To be able to demonstrate the basis on which the certification is provided, the CCP expects the applicant to have documented its key processes for meeting its obligations under the Rules and to be able to produce an internal sign-off from a director, chief executive, head of compliance or other senior officer at the applicant that lists those documented processes and states that the signatory is satisfied that they are sufficient for the applicant to comply with its obligations under the Rules.The key processes for these purposes are listed in Schedule 1 of the CCP’s Guidance Note 1 (Admission as a Participant). (8) List of authorised signatories and nominated contacts (as Annexures F6 and A8, respectively) 5Unless the applicant elects to submit them at a later stage, a completed and signed ASX Authorised Signatory Appointment Form (nominating individuals with the authority to sign documentation and to deal with operational issues on its behalf) and a completed and signed ASX Online Initial Access Form to nominate at least two individuals to access the ASX web-based system interface known as ASX Online. The individuals will be granted permission to access ASX Online as ‘Enterprise Administrators’ for the applicant entity and will be responsible for setting-up ‘roles’ in ASX Online. (9) Audited financial statements (as Annexure F4)In respect of applicants that are not ADIs, its last audited financial statements including every attachment required by law.If the applicant does not have audited financial statements, it must provide an income statement and balance sheet drawn up in accordance with the provisions of the Corporations Act (or equivalent foreign legislation), to the extent applicable, signed by at least 2 directors of the applicant. (10) Client Clearing Agreement pro forma(as Annexure F5) 6In respect of applicants intending to clear for Clients (including any related body corporate), a pro forma of its Client Clearing Agreement, highlighting where the minimum terms required by the CCP are contained. (11) Foreign applicants’ agency appointment (as Annexure A9) 7In respect of foreign applicants that have appointed an agent in Australia for the service of process, a copy of the appointment and the agent’s acceptance of the appointment (as described in item 6.1, under the heading “CM requirements: Foreign CMs and other CMs with overseas activity – Agent appointment”). (12) Exemption to hold an Australian financial services licence (as Annexure A10)In respect of foreign applicants that:have, or are seeking, an ASIC exemption from the requirement to hold an Australian financial services licence on the basis of a licence it has in a foreign jurisdiction; ormaintain that it is not required to hold an Australian financial services licence but have a licence in a foreign jurisdiction that will cover its activities with the CCP,a document providing details of the law under which that licence is issued and a copy of that licence. Business continuity arrangements8In addition to the application form, applicants seeking admission to the CCP must provide:a copy of its business continuity plan for its CCP activities;a copy of its business continuity plan infrastructure diagram; anda completed business continuity plan self-assessment survey.The CCP’s business continuity plan self-assessment survey has further information about what should be included in the applicant’s business continuity plan and infrastructure diagram.An editable version of the CCP’s business continuity plan self-assessment survey is available at: https://asxonline.com/content/dam/asxonline/public/documents/application-forms-andsupporting-documentation/bcp-self-assessment-survey.pdfSee also item 11.2, under the heading “Business continuity requirements”. Additional requirements9The CCP may request that an applicant provides any information or evidence which the CCP thinks fit. Where the CCP admits an applicant as a CM, the CCP may at that time or at any later time, impose any conditions on the CM which it considers appropriate.Consequently, the CCP may require applicants to submit documents other than those listed above.Hide note1 Futures Rule 4.1(as varied and/or supplemented by OTC Rulebook Rule 2.2 3 (Becoming an OTC Participant) and 2.3 (Conditions to become an OTC Participant); OTC Rulebook Rule 2.4 (Application to be an OTC Participant)2 Guidance Note 1 (Admission as a Participant)3 Futures Rule 4.2(b) (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant))4 Futures Rule 4.2(e) (Admission Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant)); Futures Procedure 4.2(e) (Organisational Requirements) (as varied and/or supplemented by OTC Rulebook Rule 2.4 (Application to be an OTC Participant))5 Futures Rule 4.14(ea) (General Conduct of Clearing Participants); Guidance Note 1 (Admission as a Participant)6 Futures Rule 4.14(j) (General Conduct of Clearing Participants)7 Futures Rule 4.15A(e) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)8 Guidance Note 1 (Admission as a Participant)9 Futures Rule 4.5 (Admission Requirements); OTC Rulebook Rule 2.4 (Application to be an OTC Participant) |
| 11.4 Are exceptions made to these standard requirements and what is the governance process for such exceptions? | The CCP may where it believes to be just and equitable, and to the extent permitted by law, and on payment of the application fee (if any) prescribed by the Board, exempt a CM or a Client or any person or class of CM or Client from compliance with such provisions of the Rules and on such conditions as it sees fit. The CCP may at any time revoke such exemption. A breach of a condition imposed in respect of an exemption will be deemed to be a breach of the Rules.The CCP therefore has discretion potentially to exempt a CM from some or all of the CM membership requirements.In special circumstances to the CCP’s satisfaction, and with the CCP’s consent, a person not satisfying the requirements for becoming a CM under the Service may nevertheless apply to become a CM under the Service.The CCP’s approval to authorise a CM under the Service may be limited to a particular OTC transaction type.Hide noteFutures Rule 9A.3.8 (Exemptions)OTC Rulebook Rule 2.3 (Conditions to become an OTC Participant)OTC Rulebook Rule 2.5 (Approval of application) |
| 12. CM evaluation requirements | |
| 12.1 Are CMs required to demonstrate/share how they evaluate and monitor their house and Client related exposure and positions? | Not addressed in the Rules. However, the CM is required to maintain such accounting records as correctly record and explain the transactions of the CM and the financial position of the CM and in addition will enable compliance with the Rules to be conveniently ascertained by the CCP, such records to be maintained in a form that will enable them to be conveniently and properly audited.Hide noteFutures Rule 4.14(i) (General conduct of Clearing Participants) |
| 13. Use of third-parties to meet membership requirements | |
| 13.1 Can the CM meet any of the membership requirements by using a third-party? | Not addressed in the Rules.The CCP has advised that a CM can outsource the following:Operational processesAccount establishment obligationsMonitoring establishment obligationsAudit requirementsRecord requirementsMinimum technical requirements for accessBusiness continuity planning and disaster recoveryCompliance and risk management frameworks (but only partially, refer below) The CCP has advised that a CM cannot outsource the following:Licensing requirements authorising the entity to act as a CMIts obligation to be of high business integrityIts financial requirements (including the payment of margin and default fund contributions)Its requirement to ensure that it has adequate risk and compliance arrangements including the supervision of any agent’s performance under any outsourcing contract and compliance with the Futures RulesIts default management obligations under the OTC RulesHide noteCCP responses of 27 January 2017Guidance Note 9 (Offshoring and Outsourcing) |
| 13.2 If so, please provide the specifics of who can serve as a third-party (including any approval right of the CCP). | The specifics of who can serve as a third party is not addressed in the Rules.The CCP considers the entry or termination of a material outsourcing arrangement by a CM to be a material change in information concerning its business. A CM must therefore immediately notify the CCP if it enters into or terminates a material outsourcing arrangement. An outsourcing arrangement is considered by the CCP to be “material” if it involves the outsourcing of a material business activity. A “material business activity” is one that has the potential, if disrupted, to have a material impact on the ability of a CM to comply with its obligations under the Futures Rules.Hide noteFutures Rule 4.14(db)Guidance Note 9 (Offshoring and Outsourcing) |
| 13.3 Is the third party required to provide any guarantee or be subject to diligence by the CCP? | The Rules do not require the third party to provide any guarantee or be subject to diligence by the CCP, but CMs are themselves required to undertake appropriate due diligence before entering into an offshoring arrangement with a wholly-owned group entity or an outsourcing arrangement with another party.Furthermore, where the offshoring or outsourcing arrangement is a material one, then the CCP would expect the CM to be able to provide documentary evidence of its due diligence enquiries and their outcome (the CCP considers an offshoring or outsourcing to be material if it involves a material business activity, i.e. a business activity which has the potential, if disrupted, to have a material impact on the ability of a participant to comply with its obligations under the Rules).The due diligence enquiries should address as a minimum the areas set out in the CCP’s Guidance Note 9 (Offshoring and Outsourcing).Hide noteGuidance Note 9 (Offshoring and Outsourcing) |
| 14. CM minimum rating requirements | |
| 14.1 Are CMs subject to a minimum rating requirement? | No such requirement specified in the Rules. |
| 14.2 If so, what is it? | N/A |
| 15. CM information requirements | |
| 15.1 What information (financial and non-financial) do CMs have to provide to the CCP routinely? | The CCP requires CMs to provide the below information on a routine basis. See item 16 for details regarding the information which CCP requires CMs to provide on a less frequent, non-routine basis (for example, upon the occurrence of certain events).A summary of the notification requirements (including how notifications are submitted in practice) is set out in the CCP’s Guidance Note 8 (Notification Obligations), available at: https://www.asx.com.au/content/dam/asx/rules-guidance-notes-waivers/asx-clear-futures-operating-rules/guidance-notes/asx-clear-futures-guidance-note-08.pdfNote that where a CM is also a participant in another market or clearing and settlement facility operated by the CCP or a related body corporate of the CCP and the notice being provided relates to both participations, a notice given to the CCP or a related body corporate of the CCP in accordance with the operating rules of that other market or facility is taken to be given to the CCP in accordance with the Rules1. Financial information2Each CM is required:to provide to the CCP an annual audit certificate in the prescribed form (set out in in the appendix to the Procedures) within 3 months of its financial year end unless the CM is an ADI;to notify the CCP in writing of:any changes to a CM’s financial year end, within 10 Business Days of the change taking effect; andthe appointment, removal or resignation of an auditor, no more than 10 Business Days after the event.In addition, each CM is obliged to lodge with the CCP any of the following documents:if it is an Australian bank, the financial information prescribed in the OTC Handbook*; orif it is not an Australian bank, a statement of its financial position as at the end of each month by no later than the prescribed date or such other date as the Board may require.*No information is currently prescribed.Furthermore, each CM is required to immediately advise the CCP if:the value of its financial position at any time is less than 150% of the Financial Requirements (see item 11.2);the value of its financial position is less than 150% of the Financial Requirements and has decreased by more than 20% since the last advice provided to the CCP;its financial position has varied such that it exceeds the position limits prescribed;its financial position has altered in such circumstances as are prescribed in the schedules to the Rules; oran event of default occurs or the CM has reasonable grounds to suspect that an event of default may occur. CMs incorporated outside Australia or which conduct any part of its business as a CM outside Australia must disclose certain tax related information (as described in item 6.1, under the heading “CM requirements: Foreign CMs and other CMs with overseas activity – Tax disclosure”).CMs are obliged to prepare accounts and returns in accordance with accounting standards issued by the Australian Accounting Standards Board, unless the CCP approves or prescribes otherwise (in particular, the Procedures require CMs that are foreign ADIs to prepare their accounts and returns in accordance with the accounting standards applicable to the foreign ADI in its home jurisdiction). Group structure chart3Unless the CM is an ADI, each CM must provide to the CCP a copy of the CM’s group structure chart as at 30 June each year, by the following 31 July. This notification should be lodged via ASX Online.The chart should show the CM’s corporate ownership structure from its ultimate holding company to the CM and from the CM to all of its subsidiaries (including any nominee company). It must also show the relationship between the CM and any other entity with which it has inter-group balances.If the CM’s group structure chart has not changed from the last version provided to the CCP, the CM may satisfy this obligation by referring to the date on which that last version was provided to the CCP and stating to the CCP that the CM’s group structure chart provided to the CCP on that date has not changed. Change of licence4CMs are required to provide to the CCP a copy of any licence or approval granted to it by a regulatory authority to enable it to carry on its business as a CM and advise the CCP in writing immediately of any change to the licence or approval affecting its activities as a CM. Changes to the CM’s name or address5CMs must notify the CCP in writing of the following changes before they become effective:any change to the CM’s name, or any name under which the CM carries on business as a CM; orany change to any address at which the CM carries on business as a CM. Changes to directors or authorised signatories6CMs must:advise the CCP in writing of any resignation or removal of a director within 10 Business Days; andpromptly notify the CCP in writing if any of the persons whose names are submitted pursuant to Rule 4.14(ea) (see item 11.3 under the heading “Annexures to the application form – (8) List of authorised signatories and nominated contacts”) cease to be authorised by the CM to sign the relevant documentation or to deal with clearing issues or if any new person is given that authority. Changes to CMs’ business7CMs must notify the CCP in writing immediately if there is any material change in information concerning its business as a CM from that previously provided to the CCP. , as soon as the CM determines that such change will occur. Incomplete, inaccurate or misleading information8A CM must ensure that all information which the CM or its Employees give to the CCP is complete, accurate and not misleading. If the CM becomes aware that information which it, or its Employees, has given previously to the CCP was incomplete, inaccurate or misleading, the CM must promptly notify the CCP in writing. Appointment or cessation of agent for service of process9Where the CM is not incorporated or registered as a foreign company under the Corporations Act, the CM must notify the CCP of the acceptance by an agent of its appointment as the CM’s agent for service of process in Australia as soon as practicable after the acceptance and the intended effective date of any agent ceasing for any reason to act as the CM’s agent for service of process in Australia.Business continuity plan10A CM must notify the CCP of any disruption (as soon as reasonably practicable after becoming aware of such disruption) that causes it to enforce its business continuity plan in relation to its CCP operations. A CM is also obliged to notify the CCP of any significant outage impacting its CCP operations as soon as it becomes apparent that there is (or likely to be) a significant outage, regardless of whether or not it has engaged its business continuity plan. See item 11.2 under the heading “Business continuity requirements” for additional notifications that the CM is required to give in relation to business continuity.Hide noteGuidance Note 8 (Notification Obligations)1 Futures Procedure 19.1 (Notice, Notification and Service of Documents)2 OTC Rulebook Rule 3.3 (Financial Requirements of OTC Participants); Futures Rule 4.14(a) and 4.14(ab) (General Conduct of Clearing Participants); Futures Procedure 4.14(a) (Annual Audit Certificate); Futures Rule 8.5(a) (Financial Requirements); Futures Rule 8.7 (Financial Requirements); Futures Procedure 8 (Financial Requirements); Futures Rule 4.15A(b) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)3 Futures Rule 4.14(ac) (Admission Requirements); Futures Procedure 4.14(ac) (Group Structure Chart)4 Futures Rule 4.14(b) (General conduct of Clearing Participants)5 Futures Rule 4.14(c) (General conduct of Clearing Participants)6 Futures Rule 4.14(d) and 4.14(ea)(ii) (General conduct of Clearing Participants)7 Futures Rule 4.14(db) (General conduct of Clearing Participants)8 Futures Rule 4.11C (Notification of significant breach)9 Futures Rule 4.15A(e)(ii) and 4.15A(e)(iii) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity)10 Guidance Note 8 (Notification Obligations) |
| 16. Additional CM information requirements | |
| 16.1 What additional information (financial and non-financial) can the CCP require CMs to provide? | The Rules require CMs to provide the following information on a non-routine basis or where requested by the CCP (in addition to that provided on a routine basis, as described in item 15).A summary of the notification requirements (including how notifications are submitted in practice) is set out in the CCP’s Guidance Note 8 (Notification Obligations), available at: https://www.asx.com.au/content/dam/asx/rules-guidance-notes-waivers/asx-clear-futures-operating-rules/guidance-notes/asx-clear-futures-guidance-note-08.pdf Financial information1In addition to the financial notifications described in item 15, CMs mustnotify the CCP in writing if an auditor has identified a significant issue in an ASIC Form FS 71 or equivalent report lodged with the ASIC pursuant to section 989B(3) of the Corporations Act; andprovide such additional statement(s) of its financial position, in such form(s) as the CCP may require, at such time(s) as it may direct.CMs are obliged to prepare accounts and returns in accordance with accounting standards issued by the Australian Accounting Standards Board, unless the CCP approves or prescribes otherwise (in particular, the Procedures require CMs that are foreign ADIs to prepare their accounts and returns in accordance with the accounting standards applicable to the foreign ADI in its home jurisdiction). Change of control2CMs must notify the CCP in writing immediately if a person who is not a controller becomes a controller or a person who is a controller ceases to be a controller.For these purposes, a controller is a person who controls the CM. The meaning of “control” for this purpose is determined by reference to section 50AA of the Corporations Act: an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity’s financial and operating policies. Change in financial or business conditions3Each CM is required to immediately advise the CCP if:the value of its financial position at any time is less than 150% of the Financial Requirements (see item 11.2);the value of its financial position is less than 150% of the Financial Requirements and has decreased by more than 20% since the last advice provided to the CCP;its financial position has varied such that it exceeds the position limits prescribed by the Rules (as described in items 39.1 and 39.2); orits financial position has altered in such circumstances as are prescribed in the schedules to the Rules. Insolvency or inability to comply with the Rules/Procedures4CMs are required to notify the CCP in writing immediately if the CM becomes aware of any event or circumstance which adversely affects or may adversely affect its financial position or solvency or its ability to comply with the Rules or the Procedures. Significant breach of the Rules/Procedures5Where a CM becomes aware that it has committed a breach of the Rules and/or the Procedures under Rule 4.11(f) and that breach is significant, the CM must immediately notify the CCP.A CM will have committed a breach of the Rules and/or the Procedures under rule 4.11(f) if that CM:undertakes any action, or course of actions which is contrary to a provision of the Rules or the Procedures; orfails for any reason to act in accordance with a provision of the Rules, including, without limitation, failure to maintain any document or record, failure to give any notice or notification, or failure to comply with an undertaking or condition, required by or imposed under the Rules or the Procedures; orfails to comply with or continue to comply with any requirement or condition for application for participation entitlements*.For the purposes of determining whether a breach is significant a CM must have regard to the following:the number or frequency of similar breaches;the impact of the breach on the CM’s ability to comply with any other Rule or Procedure or to conduct its business operations;the extent to which the breach indicates that a CM’s arrangements to ensure compliance with the Rules and Procedures are inadequate;the actual or potential financial loss to clients of the CM, or the CM itself, arising from the breach; andany other matters specified by the CCP from time to time.It is irrelevant that the breach may have been caused by a third party.A CM must make an objective assessment of the significance of each and every breach (or a series of related breaches) including frequency and number of minor breaches (as these breaches could be systemic) when determining whether the CCP should to be notified. A CM may use the guidance provided by ASIC on the corresponding obligation to notify ASIC of significant breaches of various financial services laws for assistance in their assessment.A one-off or infrequent breach may still be considered significant if it meets some or all of the criteria above.*Note: The Rules use the term “Participation Entitlements” but this is not defined. Professional indemnity (or equivalent) insurance notifications6As described in items 23.1 and 23.2, CMs must take out and maintain professional indemnity (or equivalent) insurance where acting for any person other than itself or a related body corporate.In connection with such insurance, CMs must immediately notify the CCP of any notification to its insurer of any claim, potential claim or circumstance that might give rise to a claim, that relates in any way to its activities as a CM and must include the following details:any circumstance which is likely to give rise to a claim or potential claim against the CM;the receipt of a notice from any person of any intention to make a claim or potential claim against the CM; andthe details of any claim, potential claim or circumstance against the CM including the gross contingent liability, the net contingent liability, the full name of the CM’s insurer and the date the CM notified its insurer of the claim, potential claim or circumstance.CMs must also advise the CCP of any other matter which the CCP requires in relation to any professional indemnity (or equivalent) insurance policy. Legal proceedings notification7CMs must notify the CCP in writing upon commencing or becoming aware that:a CM commences legal proceedings against, or has legal proceedings commenced against it by, another CM, a Trading Participant (as described in item 11.1), the ASIC or other regulatory authority or a Client in connection with its role as a CM; andthose legal proceedings may affect the operations of the CCP or the interpretation of the Rules. Regulatory action against the CM or an Employee8CMs must notify the CCP in writing on or before the next Business Day if the CM is informed by the ASIC or its delegates (or any other person authorised under the Corporations Act), an exchange, a market operator, a clearing and/or settlement facility or a regulatory body that action is being or may be taken against the CM or any of its Employees that relates in any way to its activities as a CM.*Note: This notification obligation applies even before the formal commencement or the conclusion of enforcement proceedings. Communication reliability9CMs must notify the CCP in writing as soon as practicable if it is unable to communicate reliably with the exchange system (being any system, including the clearing system, computer system or other electronic system utilised by the CCP or any of its Related Bodies Corporate from time to time in connection with any business of the CCP or any of its Related Bodies Corporate). This notification is lodged via ASX Online. Event of default10If an event of default occurs or if the CM has reasonable grounds to suspect that an event of default may occur, then the CM must immediately notify the Managing Director of the CCP. Ceasing clearing a category of Contracts11In the event that the CM intends to withdraw its authorisation to clear a category of Contracts, the CM must notify the CCP prior to the proposed date of withdrawal. Any such withdrawal is only effective in the circumstances described in item 71.1. Overseas activity and taxes12CMs must provide prior written notification to the CCP if it proposes to locate or relocate any part of its business as a CM (including any Employees or any hardware and software that provides the communications interface between the CCP’s and the CM’s systems) outside Australia.In addition, if the CM is incorporated outside Australia or conducts any part of its business as a CM outside Australia and that may have tax ramifications for the CCP or any other person bound by the Rules in relation to any transaction or agreement involving the CM, then the CM must inform the CCP of those ramifications before the relevant transaction or agreement is entered into.For further information, see item 6.1, under the heading “CM requirements: Foreign CMs and other CMs with overseas activity”).Hide note1 Futures Rule 8.5(b) (Financial Requirements) (as varied and/or supplemented by OTC Rulebook Rule 3.3 (Financial Requirements of OTC Participant)); Futures Rule 8.7 (Financial Requirements); Futures Procedure 8 (Financial Requirements)2 Futures Rules – Part 1 (Definitions); Futures Rule 4.14(da) (General Conduct of Clearing Participants); Futures Rules – Part 1 (Definitions); Corporations Act, section 50AA3 Futures Rule 8.5(a) (Financial Requirements)4 Futures Rule 4.14 (f) (General conduct of Clearing Participants)5 Futures Rule 4.11B (Notification of significant breach)Section 3 (Significant breaches), Guidance Note 85 Futures Rule 4.11(f) (Undertaking to Abide by the Rules)6 Futures Rule 4.14(e) (General conduct of Clearing Participants); Futures Procedure 4.14(e) (Professional Indemnity Insurance)7 Futures Rule 4.14(m) (General conduct of Clearing Participants)8 Futures Rule 4.14(n) (General conduct of Clearing Participants)9 Futures Rule 4.14(o) (General conduct of Clearing Participants)10 Futures Rule 71.1(a) (Existence of Default)11 Futures Rule 11.1(a) (Resignation)12 Futures Rule 4.15A(a) and 4.15A(b) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity); Futures Procedure 4.15A(a) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity) |
| 17. CCP rights to monitor CMs | |
| 17.1 What other rights does the CCP have to monitor the financial health of CMs and their compliance with the CM membership requirements (e.g., to visit a CM’s premises)? | Access to trading/financial information and recordsA CM is obliged to provide the CCP with immediate access to information and records concerning the CM’s trading and financial position, including the financial position of a related company if requested, whether for client or principal trading. The CCP may itself (or through an appointee) inspect the CM’s records.The CCP may, in addition, request the Australian Securities Exchange Limited or the New Zealand Futures & Options Exchange Limited (as applicable) or any related company to provide any information in its possession concerning a CM. The CCP may request (1) the Australian Securities Exchange Limited or the New Zealand Futures & Options Exchange Limited (as applicable) or the related company or (2) the CCP’s appointee to conduct an inspection of the CM in order to assist the CCP to obtain information.Hide noteFutures Rules 13.1 and 13.2 (Access to Records) |
| 18. CCP rights to enforce CM requirements | |
| 18.1 Is the CCP entitled to take any steps if a CM does not comply with the CM membership requirements, is downgraded or is subject to a material change regarding its status or financial health? | Oversight and enforcement action1The CCP is obliged to undertake the detection, investigation and determination of potential and alleged breaches of the Rules and the provision of fair procedures and the taking of enforcement action.The CCP is entitled to take action in accordance with the ASX Enforcement and Appeals Rulebook (ASX Enforcement and appeals rulebook) where it considers that a breach of the Rules may have occurred. Automatic suspension2A CM will be automatically suspended without a meeting of the Board being required if the CM is in breach of the Financial Requirements or the requirement to lodge a monthly statement of its financial position with the CCP and the breach is not rectified within 24 hours or such longer period as the Board may in its absolute discretion allow. CM event of default3Failure of the CM to meet any of its obligations under the Rules or any agreement or understanding entered into with the CCP or failure to comply with any reasonable directions of the CCP constitutes an event of default.See items 78.1 and 90.Hide note1 Futures Rules 9A.1.1 (Introduction and Oversight of Regulatory Affairs) and 9A.2(f) (ASX Clear (Futures) Investigation and Enforcement Function)2 Futures Rule 10.11 (Automatic Suspension), 3 Futures Rule 71.3(a) (Events of Default) (as varied and/or supplemented by OTC Rulebook Rule 6.4 (Events of Default)) |
| 19. Cross guarantees and cross default in respect of CMs | |
| 19.1 If affiliated companies are CMs of the CCP, are cross-guarantees required? | No.Hide noteCCP responses of 27 January 2017 |
| 19.2 Are there cross-default provisions relating to the default of an affiliate? | Various CM events of default apply to a related body corporate of the CM:an administrator or a similar person is appointed of the CM or a related body corporate of the CM;an application or an order is made, proceedings are commenced, a resolution is passed or proposed in a notice of meeting or an application to a court or other steps are taken for the winding up, dissolution or official management or administration of the CM or a related body corporate of the CM or the CM or a related body corporate of the CM enters into any arrangement, compromise or composition with related body corporate or assignment for the benefit of its creditors or any class of them; ora receiver, receiver and manager, administrator receiver, administrator or similar officer is appointed with respect of all or any of the assets and undertaking of the CM or a related body corporate of the CM.Hide noteFutures Rule 71.3 (e), (f)(i)(A) and (B), (h)(i) (Existence of Default) (as varied and/or supplemented by OTC Rulebook); Rule 6.4 (Events of Default)) |
| 20. Parent guarantees for CMs | |
| 20.1 Are parent guarantees mandated for CMs in specific circumstances? | No.Hide noteCCP responses of 27 January 2017 |
| 20.2 If so, what are the circumstances? | N/A. |
| 21. CM market data obligations | |
| 21.1 What types of market data are CMs required to provide to the CCP? | None. It is noted, however, that the CM’s obligation to provide information to the CCP (see item 17) is potentially broad enough to capture market data.Hide noteCCP responses of 27 January 2017 |
| 21.2 Is the CM’s obligation to provide market data mandatory or optional? | N/A. |
| 21.3 Can the obligation to submit market data (and to take on any penalty trades in connection with such submission) be outsourced to an affiliate of the CM or a third-party? | N/A. |
| 21.4 What does the CCP use the market data for? | N/A. |
| 21.5 What restrictions are imposed on a CM’s ability to disclose market data received from the CCP? | N/A. |
| 21.6 Are there penalties for failure to provide such market data or for providing insufficient or off-market data? | N/A. |
| 21.7 What rights and obligations does the CCP have regarding disclosure of market data received from CMs? | See item 22 on disclosure by the CCP of information provided by/on behalf of the CM pursuant to the Rules. |
| 22. CCP rights to disclosure | |
| 22.1 What rights and obligations does the CCP have regarding disclosure of other information in relation to a CM, an affiliate of a CM or a Client received from CMs? | The CCP may, where it considers appropriate, disclose information regarding its CMs and their activities that are relevant to the CCP to:the ASIC;the RBA;the APRA;Australian Securities Exchange Limited and/or New Zealand Futures & Options Exchange Limited;a clearing & settlement facilityany governmental agency or regulatory authority; andany clearing house, clearing and settlement facility or payments system (in Australia or elsewhere) in which a CM is a member, for the purpose of assisting the CCP or that clearing house, clearing and settlement facility or payments system to monitor the CM’s compliance or capacity to comply with its obligations or to manage a default by that CM.The CCP is obliged to take all reasonable measures to protect from unauthorised use or disclosure information provided to the CCP in confidence by or on behalf of a CM pursuant to the Rules.The disclosure of information in the following circumstances does not, however, constitute unauthorised use or disclosure: pursuant to a reciprocal arrangement (which is any agreement or arrangement between the CCP and any governmental agency or regulatory authority (including, without limitation, any market, clearing house or clearing and settlement facility), in Australia or elsewhere, whose functions include the regulation of trading in, or clearing and settlement of, financial products (in Australia or elsewhere) which provides for the disclosure of information between the CCP and the other party in relation to dealings in, or clearing and settlement of financial products (in Australia or elsewhere));required to be disclosed by the CCP under any law or any order of any court or tribunal, authority or regulatory body;which at the time of disclosure to or by the CCP, was generally available to and known by the public;for the purposes of monitoring compliance with, or the enforcement of, the Rules or the adjudication of those matters;to a related body corporate of the CCP, for the purpose of enabling that related body corporate to assess whether the CM is complying, will comply with or has complied with the operating rules of, or any contractual arrangement with, that related body corporate;to an approved market operator or approved settlement facility, for the purpose of enabling the approved market operator or approved settlement facility to assess whether the CM (or a participant of the Australian Securities Exchange Limited or the New Zealand Futures & Options Exchange Limited for whom the CM clears Futures Contracts) is complying with, will comply with or has complied with the approved market operator’s or approved clearing and settlement facility’s rules or procedures;to any governmental agency or regulatory authority including, without limitation, an exchange (including an approved market operator), market, clearing house or clearing and settlement facility (in Australia or elsewhere) which requests the CCP to provide the information to it, in the proper exercise of its powers relating to:the order and good government of participants; orthe efficient, honest, fair, competitive and informed trading, clearing and settlement of Futures Contracts (in Australia or elsewhere)any entity which provides financial backing or insurance to the CCP for the purpose of enabling that entity to assess the risk to the CCP or that entity from clearing activities generally or to assess any claim made in connection with a CM’s activities; andany clearing house, clearing and settlement facility or payments system (in Australia or elsewhere), whether or not pursuant to a reciprocal arrangement, for the purpose of assisting the CCP or that clearing house, clearing and settlement facility or payments system to monitor a CM’s compliance with its obligations or to manage a default by the CM.In the context of a default process, the Rules also provide that the CCP is not obliged to disclose information in respect of the default process which, in the reasonable opinion of the CCP, may be subject to obligations of confidentiality, may constitute market sensitive data or is, in the opinion of the CCP, inappropriate for disclosure to CMs.Hide noteFutures Rules 3.4.1 and 3.4.2 (Disclosure of Information)OTC Rulebook Schedule 3 Para 7 (Information regarding Default Management Process) |
| 23. CM indemnities | |
| 23.1 Do CMs (or their affiliates) provide an indemnity in favour of the CCP or any other party (including for any direct or indirect loss as a result of a default of another CM other than default fund contributions or assessments)? | The Rules do not provide for a general indemnity in favour of the CCP other than default fund contributions, but CMs acting for any person other than itself or a related body corporate must effect and maintain professional indemnity (or equivalent) insurance.Any indemnity in favour of the CCP, then to the extent permitted by law, extends to the CCP’s officer, agent, delegate, person acting for or on behalf of the CCP and the CCP’s contractors as well as the CCP’s related body corporates and all their officers, persons acting for or on behalf of such related bodies corporate, agents, delegates or contractors of such Related Bodies Corporate.Specific indemnities are also required in certain circumstances, as set out in item 23.2.Hide noteFutures Rule 4.14(e) (General conduct of Clearing Participants ) and Rule 23 (Extension of Indemnities and Disclaimers) |
| 23.2 If so, what is the scope of such indemnity? | Indemnities in relation to Transactions registered by CM’s related entity1CMs acting for any person other than itself or a related body corporate must effect and maintain professional indemnity (or equivalent) insurance that meets the requirements set out in the Procedures.Pursuant to the Procedures:each CM must determine (acting reasonably) that its professional indemnity (or equivalent) insurance policy is adequate, having regard to the nature and extent of the business carried on by the CM in connection with its business as a CM and the responsibilities and risks assumed or which may be assumed by the CM in connection with that business;all CMs must retain a copy of the certificate evidencing the professional indemnity (or equivalent) insurance; andthe professional indemnity (or equivalent) insurance must include insurance against a breach of duty it owes in a professional capacity, whether owed in contract or otherwise at law, arising from any act or omission of the CM and its Employees.If the professional indemnity (or equivalent) insurance is provided by a related body corporate, the CM must receive confirmation from the related body corporate that it is the insurer or the self-insurer covering and indemnifying the CM against the liabilities referred to in the relevant Procedure and retain a copy of the confirmation.In addition, under the Rules, the CCP may approve a related body corporate of a CM to be an “OTC Affiliate”. The effect of such approval is that Transactions entered into by an OTC Affiliate may also be registered as a Transaction of the related CM in its House Account.In that context, the related CM indemnifies the CCP and its officers etc in connection with the registration of the Transaction submitted by an OTC Affiliate, or any action or inaction by, any of the CCP or its officers etc in connection therewith, to the extent it was not caused by the negligence, fraud or wilful default of the CCP. Intellectual property rights infringement2Each CM indemnifies the CCP in respect of any claim by a third party for infringement of intellectual property right arising out of the CM’s use of the exchange system of the Australian Securities Exchange Limited or the New Zealand Futures & Options Exchange Limited in any manner prohibited by the Rules.The maximum liability of the CM to the CCP for such infringement is A$50,000,000. CM default3Each CM indemnifies the CCP and its officers etc. in respect of an event of default by the CM, or any action or inaction by, any of the CCP or its officers, representatives, agents or contractors in connection with the event of default (including any damages, costs or expenses incurred by the CCP in accordance with the Recovery Rules), to the extent that it was not caused by the negligence, fraud or wilful default of the CCP. Indemnity in relation to taxes4Each CM indemnifies the CCP for all taxes etc payable with respect to Contracts or the registration of Transactions or monies deposited by a CM with the CCP Grain Contracts5In respect of Grain Contracts, CMs are required to give various indemnities in favour of the CCP.Each CM indemnifies the CCP for losses arising in connection with (a) any failure to comply with the CCP’s direction to take an interest in the underlying commodity (being a quantity of the type of grain underlying the relevant Grain Contract(s)) which the CCP holds for the benefit of such CM (by way of a transfer or physical delivery) and (b) any exercise by the CCP of its powers (as a result of such failure) to dispose such interest.Each CM also indemnifies the CCP for losses arising from any representation (as to its capacity and authority to transfer to the CCP or request a transfer from the CCP of an interest in the underlying commodity) or warranty (that such interest in the underlying commodity is free from encumbrance) given by it being incorrect.Each CM for whom the CCP holds an interest in the underlying commodity under the Rules indemnifies the CCP for losses arising in connection with the holding of such interest. Foreign CMs and other CMs with overseas activity6CMs must indemnify the CCP in relation to any loss or damage (including but not limited to any tax or duty of any kind) caused to the CCP as a result of a failure of the CM to observe Rules 4.15A(a) to 4.15(c), relating to overseas activity and tax notifications/disclosures.See item 6.1 for details of the requirements of the Rules, under the headings “CM requirements: Foreign CMs and other CMs with overseas activity– Notifications and approvals” and “CM requirements: Foreign CMs and other CMs with overseas activity – Tax disclosures”.Hide note1 OTC Rulebook Rule 4.2 (OTC Participants act as principals); OTC Rulebook Rule 4.2A (OTC Participants may clear on behalf of OTC Affiliates); Futures Rule 4.14(e) (General conduct of Clearing Participants); Futures Procedure 4.14(e) (Professional Indemnity Insurance)2 Futures Rule 16.5(c) (Intellectual Property rights indemnity)3 Futures Rule 75.1 (Indemnity from Clearing Participants in Default); ASX Recovery Rulebook, Rule 12.0 (Defaulting Participants to indemnify the ASX CCP)4 Futures Rule 101.1 (Taxes and Charges)5 Futures Rules 14.4.7 – 14.4.10 (Holding the Interest) and Schedule 14 (Grain Contracts)6 Futures Rule 4.15A(c) (Foreign Clearing Participants and other Clearing Participants with Overseas Activity) |
| 24. Product coverage of the Service | |
| 24.1 Does the Service cover all products cleared through the legal entity or are other products cleared through other services in the same legal entity? | No. Other products are cleared through a different service in the same legal entity. The CCP separately conducts the Futures Service in respect of exchange traded products including Futures Contracts and Option Contracts, and Bond Transactions and Repurchase Agreements. |
| 25. Non-default losses | |
| 25.1 Does the CCP have the right to pass on to CMs non-CM-default losses? | Yes. The Rules permit the CCP to pass on certain investment losses exceeding A$75 million except to the extent that (i) the investment loss is a direct result of the fraud of the CCP, ASX Clear Pty Ltd or ASXCC or (ii) a material non-compliance by the CCP with its investment policy (the occurrence of such material non-compliance does not preclude the occurrence of an “investment default”). See items 166.1 and 166.2 for further details.ASX Limited (the holding company for the ASX group) has also committed to maintaining adequate levels of business risk capital for its CCPs (i.e. the CCP and the CCP operated by ASX Clear Pty Ltd) and securities settlement facilities, recapitalising these funds as required.Hide noteASX Recovery Rulebook, Rule 6 (Allocation of Investment Losses) |
| 25.2 If so, please describe how such losses are allocated and when an amount so allocated to a CM must be paid to the CCP. | See item 166.2 for details of how investment losses are allocated to CMs and when an amount so allocated to a CM must be paid to the CCP. |
| 26. CM’s liability for non-default losses | |
| 26.1 Is there a cap on a CM’s liability for non-CM-default losses? | Yes, for the investment losses and CM OM investment loss (see item 166.2 for a definition) passed on to a CM.Hide noteASX Recovery Rulebook, Rule 6 (Allocation of Investment Losses) |
| 26.2 If so, please describe the cap. | The Rules permit the CCP to pass on certain investment losses to a CM (see items 166.1 and 166.2 for the determination of the amount allocated to each CM) by reducing an amount so allocated to a CM in its account (including any Client Account), provided that no amount can be reduced to less than zero. Accordingly, practically speaking, the cap on a CM’s liability for investment losses is the amount paid by the CM to and being held by the CCP in the accounts of the CM (including any Client Accounts) at the time of the determination of the amount of investment losses allocated to the CM.Hide noteASX Recovery Rulebook, Rule 6 (Allocation of Investment Losses) |
| 27. Governing committees without CM representation | |
| 27.1 Are there governing committees on which CMs are not represented overseeing the management of the CCP? | Yes.The Rules do not include many provisions relating to committees (with or without CM representation). The responses in item 27 are based on the established committee charters and the CCP’s input. These committees are mostly established by the ASX group, and not necessarily specific to the CCP only.Hide noteClearing and Settlement Boards Charter; ASX Limited Board Charter |
| 27.2 If so, what are they? | The principal governance committees overseeing the management of the CCP are the ASX Limited Board and the CCP’s Board. The ASX group’s clearing risk policy framework additionally mandates specific management roles for a number of internal committees that bring together decision makers and experts from departments across the ASX group.Details of the ASX Limited Board, the CCP’s board and the various clearing risk policy framework committees are addressed below:ASX Limited Board and the CCP’s boardThe role of the ASX Limited Board is to provide leadership, strategic guidance and oversight for the ASX group and is ultimately accountable for the overall management and performance of the ASX group. Its key responsibilities include:defining the ASX group’s purpose and its strategic objectives;leading the behaviour and values of the ASX group in order to achieve its strategic objectives;setting the risk strategy and risk appetite of the ASX group;overseeing and monitoring the ASX group’s financial performance and overseeing ASX group’s achievement of its strategic objectives; andapproving expenditure that exceeds the limits delegated to the Managing Director and Chief Executive Officer (CEO).The ASX Limited Board Charter sets out further details of the matters that the ASX Limited Board is responsible for. The ASX Limited Board may and has delegated certain matters, as set out below:day-to-day management of the ASX group has been delegated to the CEO;responsibility for the performance of compliance and enforcement functions for the ASX group’s market has been delegated to the Chief Compliance Officer; andother matters have been delegated to the established board committees, as set out in more detail below (and in the respective committee charters).The Clearing and Settlement Board (the “CCP’s Board”) is the governing body of the CCP and provides oversight of the clearing and settlement operations of the CCP, including the management of clearing and settlement risk. The CCP’s board is responsible for (among other matters) overseeing the adequacy of management, systems and processes to achieve ongoing compliance with the CCP’s statutory obligations.The CCP board’s charter:elaborates on the roles, responsibilities, composition and operation of the CCP’s board;sets out the matters that it has delegated to the ASX Board Committees, the Managing Director and the CEO; andplaces requirements on the structure of the CCP’s board including that the majority of the non-executive directors and the Chair be independent.The CCP’s board meets as often as is necessary and receives detailed reports on the CCP’s risk management and financial performance. Any member of a CS Board may convene a meeting of the relevant CS Board at any time, subject to the quorum requirements.The boards comprise the following:The ASX Limited Board comprises directors with the skills and expertise necessary to discharge the ASX Limited Board’s responsibilities. The ASX Limited Board determines its size and composition, and the appointment of directors is made in consultation with the Nomination Committee. The ASX Limited Board will comprise a majority of directors who are non-executive and have been assessed by the ASX Limited Board as independent.The CCP’s boards determines their size and composition subject to the requirement that a quorum can be constituted by non-ASX limited directors. The CCP’s board comprises at least 50% non-executive directors who are also not directors of ASX Limited and have been assessed by the CCP’s board as independent. The appointment of directors is made in consultation with the Nomination Committee. The ASX Limited Board may appoint or remove directors on the CCP’s board.The following board committees advise the ASX Limited Board on a number of matters relevant to the management of the CCP:the Audit and Supervision Committee: The Audit and Supervision Committee is a senior management committee constituted to review and oversee the CCP’s consolidated financial reports and statements, the integrity of the CCP’s accounting and corporate reporting systems and liaise with and monitor the performance and independence of the CCP’s external and internal auditor.The Audit and Supervision Committee comprises at least three members who are independent non-executive directors of the ASX Limited Board. To assist with the flow of relevant information between Board Committees, the Chair of the Risk Committee will be a member of the Committee, and the Committee Chair will be a member of the Risk Committee. The Committee will collaborate with the Risk Committee in relation to matters that are relevant to the scope of Committee’s role and responsibilities.The Audit and Supervision Committee meets at least on a quarterly basis, or more frequently as required. Any member of the Committee may convene a meeting of the Committee at any time. It also meets separately with both the external and internal auditors at least on an annual basis, without management present.ASX Limited’s corporate governance framework is supported by internal audit, which provides independent, objective assurance and advisory services to the ASX Limited Board through the Audit and Supervision Committee and the CCP’s board (“Internal Audit”). Internal Audit is an independent assurance function established by ASX Limited management, with its primary purpose being to support the ASX Limited Board and ASX Limited management to protect the assets, reputation, reputation, resilience and sustainability of the ASX group.the Risk Committee: The Risk Committee is a senior management committee constituted to review and oversee the CCP’s process for identifying significant risks facing the ASX Group, the systems of the risk management internal control and compliance within the ASX group. This includes review of the ASX group enterprise risk framework for identifying, monitoring and managing compliance with laws and regulations as well as significant business risks across the ASX group.The Risk Committee comprises at least three members who are independent non-executive directors of the ASX Limited Board. To assist with the flow of relevant information between Board Committees, the Chairs of the Audit and Supervision Committee and the Technology Committee will be members of the Committee, and the Committee Chair will be a member of the Audit and Supervision Committee and the Technology Committee.The Risk Committee shall meet at least four times per year or more frequently if necessary to fulfil its responsibilities. Any member of the Committee may convene a meeting of the Committee at any time.the Technology Committee: The Technology Committee reviews, oversees and makes recommendations regarding the implementation of the ASX group’s technology, data and cyber security strategies and performance, as well as technology project implementation and operational incident management.The Technology Committee comprises at least five members who are independent non-executive directors of ASX Limited and the majority of members (including the committee chair) are required to be non-executive directors of ASX Limited. To assist with the flow of relevant information between Board Committees, the Chair of the Risk Committee will be a member of the Committee, and the Committee Chair will be a member of the Risk Committee.The Technology Committee meets at least on a quarterly basis, or more frequently if necessary. Any member of the Committee may convene a meeting of the Committee at any time.the People and Culture Committee: The People and Culture Committee oversees the remuneration, performance, incentive framework, workplace culture, health, safety and well-being for all staff, including the Managing Director and Chief Executive Officer, non-executive directors, senior executives and ASX staff more generally.The Committee will consist of at least three members. All members are to be independent non-executive directors of the Board. At least one member of the Committee will be a member of the Risk Committee.The Committee meets at least on a quarterly basis, or more frequently if necessary. Any member of the Committee may convene a meeting of the Committee at any time.the Nomination Committee: The Nomination Committee is responsible for reviewing and making recommendations to non-executive board members on matters relating to the process for nomination and selection, board composition and performance, succession planning, the independence of non-executive board members, gender diversity, and training for non-executive board members.The members of the Committee are appointed by the Board, in consultation with the Committee. The Committee will consist of at least three members, including the Chair of the Board, all of whom are independent non-executive directors of the Board.The Committee will meet at least two times each year or more frequently if necessary to fulfil its responsibilities. Any member of the Committee may convene a meeting of the Committee at any time.The respective board charters set out further details of the roles and responsibilities of the board committees.Hide noteASX Limited Board Charter; ASX Nomination Committee Charter; ASX Audit and Supervision Committee Charter; ASX Risk Committee Charter; Clearing and Settlement Boards Charter; ASX People and Culture Committee Charter; ASX Technology Committee Charter; Internal Audit Charter |
| 28. Risk committee | |
| 28.1 Are CMs represented on a risk committee? | Yes. CMs are represented on the risk committee of the CCP, but none of the CCP’s other internal risk committees (listed in item 27.2).Hide noteFutures Rule 20 (Risk Committee) |
| 28.2 What is the composition of the risk committee? | This is a single risk committee shared between the Service and the Futures Service.The risk committee consists of: CM representativesEach CM may nominate up to 2 representatives for the committee (each referred to as a risk committee member).A person may not be nominated to be a risk committee member unless that person (1) has appropriate expertise and experience in relation to the matters to be considered by the risk committee and (2) is acceptable to the CCP in its reasonable discretion.Client representativesThe CCP may invite up to 5 Clients to nominate a single representative for the risk committee, providing the Client:satisfies the following criteria:is a Wholesale Client (as defined under the Corporations Act) of one of the CMs (and their nomination to the risk committee is supported by their CM);has maintained an individual sub-account for a minimum of 6 months;at the time of selection, has a minimum margin requirement of greater than A$2,000,000; andis not a related body corporate of a CM; orsatisfies other criteria determined by the CCP in consultation with the risk committee from time to time.However, a person may not be nominated to be a risk committee member unless that person:has appropriate expertise and experience in relation to the matters to be considered by the risk committee; andis acceptable to the CCP in its reasonable discretion.The number of Client representatives at any given time cannot exceed 5. CCP appointeesThe CCP may select and appoint any number of further members to the risk committee in its sole discretion, where this is necessary in order for the CCP to meet requirements under applicable law with respect to the composition of the risk committee. Change of risk committee membersA CM or Client may, at any time, notify the CCP that it intends to change a nominated risk committee member by nominating a replacement nominee. Once accepted by the CCP, the replacement nominee replaces the previous nominee on the risk committee. Related bodies corporateIf 2 or more CMs are or become related bodies corporates, as determined by the CCP, such CMs are entitled to appoint a maximum of 2 representative to the risk committee between them.If at any time CMs (which are related bodies corporate) have appointed more than two risk committee members, such CMs will promptly notify the CCP of the two risk committee members who will represent them in the future.ChairpersonThe risk committee will appoint a risk committee member by majority vote to serve as chairperson.Risk committee secretaryThe CCP will serve as secretary and will perform administrative duties. Suspension of membershipA risk committee member will be suspended as risk committee member on the occurrence of an event of default in relation to the CM which has nominated such risk committee member.Hide noteCCP responses of 16 February 2015Procedures, Rule 20(2) (Risk Committee Members) |
| 28.3 What is the role of the risk committee? | To consult with the CM on:1changes of the risk model of the CCP;changes to the default procedures or the total size, structure and composition of the default fund contributions;proposed amendments to the Rules;introducing new asset classes for clearing or by forming new products through combining existing products;changes to the method to determine eligible margin or the methods to determine haircuts (provided that the CCP will be entitled to make such changes without consultation of the risk committee in individual cases in the normal course of business);changes to the admission criteria (including the required minimum capital) for new CMs;policies of the CCP which relate to membership approvals, positions or liquidity limits of CMs, and any proposed changes to those policies;the process for the discontinuation of OTC clearing; andall other matters which may have an impact on the risk management of the CCP and its CMs. In addition, the CCP must consult with its risk committee to the extent reasonably practical when making certain decisions or exercising certain powers under the Recovery Rules as follows:2in connection with the use of its rights and policies in relation to Payment Reduction if:the aggregate amount of reductions effected during a Default Period exceeds an amount equal to the amount of default fund (see item 109.1 under the title of “Order of application in the default waterfall” for the scope of default fund) which existed as at the time immediately prior to the commencement of the Default Period; orthe Reduction Period (see item 109 for the meaning of Reduction Period) exceeds 7 Business Days;in connection with the exercise of its rights or powers in relation to voluntary payments before it invites any CM to make a voluntary payment (see item 109.1);in connection with the exercise of its rights or powers in relation to partial or complete Invoicing Back before it exercises such rights or powers;in connection with determining the Contracts which are to be subject to Partial Tear Up;in connection with the calculation of termination values for the purpose of Invoicing Back before notifying CMs of the relevant net termination amount (see item 107.2);in connection with the annual review of the Minimum Interim Default Fund Amount; andin connection with the annual review of the Maximum Total Interim Participant Replenishment Amount; in connection with the exercise of its rights and powers set out in item 117.2 under the heading “Replenishment during a Default Period – Interim Participant Replenishment Amount” except where there has been a further default during the Default Period which results in an Interim Default Fund Shortfall;in connection with determination of amount of the total replenishment amount before calling for CMs to pay their replenishment amounts;in connection with any calculation of any increasing amount to the default fund under the Recovery Rules before calling for additional default fund contributions (see item 113.1);in connection with the exercise of its rights or powers in relation to a voluntary wind-down (see item 149.1); andin connection with the annual review of the investment loss allocation threshold in accordance with Rule 6.2 of the Recovery Rules (see item 166.1).The CCP is not required to consult with its risk committee where it has been directed to exercise or not exercise any right or power, or take or not take any action in connection with a default or the Recovery Rules where directed by a governmental or regulatory entity.Hide note1 Futures Rule 20 (Risk Committee)1 OTC Rulebook Rule 2.12 (Termination of OTC Clearing Service)2 ASX Recovery Rulebook, Rule 7.2 (Risk Committee) |
| 28.4 By what voting threshold does the risk committee make decisions (e.g., a majority ballot of committee members)? | All decisions and recommendations made by the risk committee will be made through a majority vote of the members participating (i.e. attending in person or by telephone or video conference) at a validly convened meeting of the risk committee.For the purpose of all voting procedures each CM (or group of related CMs, where applicable) or Client shall be entitled to one vote, to be exercised by its appointed participating risk committee member. Where a CMs or group of related CMs has appointed two participating risk committee members, those members must jointly exercise the single vote. If they are unable to agree, the vote will be deemed not castIn the event that any vote is tied, the chairman will have the casting vote.The quorum for a valid meeting will be participating risk committee members representing one third of all CMs and Clients that have nominated one or more risk committee members.Hide noteProcedures, Rule 20(4) (Quorum)Futures Rule 20(5) (Voting) |
| 28.5 Is the CCP required by the Rules to implement the decisions/recommendation of a risk committee? | No. The risk committee is consultative only. Proposals and recommendations of the risk committee will be disclosed to the Board. The CCP does not have any obligation to accept any proposal or recommendation made by, or take any action proposed by, the risk committee. However, it will provide reasons to the risk committee if it chooses not to follow any proposal or recommendation of the risk committee prior to taking, or not taking, any action.Hide noteFutures Rule 20 (Risk Committee)ASX Recovery Rulebook, Rule 7.2 (Risk Committee) |
| 28.6 If not, do the Rules require the CCP to report the decision/recommendation of the risk committee to regulators and to provide an explanation to the member committees with respect to why the CCP did not implement a decision/recommendation? | The Rules do not impose any obligation on the CCP to report decisions or recommendations of the risk committee to regulators and there is no other requirement on the CCP to report such decisions or recommendations to regulators.See item 28.5. The CCP will provide reasons to the risk committee if it chooses not to follow any proposal or recommendation of the risk committee prior to taking, or not taking, any action.Hide noteFutures Rule 20 (Risk Committee) |
| 28.7 How often does the risk committee convene during the year? Quarterly, bi-annually, annually? | Not addressed in the Rules. A meeting can be convened at the request of the chairperson, any 2 risk committee members each representing a different and unrelated CM or Client or at the secretary’s discretion.The RBA 2018/19 Assessment Appendix C1 states that the Risk Consultative Committee convenes three times per year. The frequency applicable to the CCP’s other internal risk committees are set out in item 27.2.Hide noteProcedures, Rule 20(3) (Convening the Risk Committee) RBA 2018/19 Assessment Appendix C1 Standard 3.1 |
| 29. Default committee | |
| 29.1 Are CMs represented on a default committee? | Yes.The CCP has established several default committees. CMs participating in the Service are represented in one such committee: the Default Management Group (DMG), referred to in this survey as the “default committee”. |
| 29.2 What is the composition of the default committee? | Composition of the default committeeOne default committee for each OTC transaction type1Although the Rules refer to the “Default Management Group (DMG)” in the singular (referred to in this survey as the “default committee”), provision is made for the CCP to establish a separate default committee in respect of each OTC transaction type, for the purpose of advising and assisting the CCP with respect to all default committee matters (see item 29.3).Notwithstanding the above, there is currently only one OTC transaction type (OTC interest rate derivatives) and the CCP may, in its discretion, decide not to establish a default committee with respect to an OTC transaction type which does not have a substantial size. Each default committee – maximum and minimum number of members2Maximum number of members is 10 (or such other number as the CCP may determine in its sole discretion).Minimum number of members is 6 (or such greater number as the CCP may determine in its sole discretion). Invitation to participate on a default committee3CMs invited to participate on a default committee by the CCP will have no obligation to accept the invitation. However, if fewer than the minimum number of acceptances are received, or at any time during a default committee term there are fewer than the minimum number of default committee members, the CCP may in its discretion require one or more non-accepting CMs to send the CCP a notice nominating individuals to bring the total number of members to the minimum number. The CCP will use reasonable endeavours to select a non-accepting CM for no more than two consecutive default committee terms. If more than the maximum number of CMs accept the CCP’s invitation to participate on a default committee, the CCP will select the maximum number of the accepting CMs, giving priority to:first, a CM which has Contracts in the relevant OTC transaction type at the time of selection; andsecond, a CM which accepted the invitation, but was not selected, to participate in the immediately preceding default committee term. Office holders4Chairman and deputy chairmanDefault committee members appoint (by majority vote) a chairman and a deputy chairman (who will perform the functions of the chairman at any default committee meeting at which the chairman is not present). SecretaryThe CCP will serve as secretary of each default committee and will perform the administrative duties set out in the default committee procedures. Composition of the CCP’s other default-oriented committees5Based on the RBA 2018/19 Assessment Appendix C1, the CCP’s other default-oriented committees are comprised as follows:the Default Management Committee (DMC) is comprises “senior management from relevant areas within ASX”;the Default Management and Recovery Working Group (DMRWG) is chaired by the Chief Risk Officer and comprises key representatives from ASX’s legal, compliance, operations and risk divisions; andthe Participant Incident Response Group (PIRG) is comprises senior staff from operational, risk management, compliance and legal functionsHide note1 OTC Rulebook Rules 1.1 (Establishment of DMGs) and 1.4 (DMG Matters) of Schedule 3 (Default Management Process)2 OTC Handbook Schedule 3 (Default Management Group Procedures), Para 4.1 (DMG Size)3 OTC Handbook Schedule 3 (Default Management Group Procedures), Para 4.1A (Invitation to Participate in DMG)4 OTC Handbook Para 8 (Office holders)5 RBA 2018/19 Assessment Appendix C1, Standards 3.1, 12.1 and 12.2 |
| 29.3 What is the role of the default committee? | Role of the default committeeRole: advisory, not ultimate decision-making1Each default committee will advise, assist and make proposals to the CCP with respect to the relevant default committee matters.During a default, the default committee would advise and be consulted by the CCP on each stage of the default’s management, but the CCP would not be obliged to follow the recommendations of the default committee (see item 29.5).Rather, the CCP will at all times maintain the ultimate decision on whether and under what terms and conditions the default committee proposals are implemented or not. Scope: default committee matters2The CCP may choose to convene a meeting of one or more default committees in any of the following circumstances:(a) on the occurrence of a CM default;(b) on the occurrence of a termination of Contracts as a result of a CCP default;(c) in respect of the Service, for default simulations (to be carried out at least once and no more than three times a year) to ensure the best practicable level of preparation for any default of a CM under the Service;(d) to obtain advice on or other assistance in connection with any of the following matters (referred to as default committee matters) as thought appropriate by the CCP:on the occurrence of a default in respect of a CM under the Service, the Contracts to be terminated and their respective termination times;establishment of default management hedging transactions, including the selection of the relevant counterparties and the relevant hedging terms and strategy, and assistance in the execution of such hedging transactions (see items 100.1 and 100.2);entry into independent default management transactions (see item 100.1);holding of one or more auction(s), including timing, procedures and terms and conditions of an auction (see item 100.1);determining the auction pool risk weighting for each auction portfolio and the price at which a bid in a particular auction will be taken to be the uneconomic price in accordance with the Rules (see item 102.17); andany further matters relating to the consequences and risks of a CM default or CCP default; and(e) to obtain advice or any other assistance related to default management in any other circumstances as considered appropriate by the CCP. Role of the CCP’s other default-oriented committees3Based on the RBA 2018/19 Assessment Appendix C1, the role of the CCP’s other default-oriented committees are as follows:the role of the Default Management Committee (DMC) is to be the primary forum for the management of a default, and convenes to coordinate the CCP’s response to a CM default. The DMC’s responsibilities range from recommending declarations of default and suspensions, to devising a risk reduction plan and overseeing its implementation;the role of the Default Management and Recovery Working Group (DMRWG) is to provide oversight of the CCP’s default management and recovery framework, and is responsible for the ongoing enhancement of the default management and recovery framework (outside of a default period);the CCP has established the default committee that assists and provides advice to the DMC in managing the default of a CM. Although the DMC is not obliged to follow the default committee’s recommendations, it is required to provide reasons where it does not accept the default committee’s advice.the role of the Participant Incident Response Group (PIRG) is to monitor and manage CM incidents and the escalation of potential default events to the default committee).Hide note1 OTC Rulebook Schedule 3 (Default Management Process) Paras 1.1 (Establishment of DMGs) and 1.5 (Role of DMG); RBA 2018/19 Assessment Appendix C1, Standard 12.12 OTC Rulebook Schedule 3 (Default Management Process), Para 1.4 (DMG Matters); CCP response of 20 April 20153 RBA 2018/19 Assessment Appendix C1, Standards 2.8, 3.1, 12.1 and 12.2 and CCP responses of 27 January 2017 |
| 29.4 By what voting threshold does the default committee make decisions (e.g., a majority ballot of committee members)? | Voting thresholds applicable to the CCP’s default committeeVoting Procedure and Majority 1All decisions to be made by a default committee will be made at a meeting by majority vote of the default committee members attending, either in person at the premises of the CCP in Sydney or by electronic communication from a location approved by the CCP.Each default committee member will have one vote. In the event that any vote is tied, the chairman will have the casting vote.If the default committee member and deputy of a CM both attend a regular default committee meeting convened in accordance with the provisions governing regular meetings, only the default committee member will be entitled to vote.There is no quorum requirement (whether for the convening of a default committee meeting, for the consideration of any item of business of a defaulting committee meeting or for any decision or other determination of the default committee). Default committee statements 2The default committee may appoint by majority vote one or more default committee members attending a meeting to prepare, on behalf of the default committee, any proposal, response, statement or other document setting out the views of the default committee with respect to any default committee matter.The chairman may:refer the statement prepared to a default committee meeting for approval by majority vote; orif the chairman is satisfied that the statement represents the views of the majority of the members attending the meeting after circulating such statement, deliver such statement to the CCP,following which such statement will be incorporated in the minutes and deemed to set out the view of the default committee. Voting thresholds applicable to the CCP’s other default-oriented committeesNot addressed in the Rules.Hide note1 Schedule 3 (Default Management Group Procedures), Paras 10.2 (Participating DMG Members) and 10.8 (Voting Procedure and Majority), OTC Handbook2 Schedule 3 (Default Management Group Procedures), Para 11 (Statements of DMG), OTC Handbook |
| 29.5 Is the CCP required by the Rules to implement the decisions/recommendation of the default committee? | Implementing the decisions of the default committeeNo. Each default committee’s role is to advise, assist and make proposals to the CCP with respect to the relevant default committee matters. The CCP will at all times maintain the ultimate decision on whether and under what terms and conditions the default committee decisions/recommendations are implemented or not. See item 29.3.In exercising its rights and obligations in consulting with the default committee pursuant to the default process, the CCP will use all reasonable commercial endeavours to agree a common position with the default committee, provided that nothing in the Rules will prevent the CCP acting in a way which it reasonably determines necessary to manage its risk or otherwise meet its continuing regulatory obligations including those applicable to it as a clearing and settlement facility licensee. Implementing the decisions of the CCP’s other default-oriented committeesNot addressed in the Rules.Hide noteOTC Rulebook Para 1.5 (Role of DMG), Schedule 3 (Default Management Process)OTC Rulebook Para 1.7 (ASX Clear (Futures) dealings with DMG), Schedule 3 (Default Management Process) |
| 29.6 If not, do the Rules require the CCP to report the decision/recommendation of the default committee to regulators and to provide an explanation to the member committees with respect to why the CCP did not implement a decision/recommendation? | Reporting the decisions/recommendations of the default committeeThe Rules do not impose any obligation on the CCP to report decisions or recommendations of the default committee to regulators and there is no other requirement on the CCP to report such decisions or recommendations to regulators.If the CCP does not follow the recommendations or advice of the default committee, the CCP will provide a notice in writing to the default committee chairman setting out its reasons for not following such recommendations or advice. The CCP will not be required to provide such reasons or information relating to reasons where that information is commercially sensitive. Reporting the decisions/recommendations of the CCP’s other default-oriented committeesNot addressed in the Rules.Hide noteOTC Rulebook Para 1.5 (Role of DMG), Schedule 3 (Default Management Process)OTC Rulebook Para 1.7 (ASX Clear (Futures) dealings with DMG), Schedule 3 (Default Management Process) |
| 29.7 How often does the default committee convene during the year? Quarterly, bi-annually, annually? | Convening the default committee1The secretary of the default committee may at any time convene a meeting by delivering a meeting request notice to all default committee members (copied to each deputy).Meeting requests will be delivered:in the case of a regular meeting, not less than one week prior to the meeting; andin the case of a default management meeting, no less than two hours prior to the meeting. Regular meetingsDefault committee meetings are convened at regular intervals as required (currently once a year) in order to:keep under review the default process together with related guidance;keep under review the terms of reference of the default committee to ensure they remain appropriate;consider appropriate supplements or amendments to the default process or guidance to improve the procedures in place;prepare for or execute default simulations; andconsider any other business relevant to the default committee which any member of the default committee or the CCP from time to time considers appropriate. Default management meetingsIn addition to regular meetings, default management meetings will be convened in accordance with the default process under the Rules. Convening the CCP’s other default-oriented committees2Not addressed in the Rules.The RBA 2018/19 Assessment Appendix C1 states that the Default Management and Recovery Working Group (DMRWG) meets on a six weekly basis or more frequently as required.Hide note1 OTC Rulebook Para 9 (Convening DMG Meetings), Schedule 3 (Default Management Process)1 CCP response of 20 April 20152 RBA 2018/19 Assessment Appendix C1, Standard 3.1 |
| 29.8 Are CM employees required to serve on any default committees or in any other capacity in connection with the management of the unwind of a defaulting CM? | Yes. See item 29.9. |
| 29.9 If so, how are they chosen? | The CCP will invite CMs authorised to clear OTC transaction types to participate in a default committee established for that OTC transaction type for the default committee term. The CCP will issue invitations at least 2 months prior to the commencement of the relevant default term. A CM may accept the CCPs’ invitation to participate in a default committee by sending the CCP a notice in accordance with the provisions governing designated default committee members.1 (1) Employee nomination2By no later than one month following receipt of the CCP’s invitation of selection as a default committee member for a default committee, each CM may nominate two employees (of the CM or of any related body corporate), one as a potential default committee member and the other as a potential deputy for a term. (2) Eligibility Criteria3Each potential default committee member and deputy who has been so nominated must satisfy the following eligibility criteria evidenced by adequate information provided by the relevant CM to the CCP:the individual must be an employee of the CM or a related body corporate and must have agreed to participate in a default committee;the individual must be qualified with respect to the relevant OTC transaction type and must have appropriate expertise and experience in relation to the relevant default committee matters;the individual is not already a default committee member or deputy in another default committee or a similar committee of another central counterparty, clearinghouse or exchange; the CM must have policies in place for the management of (group) employees’ conflicts of interest and the designated individual is subject to those policies;the individual must be available for prompt participation in person at the premises of the CCP in Sydney or by electronic communication from a location approved by the CCP in a default committee meeting for which the individual has received a meeting request with at least two hours’ notice in respect of a default management meeting or at least one week’s notice in respect of a regular meeting; andthe individual must not have been sanctioned for misconduct in connection with his or her employment, whether by the CM, any other employer (current or previous) or any legal or regulatory authority. (3) Assessment4Upon receipt of the CM’s nomination, the CCP will assess the candidacy of the nominated potential default committee member and deputy on the basis of the information given by the CM to evidence compliance with the above eligibility criteria. The CM is obliged to provide any further information or evidence of compliance with the eligibility criteria reasonably requested by the CCP. (4) AcceptanceUpon acceptance by the CCP, such nominated individuals will serve as default committee member and deputy respectively for the term of the relevant default committee. (5) Rejection and Second NominationThe CCP will only reject a nominated default committee member or deputy for non-satisfaction of the eligibility criteria. The CCP will notify the relevant CM of such rejection and provide written reasons.Upon such rejection, the relevant CM may nominate a second individual as potential default committee member or deputy, as the case may be.If the CCP also rejects such second individual nominated as default committee member or deputy, as the case may be, the CCP will notify the relevant CM and such CM will be deemed to be a non-accepting CM for the purpose of the provisions governing invitations to participate on the default committee. (6) List of default committee membersThe CCP will maintain a list of all default committee members and deputies of each default committee. The CCP is not obliged to make available such list to the CMs or any other person. (7) Term of appointment5Membership of a default committee member or deputy will commence on 1 July and end on 30 June of the following year.The CCP is entitled to extend the term of a default committee if the default committee matters for which a default committee meeting has been convened are not resolved before the end of such term or if it, and the relevant default committee (by majority vote), otherwise agree to extend.An individual appointed as a default committee member or a deputy may serve on the same default committee for consecutive terms if the relevant CM confirms their appointment. For the avoidance of doubt, an individual serving consecutive default committee terms as a default committee member or deputy will not need to complete a new letter acknowledging and agreeing to his/her respective rights and responsibilities or provide further evidence that they satisfy the eligibility criteria.Hide note1 Schedule 3 (Default Management Group Procedures), Para 4.1A (DMG Establishment), OTC Handbook2 Schedule 3 (Default Management Group Procedures), Para 5 (Designated DMG Members), OTC Handbook3 Schedule 3 (Default Management Group Procedures), Para 5.3 (DMG Eligibility Criteria), OTC Handbook4 Schedule 3 (Default Management Group Procedures), Para 6 (Acceptance by ASX Clear (Futures)), OTC Handbook5 Schedule 3 (Default Management Group Procedures), Para 7.1 (DMG Term), OTC Handbook |
| 29.10 What are the consequences if a CM refuses to serve on a default committee? | Each CM is obliged to comply with its obligations in connection with the default management provisions including, where selected by the CCP to participate in a default committee, appointing its employees or those of a related body corporate as default committee member and deputy as primary contacts for the CCP for all general matters relating to default management. Refusal by a CM to serve on a default committee when selected by the CCP would constitute a breach of its obligations under the Rules and therefore a CM event of default.Hide noteOTC Rulebook Rule 6.2(a) and (f) (Default management process)OTC Rulebook Para 1.3 (Participating DMG Member Institutions), Schedule 3 (Default Management Process) |
| 29.11 Can a CM representative on the default committee still act for the CM or will there be a delay before such CM representative can return to act for CM? | Default committee members remain employees of the relevant CM (or the relevant CM’s affiliate, as applicable), and do not become employees, officers or representatives of the CCP.In the event of a CM default, the Dealing Code of Conduct (March 2014) applies to default committee members who are bound by the code. The Dealing Code of Conduct provides that:a default committee member is not permitted to bring any means of electronic communication to the premises of a default committee meeting;a default committee member is not to have contact with its appointing CM in relation to matters connected with the default event; anda default committee member will not be permitted to return to the CM until completion of the hedging phase of the default process; once the default committee member returns, they must not be involved with pricing auction lots for the default.The Dealing Code of Conduct is not publicly available but copies are made available to all CMs and their representatives on the default committee and to Australian regulators.Hide noteCCP response of 20 April 2015OTC Rulebook Schedule 3 (Default Management Process)Para 5.3 (DMG Eligibility Criteria), Para 12.1 (Conduct of DMG Members; Status), Para 12.5 (Compliance with Default Management Group Dealing Code of Conduct and Default Management Group Terms of Reference), OTC Handbook Schedule 3 (Default Management Group Procedures) |
| 29.12 What legal documentation, if any, must a CM or CM representative enter into in connection with participating on any default committee? | Default committee member undertakingThe CCP will prepare and provide to each nominated potential default committee member and deputy a form of letter under which such nominated member or deputy acknowledges and agrees to its respective rights and responsibilities described in the default management group procedures under the Rules.The CM is obliged to ensure that both individuals return the letter completed and duly executed, by the earlier of:five Business Days after the individual’s effective nomination; andthe last Business Day prior to the commencement of the relevant term of the default committee.Failure to return a properly completed and executed letter by the cut-off time (intended to be the earlier of the above two limbs) will result in the relevant individual ceasing to be a potential default committee member or deputy, as applicable. In this circumstance, the CCP will request the CM to nominate a new default committee member or deputy in accordance with the Rules.Hide noteSchedule 3 (Default Management Group Procedures), Para 5.2 (DMG Member Undertaking), OTC Handbook; CCP response of 20 April 2015 |
| 29.13 What obligations does a CM or CM representative incur by entering into any such documentation or by serving on such committee (including in relation to confidentiality and material non-public information)? | By executing the default committee member undertaking, the CM representative would have agreed to its respective rights and responsibilities described in the default committee procedures under the Rules, some of which are summarised below.ConfidentialityExcept as expressly contemplated in the default committee procedures under the Rules or as may be required by applicable law or court or by an authority having appropriate jurisdiction, each default committee member and deputy is obliged to:(a) maintain absolute confidentiality regarding any and all information relation to the CCP and any and all business and trade secrets of the CCP both towards the CM and towards third parties;(b) maintain absolute confidentiality with respect to all aspects of any default committee matters of any current or past default committee meetings in which such default committee member or deputy was involved, including any discussions, deliberations, proceedings, or results of any votes, or any determinations or acts made under the default committee procedures in the Rules both towards the CM and towards third parties; and(c) not use any confidential information pursuant to (a) or (b) for its own benefit or the benefit of the CM or any third parties.The following would not constitute confidential information:(i) information which is in or becomes part of the public domain otherwise than through breach of the Rules or an obligation of confidentiality owed to the CCP; or(ii) information which the relevant default committee member or deputy can prove by contemporaneous written documentation was already known to it at the time of disclosure (unless such knowledge arose from disclosure of information in breach of an obligation owed to or by a third party); or(iii) information which the relevant default committee member or deputy acquired from a third party entitled to disclose it.CommunicationDefault committee members (and any deputies) attending a default committee meeting are not permitted:- to engage in any communication with the relevant CM or any other third party with respect to default committee matters or any other information obtained during default committee meetings; or- to engage in any communication with another member of a default committee outside of the default committee meeting with respect to default committee matters; or- to bring any means of electronic communication to the premises of the default committee meeting. Information undertakingEach selected CM is required to inform the CCP without undue delay if:the relevant default committee member or deputy no longer complies with the eligibility criteria summarised in item 29.9; orit merges with any other selected CM(s) and if therefore more than one default committee member or deputy nominated by the selected CMs (which are affiliates) is a default committee member or deputy in the same default committee.Hide noteOTC Handbook Schedule 3 (Default Management Group Procedures)Para 5.2 (DMG Member Undertaking)Para 12.4 (Confidentiality)Para 10.6 (No communication)Para 7.2 (Information Undertaking) |
| 30. Other committees | |
| 30.1 Are there any other committees on which CMs are represented? | Yes. The CCP has established a number of advisory committees focused on asset classes and clearing services on which CMs are represented, including the product committee and the ASX rates product advisory user group (described in item 30.2).See the CCP’s Principles for financial market infrastructures Disclosure Framework, available at: https://www.asx.com.au/documents/asx-compliance/pfmi-disclosure-framework.pdf.Hide noteFutures Rule 21 (Product Committee)RBA 2018/19 Assessment Appendix C1, Standard 2.8CCP responses of 6 February 2015 |
| 30.2 If so, please provide equivalent responses for such committee(s) to those in items 28.2–28.7. | (1) Product committeeAre CMs represented on a product committee?Yes. What is the composition of the product committee?1The product committee consists of: CM representativeEach CM may nominate 1 representative as a product committee member.A person may not be nominated to be a product committee member unless that person (1) has appropriate expertise and experience in relation to the matters to be considered by the product committee and (2) is acceptable to the CCP in its reasonable discretion. CCP appointeesThe CCP may select and appoint any number of further members of the product committee in its sole discretion, where this is necessary in order for the CCP to meet requirements under applicable law with respect to the composition of the product committee. Change of product committee membersA CM may at any time notify the CCP that it intends to change its nominated product committee member by nominating a replacement nominee. Once accepted by the CCP, the replacement nominee replaces the previous nominee. Related bodies corporate If two or more CMs are or become related bodies corporates, as determined by the CCP, such CMs are entitled to appoint only one representative to the product committee. ChairmanThe product committee will appoint a member by majority vote to serve as chairman. Product committee secretaryThe CCP will serve as secretary and will administrative duties. Suspension of membershipA product committee member will be suspended as product committee member on the occurrence of an event of default in relation to the CM which has nominated such product committee member. What is the role of the product committee?2The product committee, if established, is to consult with the CCP on:the type of Transactions which are eligible for clearing under the Service and the other types of transactions which may be cleared through the CCP;material amendments to the Rules; andsuch other matters as the CCP may determine. What decision-making rights does the product committee have (e.g., a majority ballot of committee members)?3All decisions and recommendations made by the product committee will be made through a majority vote of the members participating (i.e. attending in person or by telephone or video conference) at a validly convened meeting of the product committee.Each participating product committee member will have one vote. In the event that any vote is tied, the chairman will have the casting vote.The quorum for a valid meeting is 1/3rd of all product committee members. Is the CCP required by the Rules to implement the decisions/recommendation of the product committee?4The product committee is consultative only. Proposals and recommendations of the product committee will be disclosed to the Board. The CCP does not have any obligation to accept any proposal or recommendation made by, or take any action proposed by, the product committee. However, the CCP will provide reasons to the product committee if it chooses not to follow any proposal or recommendation of the product committee prior to taking, or not taking, any action. If not, do the Rules require the CCP to report this to regulators and to provide an explanation to the member committees with respect to why the CCP did not implement a decision/recommendation?5The Rules do not impose any obligation on the CCP to report the CCP’s decision not to implement decisions or recommendations of the product committee to regulators, and there is no other requirement on the CCP to report such a decision by the CCP to regulators.See item 30.5. The CCP will provide reasons to the product committee if it chooses not to follow any proposal or recommendation of the product committee prior to taking, or not taking, any action. How often does the product committee convene during the year? Quarterly, bi-annually, annually?6Not addressed in the Rules. In any event, the product committee has not yet been formally convened.A meeting can be convened at the request of the chairman or any two product committee members or at the secretary’s discretion.Hide note1 Futures Rule 21(2) (Product Committee Members)2 Futures Rule 21 (Product Committee)3 Futures Rule 21(4) (Quorum) and Rule 21(5) (Voting)4 Futures Rule 21 (Product Committee)5 See footnote 46 Futures Rule 21(3) (Convening the Product Committee); CCP responses of 6 February 20157 RBA 2018/19 Assessment Appendix C1, Standard 2.8 |
| 31. Transaction submission and Contract registration | |
| 31.1 Please describe how a Transaction is submitted and registered as a Contract (including timing, criteria for accepting Contracts for clearing, the resubmission of Transactions, and any differences for bunched orders (i.e. whether pre-allocated or unallocated)). | Submission of Transactions for clearing1Transactions must be submitted for registration (in an acceptable message format) using a Trade Source system. An OTC Affiliate or CPM Client may submit a Transaction to the CCP for registration. However, a Transaction submitted to the CCP by an OTC Affiliate or CPM Client may only be registered by the CCP if the CM of the OTC Affiliate or CPM Client has consented to the registration of the Transaction in accordance with the OTC Handbook. The only approved Trade Source system at the moment is Markit Wire. The CCP will notify CMs if it approves additional Trade Source systems.Procedures for submissionCPM Client procedures for submissionA CM of a CPM Client or OTC Affiliate (as applicable) will be taken to have consented to the registration of a Transaction submitted by the CPM Client or OTC Affiliate (as applicable) to the CCP if:the transaction details of the Transaction submitted to the CCP include a communication or record of a communication by the CPM Client’s or OTC Affiliate’s (as applicable) entity authorised to issue such communication, which is included in the transaction details submitted to the CCP in a form acceptable to the CCP to signify that the Transaction is within credit limits for the CPM Client or OTC Affiliate (as applicable) set by its CM (a “Credit Token”); or The CPM Client’s or OTC Affiliate’s (as applicable) entity authorised to issue messages in a form acceptable to the CCP consenting to the registration of the Transaction (a “Consent Message”), in respect of Transactions executed by or on behalf of a CPM Client or OTC Affiliate (as applicable) (a “Consent Provider”), returns a message as soon as technologically practicable, but in any event within 10 minutes of receiving a message from the CCP to the CPM Client’s or OTC Affiliate’s (as applicable) Consent Provider seeking consent to the registration of the Transaction. Where the CM of an OTC Affiliate has not notified the CCP of a Consent Provider or the entity authorised to issue a Credit Token in respect of that OTC Affiliate then a CM will be taken to have consented to the registration of a Transaction submitted to the CCP by the OTC Affiliate when the relevant Transaction is reported to the CCP by a Trade Source.Consent is irrevocable once given, or taken to have been given, by a CM. The CCP is entitled to rely upon a Credit Token or Consent Message without making any verification or investigation.A Transaction submitted by a CPM Client to the CCP in respect of which consent is not given, or taken to be given, in accordance with the above will be rejected by the CCP. OTC Affiliate procedures for submissionA CM will be taken to have consented to the registration of a Transaction submitted to the CCP by an OTC Affiliate when the Transaction is reported to the CCP by a Trade Source (see also item 23.2). Procedures for submissionThe Trade Source will send details of the Transaction to the CCP once it has been executed on a trading venue or bilaterally agreed. Transactions entered by CMs into the Trade Source have to match before they will be sent to the CCP for clearing. Once consent has been obtained, or is taken to have been obtained, then the Transaction is taken to have been submitted by the CM to the CCP for registration and, for the purposes of the Rules, the CM is taken to be a party to the Transaction.The CCP may only register a Transaction to which one or more CPM Clients or OTC Affiliates are parties if consent is obtained, or taken to have been obtained, from the relevant CMs.The CCP will process any Transaction reported to the CCP by a Trade Source without making any verification or investigation. Subject to the Rules, the CCP will register the Transaction on the basis of the data provided to it by the Trade Source.Upon a Transaction being submitted to the CCP for registration and the satisfaction of the conditions to registration set out in the Rules (see “Conditions for acceptance for registration” below), the CCP will respond, after processing, with a message confirming the registration. The message will be sent to CMs via the Trade Source.Transactions submitted for registration that do not meet the product or other eligibility criteria prescribed from time to time by the CCP or which contain invalid or incomplete message data will be rejected. If, at any time, the CCP does not register a trade presented for registration, it will send to the originating Trade Source notification of the rejection. Operating times and calendarsOn Business Days, submission for registration of Transactions may be made from 12:01am – 11:45pm (Sydney time). On Saturdays, submission for registration of Transactions may be made from 12:01am – 7:00am (Sydney time), unless the CCP notifies by market notice that it will be closed for registration of Transactions. Conditions for acceptance for registration2The CCP will accept the submission of a Transaction for registration if:(a) the Transaction has been submitted for registration in accordance with the procedure described in the OTC Handbook (summarised above);(b) each CM with whom a Contract would be registered in respect of that Transaction:was not in default at the time at which the Transaction was received for registration;is authorised as a CM in respect of the relevant OTC transaction type; andis entitled under the Rules to have a Transaction registered in its name; (c) the Transaction satisfies the OTC eligibility criteria set out in Schedule 1 of the OTC Handbook; (d) the Transaction passes the limit check applicable to it for each CM with whom a Contract would be registered in respect of that Transaction; (A risk-based limit check will be conducted by the CCP for each Transaction submitted for registration. If a Transaction fails to pass the risk-based limit check, then the CM may seek the approval of the CCP to resubmit the Transaction. The CCP may choose whether or not to give such approval in its sole discretion and may impose such conditions as it thinks fit on granting any approval. If such approval is given, then the Transaction need not pass the risk-based limit check when re-submitted provided it satisfies all other conditions imposed by the CCP. There is no limit check applicable to Transactions submitted for backloading (see below)); (e) the CCP does not reasonably believe that the registration of the Transaction will contravene applicable law; and (f) each applicable additional condition relevant to the Transaction set out in the OTC Handbook is satisfied. A Transaction that has been reported to a date repository can only be accepted by the CCP for registration if the CCP is capable of reporting to the data repository. In addition, the CCP may, in its absolute discretion, accept the submission of a Transaction for registration if it does not satisfy all of the conditions set out in (a) to (f) above. Timing of registration Where the CCP has accepted the submission of a Transaction for registration, that Transaction will be deemed to have been registered as at the time it was received by the CCP.3 If the CCP determines that the intra-day calculation of the initial margin and the daily variation margin required from a CM is approaching the CM’s exposure limit, then it may defer the registration of a Transaction to which that CM is, or is taken to be, a party. This does not apply to Transactions submitted for backloading (see below).4 Backloading5 If the trade date of the Transaction is more than four Business Days prior to the date of initial submission for registration of the Transaction in a form that satisfies the OTC eligibility criteria, then such Transaction must be submitted for backloading. The submission for registration of such Transactions requires bilateral agreement between the CMs which are, or are taken to be, parties to the Transactions of the full particulars required by the CCP for each Transaction. Following the agreement of particulars and submission of the Transaction to be backloaded, the backloaded Transactions are taken to have been submitted for registration by the CCP. However, registration of any backloaded Transaction is subject to:the CCP’s absolute discretion; andprovision of any margin required in respect of the relevant backloaded Transaction. Consequences of registration/discharge of Transaction; creation of Contracts6The effect of registration of a Transaction is that the CCP will be interposed, by novation, as the counterparty under a Contract with each CM which was, or was taken to be, a party to the Transaction. The result of this is that:Contracts are created, between the CCP and each CM under each Contract, the CCP has the same rights against, and obligations to, each CM which the other CM had, or was taken to have, under the Transactions;the Transaction is terminated so that each counterparty to the Transaction is released from its obligations to the other counterparty, except for outstanding obligations which have fallen due for performance and which have not been performed at the time of registration; andeach CM is bound by its respective Contracts with the CCP automatically and without any further action on their part.The terms of these Contracts incorporate all applicable terms of the OTC Rules and the OTC Handbook (including the terms set out in the OTC Handbook which are applicable to the relevant Contract). Payments under the Contracts7 Payments of amounts due under a Contract on the next scheduled payment date after the date on which registration of the relevant Transaction has taken place are to be effected in accordance with the applicable terms for the entire calculation period. This also applies if part of the calculation period has already elapsed at the day of registration. However, the CCP may make a call for Intra-Day Margin in respect of a Contract on the day of its registration (see item 44.2).Payments under the relevant Transaction that were due on or before the day of registration will not be owed under the relevant Contract and are not subject to clearing.Hide note1 OTC Rulebook Rules 4.3 (Submission of OTC Transactions) and 4.4 (Reliance on correctness); OTC Handbook Para 1.6 (Operating times and calendars); OTC Handbook Para 4.3 (Submission of OTC Transactions); CCP response of 20 April 20152 OTC Rulebook Rule 4.5 (Acceptance for registration); OTC Handbook Para 4.5 (Acceptance for registration)3 OTC Rulebook Rule 4.5 (Acceptance for registration);4 OTC Handbook Para 4.5 (Acceptance for registration)5 OTC Rulebook Rule 4.11(Backloading); OTC Handbook Para 4.11(Backloading),6 OTC Rulebook Rule 4.6 (Creation of OTC Open Contracts); OTC Handbook Para 4.6 (Creation of OTC Open Contracts)7 CCP response of 20 April 2015; OTC Handbook 1.4 (Approved Trade Source Systems) |
| 32. Method by which the CCP assumes contractual relationship | |
| 32.1 How is the credit of the CCP substituted for the credit of the trading counterparty (e.g., novation, guarantee, or other)? | By novation. See item 31, under “Consequences of registration/discharge of Transaction; creation of Contracts” |
| 32.2 If by novation, is the concept of novation recognised under relevant law? | New South Wales law recognises novation. Based on the RBA 2018/19 Assessment Appendix C1, the effectiveness of the process of novation outlined in the Rules is provided certain legal protections by Part 5 of the PSNA, by virtue of the CCP’s status as an approved netting market (see item 4.1).Hide noteRBA 2018/19 Assessment Appendix C1, Standard 1.5 |
| 32.3 How does novation or the guarantee occur (trade by trade, batch, etc.)? | Novation would occur trade by trade. The Rules do not address Transactions submitted in batches.Hide noteCCP responses of 6 February 2015RBA 2018/19 Assessment Appendix C1, Standard 1.5 |
| 33. CCP discretion to reject Transactions | |
| 33.1 Does the CCP have discretion to reject Transactions submitted for clearing? | Yes. |
| 33.2 If so, under what circumstances? | If the CCP determines that the intra-day calculation of the initial margin and the daily variation margin required from a CM is approaching the CM’s exposure limit, then it may defer the registration of a Transaction to which that CM is, or is taken to be, a party. See item 31 under “Timing of Registration”.The CCP also has discretion to reject a Transaction if it reasonably believes that the registration of the Transaction will contravene applicable law.Hide noteOTC Handbook Para 4.5 (Acceptance for registration) |
| 34. CCP obligations following failure to register a Transaction | |
| 34.1 If the CCP fails to register a Transaction, is the CCP under an obligation to notify the relevant CM? | Yes. If, at any time, the CCP does not register a trade presented for registration, it will send to the originating Trade Source notification of the rejection.Hide noteOTC Handbook Para 4.3 (Submission of OTC Transactions) |
| 35. CCP rights against CMs for incorrectly registered Contracts | |
| 35.1 What rights can the CCP exercise against CMs in respect of incorrectly registered Contracts? | The CCP is entitled to rely on the particulars of any Transaction notified to it as being correct and it is not bound to recognise any error in relation to such particular. However, if a Transaction is incorrectly registered by the CCP, the CCP, may in its discretion:(a) with the agreement of the CMs party to the Contracts created by the registration, correct the registration of the Transaction so that it is taken to have been registered as corrected and the Rules apply accordingly; or(b) not amend the registration, in which case the original terms so registered will apply to that Transaction and the consequent Contracts created by the registration.Any such correction may be made subject to any conditions imposed by the CCP including provision of margin. The CCP is not liable to any person in connection with any correction so made. See item 9 summarising the CCP’s liability disclaimers.Hide noteOTC Rulebook Rule 4.4 (Reliance on correctness)OTC Rulebook Rule 4.7 (Incorrectly registered OTC Transactions) |
| 36. CCP discretion to avoid Contracts | |
| 36.1 Does the CCP have the discretion to avoid Contracts if it considers such Contracts to be void, voidable, unenforceable or otherwise incorrectly registered (as a result of fraud, illegality, market abuse or otherwise)? | Not addressed in the Rules.In this connection, the Rules provide that the Contracts are not dependent on the valid existence of the associated Transaction. If the Transaction is rendered invalid after it has been registered, the corresponding Contracts are not affected.Hide noteOTC Rulebook Rule 4.6 (Creation of OTC Open Contracts) |
| 36.2 If a Contract is avoided, are CMs required (either by CCP rules or due to local law in the jurisdiction of the CCP) to enter into replacement Contracts? | Not addressed in the Rules. |
| 36.3 If Contracts are avoided, can the CCP enter into replacement Contracts on its own account with all costs and losses in establishing such Contracts to be borne by the relevant CM? | Not addressed in the Rules. |
| 37. Assumption of liability for Transactions/Contracts | |
| 37.1 How are liabilities for Transactions/Contracts allocated during a trade lifecycle (i.e., prior to and post the CCP accepting Transactions, with respect to a CM and another CM and/or to the CCP)? | Upon registration of a Contract in the name of a CM, the CCP and the CM will assume liability for the performance of their obligations arising under the Contract from the time of registration.See item 31, under “Consequences of registration/discharge of Transaction; creation of Contracts”.Any Transaction submitted for registration as a Contract and which is not so registered will be governed by the terms of the Transaction and the CCP will not assume liability for its performance.Hide noteOTC Rulebook Rule 4.6 (Creation of OTC Open Contracts) |
| 38. Delayed allocation of Transactions | |
| 38.1 Do the Rules contemplate the possibility that certain Transactions, e.g., bunched orders, may not be immediately allocated to the relevant end Clients? | Not addressed in the Rules.The CCP has confirmed that, under the CCP’s current Client approval flows, this is not a possibility.Hide noteCCP responses of 27 January 2017 |
| 38.2 If so, how are such Transactions and the related collateral handled in the event of a CM default prior to allocation (including changes in value of the collateral)? | N/A. |
| 39. Trading limits | |
| 39.1 Can the CCP impose trading limits in respect of house business? | Yes.Hide noteFutures Rule 9 (Position Limits)OTC Rulebook Rule 4.5(d) (Limit checks) |
| 39.2 If so, what types of limits may be imposed? | Position Limits1The Board may prescribe limits on the number of Contracts (whether Client positions or house positions) a CM may hold in any Contract under the Service, Futures Contract, Option Contract, Bond position or Repurchase Agreements (under the Futures Service) or on any market.The Board may prescribe limits relating to the exposure of the CM under Contracts by reference to:the initial margin and/or variation margin and/or daily settlement liability of the CM;the number of Contracts held by a CM in any Contract under the Service, Futures Contract, Option Contract, Bond positions or Repurchase Agreements (under the Futures Service);the financial position of the CM; orany other criteria relating to the CM’s Contracts or exposure as the Board thinks fit.The Board may require a CM to comply with special limits having regard to any requirements of insurers to the CCP or such other matters as it sees fit.Limit checks2As a condition for the CCP’s acceptance of a Transaction for registration, the Transaction is required to pass the applicable limit check. See item 31 under “Conditions for acceptance for registration”.Hide note1 Futures Rules 9.1 (as supplemented and/or varied by OTC Rulebook Rule 4.5(d) (Acceptance for registration)) and 9.2 (Position Limits)2 Rule 4.5(c) (Limit checks), OTC Handbook |
| 39.3 What is the governance process for imposing and/or changing those limits? | Not addressed in the Rules. However,the CCP has confirmed that limits are imposed or changed by the CCP by way of notice to the affected CM.Position limits1Limits are imposed or changed by the CCP by way of notice to the affected CM. Limit checksThe CCP will provide reasonable notice to CMs of any proposed amendments to the Rules concerning limit checks prior to the amendments taking effect. Notice is generally given by way of market notice. The CCP will consult with all CMs if the CCP is of the view that an amendment to the limit checks is likely to have a material impact on CMs.2Hide note1 CCP response of 27 January 2017; Futures Rule 14.2A (Amendment to Rules)2 Futures Rule 14.2B (Amendment to Rules) |
| 39.4 How are such limits communicated to the CM? | Not addressed in the Rules. |
| 39.5 Is there a notice period before new limits become effective? | Not addressed in the Rules. |
| 39.6 Is there a shorter (or zero) notice period in special or emergency circumstances, and what are the notice period and circumstances? | N/A. |
| 40. Limitations on the ability of a CM to enter into a new Contract | |
| 40.1 Is there any other reason why the CCP can limit the ability of a CM to enter into a new Contract? | The CCP has discretion to decide whether or not to register new Transactions. See item 31 under “Conditions for acceptance for registration” which summarises the conditions for acceptance for registration.Transactions that do not meet the product or other eligibility criteria prescribed from time to time by the CCP or which contains invalid or incomplete message data will be rejected. See item 33.2.In addition, the CCP may amend the Rules and take such measures as it deems necessary in emergency conditions. See item 82.2 for the meaning of emergency conditions.Hide noteOTC Rulebook Rule 4.5 (Acceptance for registration)OTC Handbook Para 4.3 (Submission of OTC Transactions)Futures Rules – Part 8 (Emergency situations and Force Majeure) |
| 41. Consequences of breach of trading limits | |
| 41.1 How are existing Contracts treated if any trading limits are breached? | Where a CM’s position is in excess of or appears likely to exceed the limits applicable to that CM, the Board or the managing director may in its or his absolute discretion do, without being limited to such actions, all or any of the following:(a) determine that the CM is obliged to lodge additional initial margin with respect to all or any Contracts held by the CM of such amount as the Board or the managing director or his delegate may determine;(b) direct that the CM reduce the number of its Contracts so as to not exceed such limits;(c) direct that the CM transfer all or any Contracts to another CM;(d) refuse to register further Transactions on behalf of the CM or accept any allocation or transfer to the CM;(e) exercise the powers that the CCP has under the default procedures as if there were a CM event of default;(f) declare the CM to be the subject of an event of default.A CM is obliged to do all things necessary to give effect to any such determination, direction or decision by such time as is required by the Board.For existing Contracts, the CCP’s powers under (a), (b), (c), (e) and (f) are of relevance.Hide noteFutures Rule 9.3 (Position Limits) |
| 41.2 How are new Transactions treated if any trading limits are breached? | See item 41.1. For new Transactions, the CCP’s power under paragraph (d) is of relevance.Hide noteFutures Rule 9.3 (Position Limits) |
| 42. Physical deliveries | |
| 42.1 If the CCP can match CMs for delivery and receipt of underlying assets, under what circumstances can it do so? | N/A. |
| 42.2 Are the legal obligations for delivery expressed in the rules, procedures or any related agreement? | The CCP facilitates the delivery of Wallumbilla Natural Gas Futures Contracts by directing CMs with opposing obligations to conduct a Delivery Exchange for a physical transaction. This involves:Matching CMs to settle Open Contracts through equal and opposite positions in the transaction.Conducting a physical component transaction on an exchange operated by the Australian energy market operator.Reporting, registering, and maintaining the transaction in the same clearing account.Closing out offsetting Open Contracts and settling them before a specified deadline.If a buyer or seller fails to make delivery, the cash settlement amount determined by the CCP does not include compensation.The CCP handles the delivery under an Environmental Contract in the following manner:For taking delivery, the CCP requires the seller to transfer the specified quantity of the underlying commodity to it at the Environmental Registry. Upon this transfer, the CCP will update its records to reflect an increase in the seller’s interest by the specified quantity.For making delivery, the CCP will similarly update its records to reflect an increase in the buyer’s interest by the specified quantity following the transfer.The Exchange may include an amount of compensation to the buyer, in cases of seller delivery failure, if the buyer incurs financial loss in sourcing certificates or units and has taken all necessary steps for delivery, except when delivery is hindered by cancellation or revocation of environmental certificates or units by the Environmental Registry.These procedures ensure that the CCP maintains accurate records of interests in underlying commodities at the Environmental Registry in accordance with delivery obligations.Hide noteRule 66.1 (a) to (d) (Wallumbilla Natural Gas Futures Contract Delivery Procedures)Rule 67.2 (a) and (b) (Environmental Futures Contracts) |
| 43. Compression services | |
| 43.1 Does the CCP offer compression services? | Yes. The CCP may facilitate a Multilateral Compression Cycle with respect to Contracts of an OTC transaction type and currency. A Multilateral Compression Cycle may include Contracts that are held in a house account or a Client account.A Multilateral Compression Cycle is coordinated by an approved compression service provider* and carried out in accordance with the compression documentation and procedures set out in the OTC Handbook. See item 43.2 below. To participate in a Multilateral Compression Cycle, a CM must satisfy the conditions set out in the OTC Handbook.Each participating CM, and each of its OTC Affiliates and Clients (as applicable) that is or will become a party to Contracts comprised in an Unwind Proposal, will be bound irrevocably by:(i) acceptance of the Unwind Proposal that is communicated to the CCP by the participating CM directly or the approved compression service provider in respect of the participating CM; and(ii) the termination, amendment and creation of Contracts effected by the CCP as part of the Multilateral Compression.By participating in a Multilateral Compression Cycle, a CM represents and warrants to the CCP that it is duly authorised by each of the relevant parties to do so.The CCP will effect a Multilateral Compression Cycle when it is satisfied that all conditions for proceeding are met and multilateral compression will take legal effect on and from the unwind date in accordance with the CCP’s procedures.The CCP will notify participating CMs once a Multilateral Compression has been effected. The CMs are responsible for providing notification to their OTC Affiliates and Clients (as applicable). See also item 55.2 under Netting of Contracts.*Note that an approved compression service provider means a third party compression service provider approved by the CCP and specified in the OTC Handbook.Hide noteCCP response of 20 April 2015OTC Rulebook Rule 4.14OTC Handbook Para 1.4A (Approved Compression Service Provider) and Para 4.14 (Multilateral Compression) |
| 43.2 If so, describe the services provided and the requirements or restrictions set out in the Rules. | Conditions to participation in a Multilateral Compression CycleA CM may participate in a Multilateral Compression Cycle if it:is a party to and in compliance with the compression documentation* up to and including the time at which the CCP effects the Multilateral Compression;is not in default; andis authorised as a CM in respect of the relevant OTC transaction type.Multilateral Compression CycleInitiating a Multilateral Compression CycleCMs that are eligible to participate in the Multilateral Compression Cycle will be notified of the timing and procedure for the Multilateral Compression Cycle including, but not limited to, the process for nominating the Contracts for inclusion in the Multilateral Compression Cycle.In relation to each Multilateral Compression Cycle, the CCP will instruct the approved compression service provider to:(a) generate an Unwind Proposal in accordance with the compression documentation; and(b) communicate the Unwind Proposal to each participating CM for acceptance in the manner set out in the compression documentation.Contracts that are held in:(a) a participating CM’s house account; or(b) an individual sub-account within the participating CM’s Client account,may be nominated for inclusion in a Multilateral Compression Cycle, as notified by the CCP in relation to the cycle.The CCP reserves the right to determine in its sole discretion whether the Contracts nominated for inclusion in a Multilateral Compression Cycle may be included. The CCP may disclose details of a participating CM’s house account and Client account (as applicable) to the approved compression service provider in order to facilitate the Multilateral Compression Cycle.Accepting an Unwind ProposalAcceptance of an Unwind Proposal must be communicated in accordance with the compression documentation and such acceptance is irrevocable. Acceptance of the Unwind Proposal by all relevant parties as specified in the compression documentation is required before a Multilateral Compression Cycle can be effected.Prior to effecting a Multilateral Compression, the CCP may require a CM under the Service to provide additional initial margin.The acceptance of the Unwind Proposal by all relevant parties as specified in the compression documentation will not bind or require the CCP to proceed with a Multilateral Compression. Prior to effecting a Multilateral Compression, the CCP may in its sole discretion decide to reject the Unwind Proposal or to end the Multilateral Compression Cycle. In particular, but without limiting the CCP’s discretion, the CCP may reject an Unwind Proposal if:(i) a participating CM is not eligible to participate in the relevant Multilateral Compression Cycle at or prior to the time at which the CCP proposes to effect the Multilateral Compression; or(ii) a participating CM does not provide the additional initial margin required by the CCP.Effecting a Multilateral CompressionIf an Unwind Proposal is accepted by the CCP and all relevant parties as specified in the compression documentation, the resulting Multilateral Compression will take legal effect on the unwind date from the time notified to the CMs by the CCP on the unwind date, such time to be no later than 4:00pm (Sydney time) on the unwind date.The proceedings for any compression cycle will be notified by the CCP following consultation with CMs under the Service.*Note that “compression documentation” means such agreements and documents as may be required from time to time by the CCP and an approved compression service provider in order to allow a CM to participate in a Multilateral Compression Cycle.Hide noteOTC Rulebook Rule 4.14OTC Handbook Para 4.14 (Multilateral Compression) |
| 44. Types of margin | |
| 44.1 What types of margin (e.g., initial margin, payment margin, variation margin) does the CCP require? | The CCP requires initial margin and variation margin. It may also require Intra-Day Margin and Extra Margin. Intra-Day Margin and Extra Margin deposits are made in accordance with the procedures published on www.asx.com.au, as amended from time to time, or as otherwise advised by the CCP.Intra-Day Margin and Extra Margin are treated, held by and dealt with by the CCP, as initial margin.Based on the RBA 2018/19 Assessment Appendix C1:GeneralThe CCP applies initial and variation margin to derivatives exposures, using margin systems that are tailored to the particular attributes of the cleared products.Initial marginThe CCP’s margin models target a single-tailed confidence level of at least 99.5 per cent of the estimated distribution of future exposure and to the extent practical and prudent, limit the need for procyclical changes.Hide noteOTC Rulebook Rule 5.2 (Transfer of OTC Initial Margin)OTC Handbook Para 5.6 (OTC Intra day Margin and OTC Extra Margin)OTC Rulebook Rule 5.3 (Securities as OTC Initial Margin)OTC Rulebook Rule 5.4 (Change of OTC Initial Margin obligations)OTC Rulebook Rule 5.5 (Portfolio Margining)OTC Rulebook Rule 5.6 (Intra-day Margin and OTC Extra Margin)OTC Rulebook Rule 5.7 (OTC Daily Closing Value)OTC Rulebook Rule 5.8 (OTC Daily Variation Margin)RBA 2018/19 Assessment Appendix C1, Standard 6 |
| 44.2 For each type of margin, provide a brief description of the risks the margin covers. | Initial marginPurposeInitial margin is used to provide cover for the risk arising from movements in the mark-to-market value of Contracts following the latest variation margin call was met until the Contract can be unwound following a default. Method1The CCP will determine the amount of initial margin that each CM must transfer to the CCP in respect of each of its Contracts, whether recorded in the House Account or the Client Account. Such determination is made at a portfolio level using a Value-at-Risk (VaR) approach over a prescribed historical period at a certain confidence interval resulting in an nth worst loss outcome. Change of initial margin obligations 2The CCP may in appropriate circumstances, or for particular Contracts or classes of Contracts, determine a higher or lower rate of initial margin for a particular CM, Client or class of CMs or Clients.In addition, the CCP may, from time to time and in its discretion, require that a CM transfers in relation to Contracts, a greater initial margin than that which the CM would otherwise be required to provide. Portfolio margining; Cross-service margining (Futures Service and the Service) 3The CCP may, from time to time, notify the CM of specified classes of Contracts under the Futures Service that it may take into account in determining the amount of initial margin required under the Service.A CM may request that Contracts of a class so notified that it has registered in a clearing account be taken into account in determining the amount of initial margin required from it in respect of Contracts under the Service held in the same clearing account.If the CCP accepts such a request from a CM, then the CCP will:for the purposes of the Service, take into account such Contracts in determining the amount of initial margin required from that CM under the Service; andfor the purposes of the Futures Service, not take such Contracts into account in determining the amount of initial margin required from that CM under the Futures Service.The timing of allocations of eligible Contracts originally under the Futures Service for the purpose of such cross-service margining is determined by the CCP. Allocations are complete by 7pm on a daily basis. The CCP will notify CMs of any determinations with respect to eligible Contracts.Without limiting its discretion to refuse such a request from a CM (including if it has previously been requested), the CCP may refuse such a request if it is of the view that such portfolio margining would not reduce risk in respect of the clearing facilities provided in accordance with the OTC Rules. The CCP may determine that a particular eligible Contract is ineligible for determining the amount of initial margin required to be transferred under the Service. The CM will be notified of the exception by a report, but the CCP is not required to demonstrate the basis for any such view or determination. In addition, each eligible Contract deemed ineligible for cross-margining by the CCP will be margined under the CME Standard Portfolio Analysis of Risk (SPAN) methodology for the CCP.The CCP also facilitates the allocation of a set of interest rate futures in a CM’s house account to be margined within the portfolio of the CM’s cleared OTC derivatives. Offsets of these futures, including against OTC derivatives, are similarly implicitly recognised within the filtered historical simulation value at risk model. The CCP offers CMs a tool which can automatically optimise the allocation of futures positions to a CM’s OTC derivatives portfolio. This tool identifies and allocates eligible futures contracts within a CM’s portfolio that will, if reallocated to the CM’s OTC derivatives portfolio, lead to a reduction in total calculated OTC exposure – and therefore also total initial OTC margin – without increasing the aggregate of OTC and ETD margin. Prior to the introduction of this tool, CMs had to manually identify and allocate specific futures contracts for portfolio-margining.Based on the CCP’s publication “ASX OTC Interest Rate Derivatives Clearing – Service Description” (September 2013), the list of eligible cleared ASX 24 ETDs may be extended to incorporate other exchanged traded products in the future, and it is the CCP’s plan to offer a cross-margin optimisation tool that will allocate the eligible ASX 24 ETD positions in such a way as to minimise the overall cost of margining (i.e. not over-margin the net position).Portfolio-margining recognises the economic relationship between, for example, A$ IRS and A$ interest rate futures and, to the extent that positions are indeed offsetting, would be expected to result in a reduction in the amount of initial margin required under the Service, compared to if the positions were margined independently under each of the Service and the Futures Service.The cross-margining service described above are available where:a CM is both a CM under the Service and the Futures Service with respect to the CM’s House Account; ora Client has an individual Client Account for both the Service and the Futures Service with the same CMCross-margining is currently not available where a Client has different CMs for the Service and the Futures Service or where an entity is a CM under the Service but is only a Client under the Futures Service (i.e. it is not also a CM under the Futures Service). Intra-Day Margin 4The CCP is entitled to make further margin calls for payment on the same day whenever the CCP considers it necessary. Each Intra-Day Margin call must be met within 1 hour. Extra Margin 5If the CCP determines that the aggregate value of the initial margin actually delivered to the CCP by a CM is insufficient to provide the cover required in order to fulfil their total margin requirement also taking into account all Transactions which are expected to be registered during the course of the day, the CCP may require the CM to provide Extra Margin. Such Extra Margin may be in the form of further cash, securities, margin or cover as the CCP may determine.Any Intra-Day Margin and Extra Margin transferred to the CCP by a CM is to comply with the requirements for, be treated as, held by and dealt with the CCP as, initial margin. Additional initial margin/credit stress test 6Based on the RBA 2018/19 Assessment Appendix C1, the CCP is separately entitled to collect additional initial margin where a CM’s positions yield stress-test results above a predetermined stress-test exposure limits or where a CM holds large portfolios relative to its capital. Accordingly, the purpose of additional initial margin is to provide additional CM-specific cover against non-systematic spikes in individual CMs’ exposures. This is intended to mitigate the risk that the default of a CM with a large exposure, in more extreme market conditions than are contemplated by regular initial margin, may deplete or even exhaust the default fund.By upholding the ‘defaulter pays’ principle, the additional initial margin regime also provides an incentive for CMs to manage the risk they bring to the CCP.The CCP uses credit stress tests to establish whether a CM is required to post additional initial margin.Based on the RBA 2018/19 Assessment Appendix C1, the CCP applies underlying parameters and assumptions in performing credit stress tests, including:(i) profits in Client Accounts cannot be used to offset house losses, or losses on other client accounts (although client profits and losses may be offset within the same omnibus account);(ii) positions in client accounts will be closed out rather than transferred to another participant, with any losses crystallised as a result;(iii) the point of default is assumed to occur after initial and variation margin obligations from the previous day’s settlement cycle have been met by the participant, but before additional initial margin obligations from the previous settlement cycle have been met by the CM;(iv) excess collateral posted by CMs and their Clients is not available to cover stress test exposures; and(v) the assumed stressed period of risk is three days for liquid exchange-traded derivatives and five days for all other exchange-traded products and OTC derivatives.Based on the RBA 2018/2019 Assessment Appendix C1, credit stress tests are based on a range of scenarios covering extreme price moves and volatility shifts in equity, interest rate and electricity contracts. The stress testing approach is based on the most extreme close-to-close price movements observed over the relevant holding period. The CCP’s stress test approach comprises a suite of historical, theoretical and hypothetical scenarios, as set out below.Historical scenariosHistorical scenarios are based on the largest observed price movements over the stressed period of risk, using the entire price history available for the product. Observed periods of stress are excluded by the CCP only if their reoccurrence is considered implausible based on the contemporary structure and functioning of the market, or if they have been superseded by more recent market events.Theoretical scenariosTheoretical scenarios are based on statistical inference from 20 years of historical price and volatility data, to capture extreme but plausible (1-in-20-year) events that have not been observed. This statistical analysis considers correlations between contracts and takes into account correlations between contracts and uses a Student’s t-distribution to allow for more extreme events than normal distribution. These include a range of scenarios that model a range of shifts, tilts, twists and bends of the yield curve as well as scenarios that apply model shocks to equities and state-specific electricity markets.Hypothetical scenariosHypothetical scenarios are forward-looking scenarios largely based on expert judgement that reflect that could result in extreme market stress but are not based on historical precedent. The hypothetical scenarios used by the CCP represent macroeconomic or market-wide events. On a monthly basis the RQWG reviews daily price and implied volatility changes for the month to determine whether there is any evidence of stress that would support a change to the scenarios.Target degree of confidence7Based on the RBA 2018/19 Assessment Appendix C1, the CCP calibrates initial margin based on a 99.5% confidence interval. Close-out period5 days (for House Accounts) and 7 days (for Client Accounts). Variation margin8Variation margin may be payable by the CCP or the CM, as the case may be.Variation margin must be paid in Australian dollars or New Zealand dollars (as applicable), or such other currency that the CCP determines is acceptable in its discretion from time to time. Purpose and MethodThe CCP will determine the variation margin in respect of Contracts of a CM following the calculation of the daily closing value for those Contracts.Variation margin is determined by reference to the change in the daily closing value of Contract since the previous Business Day. OTC daily closing valueThe CCP determines the closing value of Contracts which determination is conclusive and final.The CCP will in general use its own determination of yield curves to calculate the net present value of each Contract. This calculation will be conducted at least once on each Business Day in the determination of the daily closing value of Contracts.The CCP will determine, at its sole discretion, appropriate instruments, maturity points and market prices required for determination of zero coupon rates, discount factors and implied forward curve rates, as well as any other factors it deems necessary to produce a net present value for any Contract or the daily closing value of Contracts.The yield curves selected will use market prices and rates taken at a point in time determined by the CCP at its discretion to reflect local market fair value to CMs.See item 44.3 on the timing for meeting daily variation margin calls.Hide note1 CCP response of 20 April 2015; OTC Rulebook Rule 5.3; OTC Handbook Para 5.3 (Securities as OTC Initial Margin)2 OTC Rulebook Rule 5.4 (Change of OTC Initial Margin obligations)3 OTC Rulebook Rule 5.5; OTC Handbook Para 5.5 (Portfolio Margining); RBA 2018/19 Assessment Appendix C1, Standard 6.5; Para 9.9 (Cross-margining), CCP’s publication: “ASX OTC Interest Rate Derivatives Clearing -Service Description” (September 2013),4 OTC Rulebook Rule 5.6; OTC Handbook Para 5.6 (Intra-day Margin and OTC Extra Margin),5 OTC Handbook Para 5.6 (OTC Intra-day Margin and OTC Extra Margin)6 RBA 2018/19 Assessment Appendix C1, Standards 4.4 – 4.7 and 6.37 RBA 2018/19 Assessment Appendix C1, Standard 6.38 OTC Rulebook Rule 5.7; OTC Handbook Para 5.7 (OTC Daily Closing Value) and 5.8 (OTC Daily Variation Margin) |
| 44.3 For each type of margin, how often does the CCP make margin calls and what is the timing for CMs to meet margin calls? | Initial margin1Initial margin must be transferred:upon demand; orby such time as is set out in the OTC Handbook or is otherwise required by the CCPThe CCP may require a CM to deposit initial margin or additional initial margin with the CCP in accordance with the procedures published on www.asx.com.au, as amended from time to time, or as otherwise advised by the CCP. The table of acceptable collateral on the CCP’s website (see item 58.1 for the weblink) sets out the lodgement process and the timing for delivery of different types of initial margin. This is the only source setting out the timing information. Margins must be matched at 10:30am (Sydney time) and settled by 11am (Sydney time). CMs are not required to pre-fund/put in place collateral ahead of registration. Intra-Day Margin2The CCP is entitled to make additional margin calls for payment on the same day whenever the CCP considers it necessary. Each Intra-Day Margin call must be met within 1 hour (or such other period of time as notified by the CCP) of it being made.The CCP offers clearing services on a 24/6 basis and so it faces intra-day risk during both during the day, and overnight.Day session (8.30 am to 4.30 pm)The CCP conducts three scheduled intra-day margin runs during its day session, at 8.05am, 11.10 am and 1.30 pm. Intra-day margin calls are issued around 45 minutes following each run and must be met by CMs within one hour of notification. The CCP is able to conduct ad hoc intra-day margin runs during the day session, and will do so in response to large price movements in key contracts. Ad hoc runs are triggered if the change in price of an individual contract exceeds 100 per cent of its margin rate or the ASX/S&P 200 index price changes by 1 per cent or more intra-day.The CCP also recalculates margin on OTC derivatives hourly, and may call for additional margin during day session. If one or more CMs’ margin requirement exceeds their excess collateral lodged with the CCP. The CCP also runs pre-novation checks on back-loaded OTC trades or trades transferred from another CCP and may require pre-collateralisation on these trades. Relative to new trades, the CCP has a low appetite for accepting pre-existing trades on an uncollateralised basis, given the potential for these trades to have larger immediate exposures. The CCP seeks to ensure that a greater proportion of intra-day exposures are collateralised in the lead up to the night session by imposing risk-based erosion thresholds to intra-day calls.Night session (5.10 pm to 7.00 am)The CCP runs hourly margin calculations during the night session; however, CMs are unable to make AUD margin payments overnight since the Australian payments system is closed.The CCP conducts a 2.00am call for initial margin for AUD denominated OTC products from CMs that meet certain criteria. This must be met within two hours of notification. Calls are made in USD to cover any initial margin shortfalls greater than $3 million for House Accounts and $5 million for Client Accounts.CMs subject to the 2.00 am call are also required to post additional collateral in the form of an overnight buffer to reduce the likelihood that a call for variation margin would be required overnight. The size of the required buffer for each account is calculated based on the 80th percentile of daily mark-to-market movements between 5.00pm (end of day session) and the 2.00am call. The CCP calculates the buffer based on one years’ worth of data. The CCP has set out a quarterly process for reviewing and resizing this buffer.The CCP collects data on the exposures on near real-time basis, and these exposure data are reviewed periodically during the night session to monitor peak exposure and erosion of margin resources. The CCP does not initiate additional ad hoc margin cycles on the basis of these data but may use information in reviewing its margin models or the appropriate timing of its margin cycles. For all intra-day and end-of-day margin calls, the CCP monitors the payment progress of CMs in the period prior to when the time payment is due, in order to identify any CM that has not matched and settled. In most cases, the early intervention and relevant escalation processes result in any operational problems being solved ahead of the payment deadline. If a margin payment is not made in the required time, the CCP has the right to call a default event.Extra Margin3In addition to, or instead of, Intra-Day Margins, the CCP may make additional margin calls at any time. Such additional initial margin may be in the form of further cash, securities, margin or cover for Contracts or Transactions eligible to be registered as the CCP may determine.Extra Margin (or additional initial margin) can take various forms. Stress testing related Extra Margin is settled at the time of regular margin settlements. Capital based position limit Extra Margin and other discretionary Extra Margin will be called independently of margin settlement, and must be settled within 1 hour of notification. Variation margin4All daily variation margin must be paid to the CCP by 11am (Sydney time) on the Business Day following the CCP’s request for variation margin. In addition, for Contracts denominated in Australian dollars instructions for the payment of variation margin must be matched by 10:30am (Sydney time) in Austraclear. All payments by the CCP in connection with variation margin (including any price alignment amount) are to be made to accounts located in Australia (for Contracts denominated in Australian dollars) or New Zealand (for Contracts denominated in New Zealand dollars), unless otherwise agreed by the CCPHide note1 OTC Rulebook Rules 5.2 (Transfer of OTC Initial Margin) and 5.3 (Securities as OTC Initial Margin); OTC Handbook, Para 5.2 (Transfer of OTC Initial Margin); CCP responses of 6 February and 20 April 2015; Table of ASX Clear (Futures) Acceptable Collateral (Effective 26 May 2017).2 OTC Handbook Para 5.6 (Intra-day Margin and OTC Extra Margin); RBA 2018/19 Assessment Appendix C1, Standard 6.4;3 OTC Rulebook Para 5.6 (Intra-day Margin and OTC Extra Margin)4 OTC Handbook, Para 5.8 (OTC Daily Variation Margin) |
| 44.4 Can the CCP require CMs to post intra-day margin? | Yes. See items 44.1, 44.2 and 44.3 under the headings “Intra-Day Margin” and “Extra Margin”.Hide noteOTC Rulebook, Rule 5.6OTC Handbook, Para 5.6 (Intra-day Margin and OTC Extra Margin) |
| 44.5 Is there an unmargined intra-day/overnight amount permitted in relation to new Contracts? | Initial margin is required to be met on the Business Day after trade date/registration; CMs are not required to pre-fund/put in place collateral ahead of registration. However, see item 45.1.Hide noteCCP response of 20 April 2015OTC Handbook, Para 4.5(d) (Acceptance for registration; Deferral of acceptance) |
| 44.6 Can the CCP provide margin credit so that a CM does not have to transfer funds to meet a margin call? | Not addressed in the Rules. The CCP has broad discretion to determine the margin amounts payable and this discretion could potentially include the provision by the CCP of margin credit such that a CM does not have to transfer funds to meet a margin call.In practice, the CCP does not provide margin credit to CMs.Hide noteCCP responses of 27 January 2017 |
| 45. Suspension of new Contracts pending intra-day margin payments | |
| 45.1 Can the CCP suspend clearing of new Contracts pending payment of an intra-day margin call? | If the CCP determines that the intra-day calculation of the initial margin and daily variation margin required from a CM is approaching the CM’s exposure limit, then it may defer the registration of a Transaction to which that CM is, or is taken to be, a party. Pending payment of an Intra-Day Margin, the CCP can therefore suspend clearing of new Contracts.Hide noteCCP response of 20 April 2015OTC Handbook, Para 4.5(d) (Acceptance for registration; Deferral of acceptance) |
| 45.2 If so, how would this be notified to the CM? | Not addressed in the Rules.At a trade level, the CCP will notify CMs via the Trade Source for house and Client trades (trades will either be rejected or termed ‘pending clearing’ depending on the reason for the ‘suspension of registration’).The CCP will also contact CMs via telephone and/or email if additional collateral is required to clear new trades. Hide noteCCP responses of 27 January 2017 |
| 45.3 What steps would the CM have to take to reinstate clearing of new Contracts? | Not addressed in the Rules. |
| 46. Collateral requirements upon Contract registration | |
| 46.1 Does the CCP require a CM to post collateral at the time it registers a Contract? | See item 44.5. |
| 47. Daily collateralisation of Contracts | |
| 47.1 Does the CCP require all Contracts to be fully collateralised on a daily basis? | Yes, the CCP requires that all Contracts are to be fully collateralised on a daily basis. Variation margin operates on a daily basis, but the CCP has discretion to waive or lower its margin requirements.Hide noteCCP responses of 6 February 2015 |
| 48. Credit limits on uncollateralised exposures | |
| 48.1 Can the CCP impose credit limits on specific CMs’ uncollateralised exposures? | The CCP may at the time of admission or any later time impose any conditions on a CM which it considers appropriate. This could include the imposition of credit limits. The CCP may prescribe position limits on the number of Contracts a CM may hold and other limits relating to the exposure of the CM under Contracts (see items 39 and 41). In addition, as a condition for the CCP’s acceptance of a Transaction for registration, the Transaction is required to pass the applicable limit check. See item 31 under “Conditions for acceptance for registration”.Hide noteCCP responses of 27 January 2017Futures Rule 4.5 (Admission Requirements)Futures Rule 9 (Position Limits) except that Rule 9.5 is not relevant and Rule 9.1 has been supplemented and/or varied by OTC Rulebook Rule 4.5 (d) (Acceptance for registration)OTC Handbook Para 4.5(c) (Limit checks)OTC Rulebook Rule 5.2 (Transfer of OTC Initial Margin)OTC Rulebook Rule 5.3 (Securities as OTC Initial Margin)OTC Rulebook Rule 5.4 (Change of OTC Initial Margin obligations)OTC Rulebook Rule 5.5 (Portfolio Margining)OTC Rulebook Rule 5.6 (OTC Intra-day Margin and OTC Extra Margin)OTC Rulebook Rule 5.7 (OTC Daily Closing Value)OTC Rulebook Rule 5.8 (OTC Daily Variation Margin) |
| 49. Excess collateral | |
| 49.1 Does the CCP permit CMs to post excess collateral, and how is excess collateral protected at the CCP? | Yes. All amounts (which the CCP has confirmed include cash and non-cash collateral) held by the CCP in a CM’s House Account and Client Account, including any monies transferred in excess of a CM’s margin obligations at the time of the transfer, are taken to have been transferred for the purpose of satisfying margin obligations of that CM.Amounts held by the CCP which are in excess of a CM’s margin obligations from time to time are refundable to the CM by the CCP upon demand, provided that the CCP is satisfied, in its absolute discretion, that such amounts will not be required to satisfy the CM’s obligations (present, future or contingent) under the Rules (including a margin obligation).Excess margin payments are protected in a similar manner to regular margin payments. It is noted that securities, collateral, and other property deposited by CMs with the CCP are absolutely transferred, meaning that the CCP receives all rights, titles, and interests. For securities and collateral, CMs do not retain any proprietary rights post-transfer, except potentially modified by Part 11 of the Futures Rules. The CCP must only return equivalent assets, not the originals. Similarly, all cash deposited by CMs with the CCP for various margin requirements becomes the absolute legal and beneficial property of the CCP. While it represents a debt equivalent to the balance of the participant’s relevant clearing account, neither the CM nor any associated entities retain proprietary rights or interests in the cash. This arrangement is subject to the client protection model provisions.Note that the CCP may also “attribute” cash and non-cash assets posted by CMs in respect of an individual Client sub-account. Attributions that exceed the level of initial margin required in relation to such individual Client sub-account are permitted. See the Client Clearing Module for further information.Hide noteOTC Rulebook Rule 5.10 (Excess Margin)Rule 49A (Absolute Transfer of Securities, Collateral and Other Property)Rule 49B (Cash Deposits Represent Property of ASX Clear (Futures) Operating)CCP responses of 6 February and 20 April 2015OTC Rulebook Rule 116.2A (Margin) |
| 49.2 If a CM is not permitted to post excess collateral to the CCP, how does the CCP treat any excess collateral at the CCP (e.g., excess margin resulting from a change in the marked-to-market value of the Contracts)? | N/A. |
| 49.3 Is excess collateral automatically returned to the CM, or can a CM request its return at any time? | Excess collateral is not automatically returned to the CM, but the CM may request its return at any time. See item 49.1.Hide noteOTC Rulebook Rule 5.10 (Excess Margin) |
| 50. Settlement finality for margin | |
| 50.1 When is collateral deemed received from a CM or paid to a CM (settlement finality for margin)? | Not addressed in the Rules.However, collateral is deemed received from or paid to a CM when the collateral is deposited into the relevant account. In an insolvency situation, this is maintained by the PSNA. |
| 51. Cross-service margining | |
| 51.1 Does the CCP permit cross-service margining? | Margin (initial margin, variation margin, Intra-Day Margin or Extra Margin) is calculable separately and, in the context of the Futures Service, (unless otherwise prescribed) in respect of each of the Australian Securities Exchange Limited and the New Zealand Futures & Options Exchange Limited (as applicable) and, if applicable, the Transactions under the Service for each House Account and Client Account of each CM. However, the CCP does permit cross-service margining, currently on a limited basis. See item 44.2 under “Initial margin – Portfolio margining; Cross-service margining (Futures Service and the Service)” and item 51.2.Hide noteFutures Rule 41 (Accounts) except for Futures Rule 41.8 which is not relevant to the ServiceFutures Rule 41.3 (Accounts) |
| 51.2 If so, please describe. | See item 44.2 under “Initial margin – Portfolio margining; Cross-service margining (Futures Service and the Service)”.Hide noteRBA 2018/19 Assessment Appendix C1. Standard 6.5CCP responses of 6, 16 and 18 February 2015 |
| 52. Variation margin haircutting | |
| 52.1 Does the CCP have the right to haircut variation margin or to do something with a similar effect? | Yes. |
| 52.2 If so, in what circumstances (other than in an end-of-waterfall scenario) is it permitted to exercise this right? | Please see item 100.1 under the title of “Conditions and order for taking each recovery action”. |
| 53. CCP rights to amend margin methodology/call for additional collateral | |
| 53.1 Can the CCP amend the methodology for determining the margin requirement and/or call for additional margin at any time? | Yes. See items 44.2 and 79. |
| 54. Basis for margin calls | |
| 54.1 Is margin for Contracts called for on a gross/trade by trade basis or on a net portfolio basis? | Margin is called for on a net portfolio basis, but subject to the separation and cross-service margining set out in item 51.1 and 51.2.Hide noteFutures Rule 41 (Accounts) except for Futures Rule 41.8 which is not relevant to the ServiceFutures Rule 41.3 (Accounts) |
| 55. Netting and set-off | |
| 55.1 Do the Rules provide for the netting and set-off of obligations in the ordinary course (including, for example, netting of variation margin, netting of variation margin and initial margin and netting of any margin and other payments)? | Yes. |
| 55.2 If so, please describe. | Set-off rights – a CM’s House Accounts and Client Accounts1The CCP may at any time:combine or consolidate the balances (whether arising from settlements, margin payments or otherwise) in respect of all or any of the Contracts under the Service and contracts under the Futures Service designated to a CM’s House Accounts; and/orset-off any amount(s) standing from time to time to the credit of any of the CM’s House Accounts, in or towards payment or satisfaction of all or any of that CM’s liabilities to the CCP in respect of: (i) Contracts under the Service and/or contracts under the Futures Service designated to any of that CM’s House Accounts; or(ii) Contracts under the Service and/or contracts under the Futures Service designated to any of the CM’s Client Accounts, to the extent of any shortfall where proceeds of a Client Account are insufficient to meet its liabilities to the CCP in respect of Contracts under the Service and/or contracts under the Futures Service designated to that Client Account. Set-off rights – a CM’s Client Accounts2Except to the extent that the CPM Provisions (these are set out in Part 10 of the Futures Rules) apply and provide otherwise, the CCP may combine or consolidate the balances (whether arising from settlements, margin payments or otherwise) in respect of all or any of the Contracts under the Service and contracts under the Futures Service designated to a CM’s Client Accounts and to set off any amount(s) standing from time to time to the credit of any of a CM’s Client Accounts in or towards payment or satisfaction of all or any of the CM’s liabilities to the CCP in respect of Contracts under the Service and/or contracts under the Futures Service designated to the CM’s Client Accounts. Netting of Contracts under the Service3 Contracts held in a Client Account or in the House Account may be netted with other Contracts held in the same Client Account or the House Account (as applicable) in accordance with the procedures set out in the OTC Handbook.A CM may make a request for two or more Contracts (which satisfy the conditions set out in the OTC Handbook which are summarised below) to be netted by submitting the trade references of each Contract to the CCP.If the CCP accepts these Contracts for netting, then:(a) the rights and obligations under each Contract are, as far as possible, to be set off against each other;(b) any remaining rights and obligations following such set-off are to comprise a single Contract reflecting the net economic terms of such netted Contracts. Following the completion of set-off, the netted Contracts are terminated so that there will be no remaining obligations between the CM and the CCP in respect of them; and(c) the CCP will determine the resulting notional amount of the Contract (if any) that replaces the netted Contracts which determination will be binding on the CM, absent manifest error.The conditions for the netting of Contracts in the same Client Account or within the House Account which have equal but offsetting terms except for the notional amount are:(a) the Contracts must not have matured;(b) all additional payments (as referred to under the Trade Source) for those Contracts as agreed between the parties to the Contracts have been settled;(c) the CM must have the opposite contractual position under the Contracts to be netted; and(d) the parties to the Contracts must be identical (however, in respect of any Contracts that are registered in the House Account and submitted for netting, any OTC Affiliate which is a party to one or more of those Contracts is to be disregarded for this purpose).No Contract registered in the House Account of a CM may be netted against a Contract registered in the Client Account of that CM.Netting of Contracts will be effected outside the operating times of the Service as an end of day process.A CM may make a standing request for netting of two or more Contracts to occur automatically in respect of a Client Account where such Contracts satisfy the conditions described above in paragraphs (a) to (d).See also item 43.1 on compression.Hide note1 Futures Rule 47.22 Futures Rule 47.33 OTC Rulebook Rule 4.15; OTC Handbook Para 4.15 (Netting of Contracts); CCP response of 20 April 2015 |
| 56. CM provision of cash collateral | |
| 56.1 How is cash collateral in respect of house business provided to the CCP (by way of title transfer or by way of security interest)? | All collateral (cash and non-cash) is currently transferred by way of title transfer to the CCP. Cash collateral is the legal and beneficial property of the CCP and represents a debt owing by the CCP to the CM. Non-cash collateral is transferred by a CM to or on account of the CCP and is not invested. The CCP has made no determination to apply the security interest provisions of Part 11 of the Rules (see below). Initial margin1Cash collateral may be transferred by way of title transfer or security interest if the CCP designates that Part 11 of the Futures Rules applies to such collateral as “Secured Initial Margin”.The CCP may determine the time at which application of Part 11 of the Futures Rules is to commence in its sole discretion. The CCP may make this determination at different times for different types of Transactions. However, a determination does not have the effect of including any property which has already been transferred to, or otherwise provided to, or designated for the benefit of, the CCP at that time as “Secured Initial Margin”.For the purposes of creating a security interest over collateral posted by a CM (cash or non-cash), no additional documentation is required. The Rules create a charge over the “Secured Initial Margin” and deals with the other requirements to effect security. Intra-day Margin and Extra Margin 2The Rules do not expressly state whether Intra-day Margin and Extra Margin are to be provided by way of outright transfer or security interest. However, the Rules state that any Intra-day Margin and Extra Margin transferred to the CCP by a CM is to comply with the requirements for, be treated as, held by and dealt with the CCP as initial margin. The CCP has however confirmed that both Intra-day Margin and Extra Margin are provided by way of outright transfer. Variation margin3The Rules provide that payment of variation margin is to be made absolutely (i.e. by way of title transfer).Hide note1 OTC Rulebook Rule 5.2 (Transfer of OTC Initial Margin); Futures Rules Part 4 (Accounts and Daily Settlement) Para 49A and 49 B; Futures Rules Part 11 (Security Interest Provisions), Rules 122 (Introduction), 123 (Application of Security Interest Provisions) and 124 (Secured Initial Margin); CCP responses of 6 February and 20 April 20152 OTC Rulebook Rule 5.6 (OTC Intra-day Margin and OTC Extra Margin); Futures Rules Part 4 (Accounts and Daily Settlement) Para 49A and 49 B; CCP responses of 6 February and 20 April 20153 OTC Rulebook Rule 5.8 (OTC Daily Variation Margin); Futures Rules Part 4 (Accounts and Daily Settlement) Para 49A and 49 B |
| 57. CM provision of non-cash collateral | |
| 57.1 How is non-cash collateral in respect of house business provided to the CCP (by way of title transfer or by way of security interest)? | All collateral (cash and non-cash) is currently transferred by way of title transfer to the CCP. Non-cash collateral is transferred to the CCP’s account in Austraclear and is not invested or re-used by the CCP. Initial marginAll transfers of non-cash collateral are to be made by way of title transfer except to the extent that the CCP designates that Part 11 of the Futures Rules applies to such collateral as “Secured Initial Margin” in which case such non-cash collateral would be provided by way of security interest. See item 56 for more details. The CCP has made no determination to apply the security interest provisions of Part 11 of the Rules. Intra-day Margin and Extra MarginSee item 56 above.Hide noteOTC Rulebook Rule 5.3 (Securities as OTC Initial Margin; Futures Rules Part 4 (Accounts and Daily Settlement) Para 49A and 49 B; CCP responses of 6 February 2015 |
| 58. Eligible collateral, haircuts and concentration limits | |
| 58.1 What constitutes eligible collateral? | The CCP has absolute discretion to determine what constitutes eligible collateral, subject to the requirements of the RBA’s Financial Stability Standards for Central Counterparties which require accepted collateral to have low credit, liquidity and market risks and central counterparties to set and enforce appropriately conservative haircuts and concentration limits.Acceptable collateral is reviewed annually and more frequently if market circumstances dictate. Initial marginInitial margin (including additional initial margin)The types of collateral acceptable to the CCP for the purposes of initial margin and additional initial margin calls are set out in the form of a table, at https://www.asx.com.au/data/asxclf-acceptable-collateral-list.pdf.The CCP updates this list from time to time.CMs may meet additional initial margin obligations using AUD cash or non-cash collateral, including Australian government and semi-government securities. Intra-day Margin and Extra MarginIntra-day Margin is cash only and must be paid in the same underlying currency.As for Extra Margin, where an Extra Margin call is to be settled as part of the end-of-day margin settlement (such as stress testing related Extra Margin), Extra Margin can be provided by way of cash or securities. This is set out in the table of acceptable collateral. Variation marginVariation margin must be paid Australian dollars or New Zealand dollars (as applicable), or such other currency that the CCP determines is acceptable in its discretion from time to time.Hide noteCCP response of 20 April 2015OTC Handbook Para 5.3 (Securities as OTC Initial Margin)Table of ASX Clear (Futures) Acceptable Collateral (Effective 26 May 2017)OTC Rulebook Rule 5.6 (OTC Intra-day Margin and OTC Extra Margin)OTC Rulebook Rule 5.8 (OTC Daily Variation Margin)RBA 2018/19 Assessment, Appendix C1, Standard 5.1RBA 2021/22 Assessment, Appendix B.3 (Prefunded financial sources), p 64 |
| 58.2 Are haircuts applied to any form of eligible collateral? | Yes, haircuts are applied to all non-cash collateral posted and all cash collateral that is not in the same currency as the product being covered.Details can be found at the following weblink on the CCP’s website: https://www.asx.com.au/markets/clearing-and-settlement-services/asx-clear-futures/interest-payments-haircuts-fees-and-incentives?_gl=1*ymssw7*_ga*NzAzNDE3OTYuMTY1MjQ0NDQ5OQ..*_ga_J1L799T374*MTY5MDk4NjEwNC42MS4xLjE2OTA5ODk3NDkuNjAuMC4w.The CCP sets haircuts on eligible debt securities placed as collateral. Eligible securities are assigned a haircut based on three maturity buckets, with higher haircuts applied to longer-dated securities. The haircuts are calibrated to cover a fall in the collateral value of securities over a three-day period. at 99.9 per cent confidence level, based on 20 years of price history, where available. This coverage is equivalent to the fifth worst price move over the 20 years of price history. The CCP also applies haircuts using the same methodology to cash collateral lodged to meet margin requirements for products denominated in a currency other than the collateral using a one-day holding period. The CCP’s current credit stress test framework does not stress collateral using extreme but plausible price moves, but instead monitors on a quarterly basis the impact of the worst price move over the last 20 years on the value of non-cash and non-AUD margin collateral. The CCP will determine an approach to stress testing collateral in its credit and liquidity stress tests. Collateral haircut rates are reviewed at least semi-annually and on a more frequent basis if there are changes in market conditions or collateral eligibility.Hide noteRBA 2018/19 Assessment Appendix C1, Standards 5.1, 5.3 and 5.4Table of ASX Clear (Futures) Acceptable Collateral (Effective 26 May 2017) |
| 58.3 What are the concentration limits or other restrictions in respect of different types of eligible collateral? | In respect of non-cash collateral (securities or other property) as initial margin, the Rules specifically provide that the CCP has absolute discretion to prescribe limits on the aggregate amount of securities or other property that a CM can lodge as initial margin, whether applicable to a particular CM or otherwise. The Rules do not otherwise expressly set out any restrictions specifying how much of any particular type of eligible collateral a CM may provide.In any event, the CCP has absolute discretion to determine what constitutes eligible collateral, when certain types of collateral may cease to be acceptable, and the valuation of securities or other property. The CCP may therefore use such discretion to implement restrictions in practice. The CCP’s determination is subject to the requirements of the RBA’s Financial Stability Standards for Central Counterparties which require accepted collateral to have low credit, liquidity and market risks and central counterparties to set and enforce appropriately conservative haircuts and concentration limits.The publicly available collateral eligibility reflects the broad parameters set by the CCP’s collateral policy which is not publicly available but is subject to RBA’s review or oversight.The risk-based policy operated by ASX for managing concentration risks at its CCPs (i.e. the CCP and the CCP operated by ASX Clear Pty Limited) does not address concentration risk in the CCP’s collateral holdings. ASX also considers the non-cash collateral which it accepts to be sufficiently liquid that concentration is unlikely to be a significant concern. Concentration risk in foreign currencies is considered wherever a CM approaches ASX for approval to lodge foreign currency collateral. Should the materiality of non-cash collateral increase, The CCP would expect to apply a similar policy on concentration limits to that applied in the investment mandate.Hide noteOTC Rulebook Rule 5.3 (Securities as OTC Initial Margin)CCP responses of 6 February 2015RBA 2018/19 Assessment Appendix C1, Standards 5.1 and 5.5 |
| 58.4 Can the CCP require a minimum portion of collateral to comprise cash? | Initial margin1Initial margin (including additional initial margin)There is no requirement for a minimum portion of collateral to comprise cash. However, as the CCP may at any time require that any non-cash collateral be replaced by cash, it can in practice set a requirement for a minimum portion of collateral to comprise cash if it wishes to do so. Intra-day Margin and Extra Margin 2Intra-day Margin may only be settled in cash.Extra Margin can be provided by way of cash or non-cash assets. The CCP can therefore exercise its discretion to require a minimum portion of Extra Margin to comprise cash. Variation margin3Variation margin must be provided in cash in any event. See item 58.1.Hide note1 OTC Rulebook Rules 5.2 (Transfer of OTC Initial Margin) and 5.3 (Securities as OTC Initial Margin)2 OTC Rulebook Rule 5.6 (OTC Intra-day Margin and OTC Extra Margin)2 RBA 2018/19 Assessment Appendix C1, Standard 5.13 OTC Rulebook Rule 5.8 (OTC Daily Variation Margin) |
| 58.5 How, when and with what notice period can the CCP change the list of assets that constitute eligible collateral, the concentration limits, and any minimum cash requirement? | List of eligible collateralThe CCP may amend the types of collateral acceptable to it by amending the eligible collateral list on the CCP’s website at https://www.asx.com.au/data/asxclf-acceptable-collateral-list.pdf from time to time. In practice, generally the CCP will consult with the risk committee before it makes changes to the eligible collateral list and changes are notified to CMs by notice. Concentration limitOther than in respect of non-cash collateral (securities or other property) as initial margin where the Rules specifically provide that the CCP has absolute discretion to prescribe limits on the aggregate amount of securities or other property that a CM can lodge as initial margin, whether applicable to a particular CM or otherwise, the Rules do not expressly mandate any concentration limits. In any event, the CCP has broad rights to value posted collateral at zero and demand an alternative form of collateral from CM if the CCP determines it is necessary to do so. See also items 58.3 for further information about the CCP’s approach as regards concentration limits. Minimum cash requirementThe Rules do not mandate any specific minimum cash requirements. See items 58.4 and 59.1 for more details.Hide noteTable of ASX Clear (Futures) Acceptable Collateral (Effective 26 May 2017)OTC Handbook Paragraph 5.2 (Transfer of OTC Initial Margin)OTC Handbook Paragraph 5.3 (Securities as OTC Initial Margin)CCP responses of 6 and 16 February 20152 |
| 59. Substitution of collateral | |
| 59.1 Can the CCP require substitution of eligible collateral at any time and what are the timelines for such substitutions? | Yes, in respect of initial margin, the CCP has broad discretion at any time to require a CM to replace any securities or other property which have been transferred as initial margin with cash, other securities or other property required by the CCP.The CCP also has broad discretion to value posted collateral at zero and demand an alternative form of collateral from CM if the CCP determines it is necessary to do so.On timing for the meeting of margin calls, see item 44.3. In addition, the table of acceptable collateral on the CCP’s website sets out the lodgement process and the timing. The CCP has broad discretion including prescribing the timing for any such substitution.Hide noteOTC Rulebook Rule 5.2 (Transfer of OTC Initial Margin)OTC Rulebook Rule 5.3 (Securities as OTC Initial Margin)OTC Handbook Rule 5.2 (Transfer of OTC Initial Margin)OTC Handbook Rule 5.3 (Securities as OTC Initial Margin)Table of ASX Clear (Futures) Acceptable Collateral (Effective 26 May 2017) |
| 59.2 What requirements, if any, must be satisfied to permit the CCP to require a substitution? | Substitution is at the CCP’s discretion. The Rules do not specify any particular requirements. |
| 59.3 Do the timelines depend on whether the CCP or CM initiates a substitution? | In respect of a substitution required by the CCP, see item 59.1.The Rules do not expressly provide for any substitution initiated by a CM. |
| 60. Non-eligible collateral | |
| 60.1 Does the CCP offer a service under which a CM can post as collateral types of assets that would not otherwise constitute eligible collateral? | No. However, the CCP has absolute discretion to determine what constitutes eligible collateral, subject to the requirements of the RBA’s Financial Stability Standards for Central Counterparties which require accepted collateral to have low credit, liquidity and market risks and central counterparties to set and enforce appropriately conservative haircuts and concentration limits.Hide noteOTC Handbook Para 5.3 (Securities as OTC Initial Margin) |
| 60.2 If so, please describe. | See item 60.1. |
| 61. CCP rights to apply collateral rules to individual CMs | |
| 61.1 Must the CCP apply the rules addressed in items 59-60 universally or does it have the ability to apply such amendments to individual CMs? | The CCP has broad discretion to apply amendments to individual CMs.Hide noteOTC Rulebook Rule 5.2 (Transfer of OTC Initial Margin)OTC Rulebook Rule 5.3 (Securities as OTC Initial Margin)OTC Rulebook Rule 5.4 (Change of OTC Initial Margin obligations) |
| 62. Collateral pricing sources | |
| 62.1 What sources are used for pricing collateral? | Not addressed in the Rules, but the CCP has confirmed that Reuters is used for pricing collateral.Hide noteCCP responses of 6 February and 20 April 2015 |
| 63. CCP mitigation of wrong-way risk | |
| 63.1 Please describe how, if at all, the CCP mitigates wrong-way risk (i.e., are CMs prohibited from posting their own debt and equity securities, debt or equity of companies closely linked to them, or debt or equity securities linked to the jurisdiction in which they are organised?). | The Rules do not expressly address wrong-way risk. However, in the context of additional initial margin required following breach of a stress-test exposure limit (see item 44.2, under the heading “Initial margin – Additional initial margin”), the CCP’s list of eligible collateral prohibits bank bills and negotiable certificates of deposit if issued by CMs or parent/associated undertakings. In addition, the CCP’s list of eligible collateral for (regular) initial margin includes only Government-issued non-cash collateral, rather than securities that may be issued by CMs or their parents/affiliates (which could potentially lead to wrong-way risk).In any event, the CCP has absolute discretion to determine what constitutes eligible collateral and when certain types of collateral may cease to be acceptable, subject to the requirements of the RBA’s Financial Stability Standards for Central Counterparties. The CCP may therefore use such discretion to implement restrictions in practice.The CCP does not accept collateral issued by a CM (or associated entity) for any margin calls. ASX monitors CMs posting stocks as collateral for short put options on that stock; in the event that this risk was substantial or persistent, ASX would liaise with the CM and may impose additional margin requirements or require the CM to reduce their exposure to the stock. Hide noteOTC Rulebook Rule 5.3 (Securities as OTC Initial Margin)OTC Handbook Para 5.3 (Securities as OTC Initial Margin)Table of ASX Clear (Futures) Acceptable Collateral (Effective 26 May 2017)RBA 2018/19 Assessment Appendix C1, Standards 5.1 and 5.5, and 6.3 |
| 64. Interest on cash collateral | |
| 64.1 Is interest payable to the CM in respect of cash collateral transferred to the CCP as margin? If so, can there be negative interest rates so that interest is due from the CM? | Initial margin in the form of cash1The Rules do not address whether or not interest is payable on initial margin provided in the form of cash.Based on the CCP’s response, however, interest on initial margin in the form of cash accrues on a daily basis (either positive or negative), and is invoiced at the end of the month. Currently, negative interest is being paid by CMs on foreign exchange cash used to cover initial margin where the foreign exchange cash has a very low or 0% cash rate (for example, Japanese Yen and US dollars). The CCP has never charged a negative rate on A$ balances. Variation margin2Price alignment amount is payable in connection with payments of variation margin.The CCP will charge an amount based on its calculation of the cumulative net daily variation margin in respect of all Contracts paid to a CM under the Service. The CCP will pay an amount based on the cumulative net daily variation margin in respect of all Contracts received from that CM.The amount (PAA) is calculated and payable for each currency on each Business Day with respect to each Contract in accordance with the following formula:PAA = MtMT x RateT x D/365where:“MtMT” means the amount of cumulative net daily variation margin received from, or payable by, the CM under the Service, as applicable, on the close of business of the day of calculation.“RateT” means such rate published on Reuters page RBA30 (or such other successor page(s) or rates as published by the Reserve Bank of Australia) and determined by the CCP on the close of business of the day of calculation.“D” means the actual number of days from (but excluding) the last day on which the PAA is calculated to (and including) the day of calculation.Technically, RateT (calculated with respect to the AUD-AONIA-OIS rate which is linked to monetary policy set by the Reserve Bank of Australia (i.e. the RBA cash rate)) could potentially be negative such that the resulting PAA would also be negative. The CCP does not envisage a scenario where this becomes negative, but it is possible and the CCP’s current mechanisms would calculate a negative PAA rate if the AUD-AONIA-OIS rate were to become negative.Hide note1 CCP response of 20 April 20151 Futures Rules, Schedule 7 (Calculation of Interest), CCP responses of 6 February 20152 OTC Rulebook Rule 5.9 (Price Alignment Amount); OTC Handbook Para 5.9 (Price Alignment Amount) |
| 65. Returns on non-cash collateral | |
| 65.1 Are returns earned on non-cash collateral posted by way of margin passed on to CMs? | We would expect that returns arising directly from the terms of such non-cash collateral (as distinct from returns arising from further investment of such non-cash collateral) will accrue for the benefit of the CM.Non-cash collateral is not invested so there is no return earned to be passed on.Hide noteCCP responses of 6 February 2015RBA 2018/19 Assessment Appendix C1, Standard 15.1 |
| 66. Variation margin (daily settlement versus mark to market and two way posting) | |
| 66.1 Is collateral posted in respect of variation margin provided as daily settlement or mark-to-market collateral? | Variation margin is provided as daily settlement.Hide noteOTC Rulebook Rule 5.8 (OTC Daily Variation Margin) |
| 66.2 Does the CCP pay any margin to the CM? If so, please describe. | Yes. The CCP makes daily determination of variation margin. If the CCP determines that it needs to pay variation margin to a CM, then the CCP must notify the CM and pay such variation margin to such CM. The payment of daily variation margin is made absolutely as a settlement and not as a security or collateral for any obligations of the payer under the Contracts.Hide noteOTC Rulebook Rule 5.8 (OTC Daily Variation Margin) |
| 67. CM house accounts | |
| 67.1 What house accounts can a CM hold with the CCP (e.g., Contract/collateral/other)? | Contracts under the Service and contracts under the Futures Service1Each CM establishes a single House Account at the CCP for house positions comprising both:the CM’s Contracts under the Service; andthe CM’s Contracts under the Futures Service in respect of Australian Securities Exchange Limited and/or the New Zealand Futures & Options Exchange Limited (as applicable) at which the Transactions from the CM’s house positions were originally traded.It is the account to which all monies and property owing to or from the CCP in relation to relevant house positions of a CM is to be referable.In addition, the CCP may establish a separate House Account for a CM with respect to a single exchange (either the Australian Securities Exchange Limited or the New Zealand Futures & Options Exchange Limited (as applicable)), to which all monies or property owing to or from the CCP in relation to relevant house positions of a CM for a prescribed group of Contracts is to be referable.Contracts which are listed on the Australian Securities Exchange Limited or the New Zealand Futures & Options Exchange Limited (as applicable)) and which are denominated in New Zealand dollars are a prescribed group of Contracts. Collateral2Margin is calculable separately and (unless otherwise prescribed) in respect of each of the Australian Securities Exchange Limited and the New Zealand Futures & Options Exchange Limited (as applicable) and the Contracts under the Service for each House Account and Client Account of each CM. See items 51.1 and 54.Any collateral deposited with the CCP by a CM with respect to a Contract will be designated to the account of that CM to which the Contract is designated.Hide note1 Futures Rules Schedule 11A (4) (Additional Prescriptions)1 Futures Rule 41.1 (Accounts); CCP responses of 6 February 20152 Futures Rule 41.3 (Accounts), Futures Rules; CCP responses of 6 February 2015 |
| 68. Segregation requirements | |
| 68.1 Describe the segregation requirements applicable to Contracts and the related collateral credited to each type of account. | Segregation between House Accounts and Client Accounts1In addition, Contracts (which include Contracts under the Service) credited to a House Account are segregated in the books and records of the CCP from contracts (which include Contracts under the Service) credited to all other accounts and are therefore segregated from contracts (which include Contracts under the Service) credited to the House Accounts of other CMs and contracts (which include Contracts under the Service) credited to Client Accounts.On the occurrence of a CM event of default, the CCP may in accordance with the Rules apply any surplus in any House Account or any other account of that CM with the CCP (whether or not arising from obligations under the Rules) to meet any deficiency in any Client Account of the CM but will not apply any surplus in any Client Account to meet any deficiency in any House Account of that CM.In no circumstances will any monies payable to, or securities, collateral or other property required to be allocated to, a Client Account be paid to or allocated to or used on the account of or in relation to positions designated to a House Account. Segregation among Clients2See item 18.2 in the Client Clearing Module for details regarding types of accounts available for Client business and the segregation requirements.Client/Client segregation is dealt with by the CPM Provisions which apply to both the Service and the Futures Service. The CCP must not apply the value of initial margin calculated in respect of each Client sub-account to meet the obligations of the CM in respect of house positions or to meet obligations of Clients other than those for which the Client sub-account is held or any other person.Hide note1 Futures Rules 41.5 and 41.7 (Accounts)2 CCP responses of 6 February 2015; Part 10, Futures Rule 116.5 (Client Protection Model Provisions) |
| 68.2 Is the CCP obligated to segregate collateral received through margin calls in respect of CMs from its own assets or the margins of other CMs? | Collateral provided by way of title transfer is only segregated in the books and records of the CCP by its booking into the various accounts; there is no physical segregation of such collateral.Collateral is not currently provided by way of security.Hide noteCCP responses of 6 February 2015 |
| 69. CM affiliate Contracts | |
| 69.1 Are Contracts held by a CM for its affiliates treated as house or Client Contracts? | The Rules are not prescriptive on this point. The CCP believes that this is for the CM to determine. It may be appropriate for Contracts of an affiliate to be treated as house or Client Contracts in different circumstances, depending on, among other things, whether there is an unaffiliated end Client, and subject to ASIC Market Integrity Rules.Hide noteCCP responses of 6 February 2015 |
| 69.2 Are Contracts held by a CM for its affiliates segregated from the house Contracts of the CM? | Not addressed in the Rules but, based on the responses from the CCP, if affiliate Contracts are treated as house Contracts, they will not be segregated from those of the CM.Hide noteCCP responses of 6 February 2015 |
| 70. Allocation of collateral | |
| 70.1 How is collateral allocated to the relevant account? | See item 67. |
| 71. CM withdrawal process | |
| 71.1 Should a CM wish to withdraw from the CCP (i.e., terminate its CM status) or from the Service in the ordinary course, what specific steps would need to be followed and what conditions would need to be met? | (Please click here [Note to Integreon: Insert link to diagram 2] for a graphic depiction of the default liability of a withdrawing CM.)CCP withdrawal procedure1A CM may withdraw from the CCP or withdraw in respect of one or more of its authorisations to clear a category or categories of Transactions (including Transactions under the Service) either during or outside of a Default Period by giving the CCP a notice of withdrawal in writing.The steps and conditions are the same for both withdraw from the CCP and withdraw in respect of one or more of its authorisations to clear a category or categories of Transactions.If it notifies the CCP that it is withdrawing from all of its authorisations, then it is taken as also notifying of its withdrawal from its membership as a CM with the CCP.However, the conditions for withdraw in a Default Period are different from conditions for withdraw outside of a Default Period. Each set of these conditions is set out below. Withdrawal as a CM from the CCP outside of a Default PeriodA withdrawal, the notice of which was sent to the CCP outside of a Default Period, is not effective unless:the CM has given a notice of withdrawal in writing to the CCP, which notice must be given outside of a Default Period; andthe CCP confirms to the CM in writing that the CM has satisfied the following conditions:the CM has performed all of its accrued obligations under the Rules;the CM is not subject to any disciplinary proceedings or enforcement action within the jurisdiction of the CCP; andit has no Contracts applicable to the authorisation in respect of which it has given notice of withdrawal (i.e. all such Contracts have been closed out).The CCP will provide such confirmation, or reasons why such confirmation cannot be given, within 5 Business Days of the receipt of a written request from a CM which has given notice of withdrawal. Withdrawal as a CM from the CCP during a Default PeriodA withdrawal, the notice of which was sent to the CCP during a Default Period, is not effective unless: 2the CM has given a notice of withdrawal in writing to the CCP; andthe CCP has provided notice of acceptance of the CM’s withdrawal. Such notice of acceptance will only be effective if the CM has satisfied each of the following conditions at least 5 Business Days before the end of the Default Period:the CM satisfies the CCP that it has taken or will have taken before the proposed date of withdrawal, proper steps for the orderly winding down of its business in respect of the CCP;the CM confirms it is not the subject of any disciplinary proceedings or enforcement action within Australia;the CM complies with any reasonable direction of the CCP, if any, in relation to the orderly winding down of its business in respect of the CCP;the CM has no outstanding Contracts;the CM has no obligations (including but not limited to the payment of all fees and any obligations to pay money or deliver an asset) arising directly or indirectly from any Contract;the CM has satisfied all its obligations to the CCP, including but not limited to, having paid all outstanding fees and amounts owing by the CM under the Rules and all outstanding assessments owing by the CM under the Recovery Rules, and satisfied all technical and operational requirements; andthe CM has confirmed, and the CCP agrees, that it is not the subject of any ongoing disciplinary proceedings or enforcement action within Australia.The CCP will provide such notice of acceptance, or reasons why such acceptance cannot be given, within one Business Day of a written request from a CM.If a CM has not satisfied each of the requirements set out above by 5 Business Days before the end of the Default Period, the CM’s withdrawal will be governed, when there is no Default Period subsisting, by the withdrawal process governing the withdrawals outside of a Default Period. The CM’s withdrawal will become effective in accordance with those provisions, including the Recovery Rules, if another Default Period commences.A withdrawal which has not become effective before the commencement of a Default Period cannot become effective until the end of the Default Period and is subject to the Recovery Rules, even if the CCP accepts a notice of withdrawal given by a CM before, or during, the Default Period.The CCP will notify the CMs when a CM’s withdrawal becomes effective. Other ASX withdrawals3Where a CM is also a participant in another market or clearing and settlement facility operated by the CCP or a related body corporate of the CCP and the notice being provided relates to both participations, a notice given to the CCP or a related body corporate of the CCP in accordance with the operating rules of that other market or facility is taken to be given to the CCP in accordance with the Rules.Hide note1 Futures Rule 11 (Resignation)2 ASX Recovery Rulebook, Rule 4.2 (Resignation Notice)2ASX Recovery Rulebook, Rule 4.3 (Acceptance of Resignation Notice)2 ASX Recovery Rulebook, Rule 4.4 (Effectiveness of resignation)3 Futures Procedure 19.1 (Notice, Notification and Service of Documents) |
| 71.2 If a CM gives notice of its intention to withdraw, what date will be the Withdrawal Notice Date? | The Rules provide that notice given in accordance with the following methods is taken to be received as specified below:Post is taken to be given on the 2nd Business Day after the document is put in the post, in a stamped envelope or other covering addressed to the recipient;Courier is taken to be given at the time of delivery to the following address:General Manager – Market Operations ASX Limited, Level 27, 39 Martin Place, Sydney NSW 2000 Telephone: 1800 240 033 or +612 8298 8479, Email: clearing@asx.com.au;Facsimile is taken to be given when the sender’s facsimile machine indicates a successful transmission to the facsimile number referred to above;Email is taken to be given 2 hours after the time the email enters the recipient’s information system, unless a response to the contrary is received (e.g. an out of office notification); andthe web-based system known as ASX Online is taken is taken to be given at the time which that system records the transmission.Hide noteFutures Rule 19.1 (Notice, Notification and Service of Documents)Futures Procedure 19.1 (Notice, Notification and Service of Documents)ASX Recovery Rulebook, Rule 4.3 (Acceptance of Resignation Notice)Guidance Note 8 (Notification Obligations) |
| 71.3 Is there a minimum notice period for CM withdrawal? | No, but see item 73 on Liability End Date. |
| 71.4 Is membership withdrawal contingent upon the approval of the CCP? | A withdrawal only becomes effective when, in the case of a withdrawal outside of a Default Period, the CCP confirms to the CM in writing that the CM has satisfied the conditions set out in item 71.1, or, in the case of a withdrawal during a Default Period, the CCP provides a notice of acceptance of the withdrawal to the CM.Hide noteFutures Rule 11 (Resignation)ASX Recovery Rulebook, Rule 4.3 (Acceptance of Resignation Notice) |
| 71.5 Is the ability/procedure for a CM to withdraw restricted or different if there has been a default by another CM? | Yes. There are different processes for withdrawal notices outside a Default Period and during a Default Period (although the processes are similar). A withdrawal notice given outside a Default Period cannot be effective until the end of a Default Period if a Default Period occurs before the withdrawal is effective. Please see item 71.1.Hide noteASX Recovery Rulebook, Rule 4.3 (Acceptance of Resignation Notice) |
| 72. Conditions imposed on withdrawing CM | |
| 72.1 Can the CCP impose any conditions on the withdrawing CM after Withdrawal Notice Date until the Withdrawal Effective Date? | No. |
| 73. Liability End Date | |
| 73.1 What date will be the CM’s Liability End Date? | Withdrawal outside of a Default Period1The Liability End Date for a withdrawing CM for a withdrawal occurring outside a Default Period is at the end of the last day of the quarter in which the CM meets the conditions set out in item 71.1, provided that those conditions are met at least 30 days prior to the last day of the quarter. If the CM meets those conditions less than 30 days prior to the last day of the quarter, the Liability End Date will be at the end of the last day of the following quarter.These quarters start on 1 March, 1 June, 1 September and 1 December and end on 30 May, 31 August, 30 November and 28/29 February respectively. Withdrawal during a Default Period2The Liability End Date for a withdrawal occurring during of a Default Period is the last day of the Default Period.Hide note1 Futures Rule 11.1(c) (Resignation); Schedule 10 of the Futures Rules (Calculation of Futures Commitments of a Futures Participant)2 ASX Recovery Rulebook, Rules 4.4 (Effectiveness of resignation), 4.5 (Certain obligations to continue), 4.6 (Effect of resignation on Recovery Assessment), 4.8 (Effect of resignation on Partial Termination), 4.9 (Effect of resignation on Complete Termination) and 4.10 (Effect of resignation on Replenishment) |
| 74. Withdrawal Effective Date | |
| 74.1 What date will be the CM’s Withdrawal Effective Date (e.g., upon notice to the CCP of such CM’s withdrawal, upon termination of all Contracts, or otherwise)? | Withdrawal outside of a Default PeriodThe Withdrawal Effective Date is the Liability End Date (see item 73). Withdrawal during a Default Period2The Withdrawal Effective Date during a Default Period is the last day of the Default Period.Hide noteFutures Rule 11.1(c) (Resignation)ASX Recovery Rulebook, Rule 4.4 (Effectiveness of resignation) |
| 75. Obligations and liabilities of withdrawing CMs during withdraw process | |
| 75.1 In general terms, what are the obligations and liabilities of withdrawing CMs during the period between the Withdrawal Notice Date and the Withdrawal Effective Date? | In general, a withdrawing CM continues to have the rights and obligations of a CM until the Withdrawal Effective Date (which is the same as the Liability End Date), including the obligation to pay all fees, fines or other charges imposed on the CM by the CCP, due to Contracts cleared or other obligations entered into or incurred prior to termination of such membership, and the obligation to make further default fund contributions (including assessments and replenishment). Note, however, that a CM’s obligation to pay Interim Participant Replenishment Amounts ceases after its resignation notice has been accepted by the CCP.For the avoidance of doubt, the CM’s Contracts and obligations and rights thereunder continue to be subject to any recovery measures that the CCP may determine to take, including Payment Reduction, Partial Tear Up and complete Invoicing Back, without regard to the impending withdrawal of such CM. See item 100.1.Hide noteCCP responses of 6 February 2015ASX Recovery Rulebook, Rule 4 (Resignation) |
| 75.2 What is the scope of the CM’s liability to the default fund following the Withdrawal Notice Date but on or before the Liability End Date? | As the Liability End Date is the same day as the Withdrawal Effective Date, the scope of the liability is the same. See items 75.1, 75.3 and 119. |
| 75.3 Can the CCP increase the size of the withdrawing CM’s default fund contribution requirement after its Withdrawal Notice Date? | Funded (paid up) default fund contributions including Variable CommitmentA withdrawing CM’s funded (paid up) default fund contributions including Variable Commitment will remain available for application by the CCP in respect of a default by any CM that occurs prior to (but not after) the withdrawing CM’s Withdrawal Effective Date. Further default fund contributions: assessments and replenishments.See item 75.1. During the period between the Withdrawal Notice Date and the Withdrawal Effective Date (which is the same as the Liability End Date), if a default fund contribution (either by way of Variable Commitment, assessment or replenishments) is called by the CCP, on the basis that the withdrawing CM is not a defaulting CM, the amount of such withdrawing CM’s default fund contribution in respect of the Service will be determined by the CCP on the basis summarised in item 118.1 (in the case of assessments), item 112.1 (in the case of a Variable Commitment) or item 117.1 (in the case of replenishments), without regard to the impending withdrawal of such CM. Note, however, that a CM’s obligation to pay Interim Participant Replenishment Amounts ceases after its resignation notice has been accepted by the CCP.Hide noteCCP responses of 6 February 2015ASX Recovery Rulebook, Rule 4 (Resignation) |
| 75.4 What is the scope of the CM’s liability to the default fund following the Liability End Date but before the Withdrawal Effective Date? | As the Liability End Date is the same day as the Withdrawal Effective Date, the scope of the liability is the same. |
| 75.5 Does the CM remain liable in any way following the Withdrawal Effective Date? | Effect on funded default fund contributionYes. The withdrawing fCM remains liable in respect of the default of any CM(s) that occur(s) prior to (but not after) to the extent of its funded (paid up) default fund contributions including Variable Commitment, and not any further default fund contributions. See items 75.1 and 119. Effect on assessmentNo. The CCP may not request an assessment from an entity which has withdrawn from being a CM after the Withdrawal Effective Date. See items76.1, 100.1 and 118. Effect on Payment ReductionAs the Withdrawal Effective Date may only occur once a CM has no outstanding Contracts, and the Payment Reduction applies only to outstanding Contracts, a CM will not be subject to Payment Reduction following the Withdrawal Effective Date. See items 100.1 and 109. Effect on Partial Tear UpAs the Withdrawal Effective Date may only occur once a CM has no outstanding Contracts, and the Partial Tear Up applies only to outstanding Contracts, a CM will not be subject to Partial Tear Up following the Withdrawal Effective Date. See items 100.1 and 107. Effect on Complete Invoicing BackAs the Withdrawal Effective Date may only occur once a CM has no outstanding Contracts, and the complete Invoicing Back applies only to outstanding Contracts, a CM will not be subject to complete Invoicing Back following the Withdrawal Effective Date. See items 100.1 and 109.1. Effect on replenishmentThe CCP may not request a Participant Replenishment Amount from an entity whose withdrawal was effective (i.e., the Withdrawal Effective Date) at the end of the Default Period which immediately preceded the call of the replenishment. Note also that the CCP may not request an Interim Participant Replenishment Amount from an entity at any time after that entity’s resignation notice has been accepted by the CCP. See items 100.1 and 117. Certain obligations to continue following the CM’s withdrawalFollowing the CCP’s acceptance of the CM’s notice:the Rules continue to apply and the CCP will continue to have jurisdiction in respect of the CM concerning any conduct or any failure to comply with the CCP Rules which occurred before the Withdrawal Effective Date, whether that conduct or failure was by the CM or by any other person for whose conduct the CM was responsible;the CM continues to be bound by any indemnity given by the CM under the Rules; andother Rules continue to apply in respect of the CM to the extent required to give effect to the above two bullet points.Effects on the accrued rightsAfter the Withdrawal Effective Date, any rights that the withdrawal CM or the CCP has accrued prior to the Withdrawal Effective Date would continue to exist and would not be affected.Hide noteCCP responses of 6 February 2015Futures Rule 6.2 (Withdrawal of Clearing Participant Commitment)Futures Rule 7.1(d) (Satisfaction of obligations of ASX Clear (Futures))Futures Rule 11.1 (Resignation)ASX Recovery Rulebook, Rule 4 (Resignation) |
| 76. Return of unused default fund contributions | |
| 76.1 When would unused default fund contributions of the CM be returned? | The CM’s default fund contributions will be returned to it on the 1st Business Day of the quarter immediately following the Withdrawal Effective Date (see items 73 and 74).These quarters start on 1 March, 1 June, 1 September and 1 December and end on 30 May, 31 August, 30 November and 28/29 February respectively.If the CM’s withdrawal occurs during a Default Period and the CCP reasonably believes that one or more assessments may be made in respect of one or more defaults in a Default Period then the CCP may retain any amounts it determines to cover those assessments from any amounts which would otherwise be payable by it to a withdrawing CM. If the CCP determines that these amounts are no longer needed, then it will return them to the entity which withdrew as a CM (without being obliged to pay any additional amounts for the delay in payment of those amounts). However, there are no specific rules as to when such amount shall be returned (e.g., it is not clear whether such time has to be after the Withdrawal Effective Date or it could be prior to the Withdrawal Effective Date but after the CCP determines that these amounts are no longer needed).Hide noteFutures Rule 6.3 (Withdrawal of Clearing Participant Commitment)Schedule 10 of the Futures Rules (Calculation of Futures Commitments of a Futures Participant)ASX Recovery Rulebook, Rule 4.6 (Effect of resignation on Recovery Assessment) |
| 77. Extension of deadline for the return of unused default fund contributions | |
| 77.1 Is there an ability to extend the normal deadline by which default fund contributions of the CM must be returned? | No. See item 76.1. |
| 78. Non-default suspension/termination of CM membership | |
| 78.1 In what circumstances can the CCP suspend or terminate the membership of a CM other than if the CM defaults? | Of the 3 circumstances described below where suspension or termination of CM membership would occur, the last scenario (interim suspensions) is where the CM may not yet be in default. Failure to provide undertaking to abide by the Rules1Each CM agrees to be bound by the Rules in its dealings with the CCP and with each other CM and each CM agrees that the Rules will be binding on the CM as between the CM and the CCP and as between the CM and every other CM. Each CM is obliged to comply in full with any undertaking given or condition imposed by the Rules including any condition imposed by the CCP on the admission of a CM.Each CM is obliged to lodge with the CCP, on request from time to time, an undertaking in the form required by the CCP and to the effect described above duly signed by the CM.If the CCP has not received such an undertaking signed by the CM on the due date, the status and rights of the CM will be suspended until the signed undertaking is received by the CCP. Automatic SuspensionA CM will automatically be suspended, without a meeting of the Board being required, if:there is an event of default in relation to the CM;2the CM is in breach of the Financial Requirements or its requirement to lodge with the CCP, in the prescribed form, a statement of its financial position as at the end of each month by the prescribed date and fails to rectify that breach within 24 hours or such longer period as the Board in its absolute discretion may allow;2 orwhere a liquidator, receiver, receiver and manager or administrator or some other form of external management is appointed in respect of the property of the CM or if the CM or a partner of the CM becomes bankrupt. The suspension of a CM will continue for the period that the Board considers necessary or desirable. The Board may extend the period of suspension if it considers an extension is necessary or desirable; 2 The CM fails to pay its annual fee within one month of the due date or such later date as the CCP may allow. 3 Interim SuspensionsThe Board may, on the basis that it reasonably believes it is necessary to do so in the interest of the public, or the CCP, suspend a CM. The period of suspension will be the period that the Board considers necessary or desirable. The board may extend the period of suspension if it considers an extension is necessary or desirable.If a CM has been automatically suspended or suspended on an interim basis, the CM must not hold itself out as a CM during the period of suspension.Hide note1 Futures Rules 4.11(a) (c) and (d) (Undertaking to abide by the Rules)2 Futures Rule 10.11 (Automatic Suspension)3 Futures Rule 3.2.2(b) (Obligation to Pay Fees)4 Futures Rules 10.14 and 10.14A (Interim Suspensions) |
| 78.2 How, if at all, would the responses to items 72-77 differ in such circumstances? | There would be no difference. |
| 79. Rule change process | |
| 79.1 What process must the CCP follow in order to change any of its rules (or bylaws, if applicable) under normal circumstances (i.e. excluding the exercise of any emergency powers)? | Rule amendments are, in practice, approved by the managing director/chief executive officer as the delegate of the CCP’s Board. Notice1The CCP is required to provide reasonable notice to CMs under both the Service and the Futures Service of proposed amendments to the Rules prior to the amendments taking effect. See, however, item 79.2 for more details. Consultation2Subject to a few exceptions, the CCP is required to consult with applicable CMs under both the Service and the Futures Service on proposed changes to the Rules. See item 79.2 for more details. Additional information: RBA 2018/19 Assessment Appendix C13The RBA 2018/19 Assessment Appendix C1 provides additional information on how Rule changes are effected. Based on the RBA 2018/19 Assessment Appendix C1:Section 822A of the Corporations Act establishes a framework to prescribe the matters that must be dealt with in the Rulebook and those that may instead be considered under the Procedures.Rule changes are subject to a ministerial disallowance process, although the Minister’s role in this process is delegated to authorised ASIC officers. The Corporations Act also establishes how any inconsistency between the licensed facility’s rules and applicable laws and regulations (in particular, derivative transaction rules and derivative trade repository rules) would be resolved.There is a clear process for changing the CCP’s Rulebook and Procedures. In practice, proposed rule changes are submitted informally to the ASIC.In consultation with the RBA, the ASIC considers the changes and advises the CCP of any regulatory concerns.Once such concerns are satisfactorily addressed, the CCP invites formal submission of the proposed Rule changes, which triggers a 28-day ‘disallowance’ period during which the Minister or delegate may choose to disallow the Rule changes.The Minister or delegate (who has primary responsibility for licensing clearing and settlement facilities operating in Australia and for granting exemptions from the requirement to hold a clearing and settlement facility licence) has the power to disallow Rule amendments.The Minister or delegate consider a number of factors, including whether the proposed changes are consistent with the public interest.In addition, the Minister or delegate must ensure that there has been adequate consultation with the RBA when deciding whether to disallow Rule changes, and consider any advice and recommendations from the RBA and ASIC staff.If changes to the Rulebook are not disallowed by the Minister or delegate, they are notified to CMs via the ASX website.It is our understanding that the procedure specified by the RBA is what occurs in practice to ensure that changes to the Rules receive ministerial and regulatory consent before they are published. Pursuant to section 882D of the Corporations Act, the CCP must notify the ASIC as soon as practicable after a change is made. The ASIC then notifies the Minister.Hide note1 CCP response of 6 February 2015; Futures Rule 14.2A2 Futures Rule 14.2B3 RBA 2018/19 Assessment Appendix C1, Standard 1.3 |
| 79.2 Must the CCP provide notice to (or otherwise consult with) CMs prior to the rule change becoming effective under normal circumstances? | NoticeYes, the CCP is required to provide reasonable notice to CMs of proposed amendments to the Rules prior to the amendments taking effect. However, any omission by the CCP to give notice to one or more CMs does not affect the validity of any amendments to the Rules. ConsultationYes, the CCP is required to consult with the applicable Consulting CMs (see below) on proposed changes to the Rules in accordance with the following table prior to submission of the amendments to the Australian Securities and Investments Commission in accordance with the Corporations Act, unless:the CCP is directed by any competent regulatory authority (in Australia or elsewhere) to amend the Rules;the CCP considers, in good faith but otherwise in its discretion, that such amendment is tocorrect a manifest error; orthe CCP considers, in good faith but otherwise in its discretion, that the amendment is required to comply with its clearing and settlement facility licence obligations or other applicable regulatory requirements (whether or not required under the laws of Australia or other jurisdiction).The CCP may determine the form of such consultation, which may be by way of consultation with the risk committee.Rules being amendedConsulting CMsFutures Rules where the amendment affects a CM including a CM under the Futures Service (“Affected CM”)All of the Affected CMsOTC RulesAll CMs of the ServiceOTC Handbook, where the CCP is of the view that the amendment is likely to have a material impact on CMsAll CMs of the ServiceProcedures, determinations and practice notes under the Rules where the CCP is of the view that the amendment is likely to have a material impact on a CM including a CM under the Futures Service (“Materially Affected CM”)All of the Materially Affected CMsHide noteFutures Rule 14.2A (Amendment to Rules)Futures Rule 14.2B (Amendment to Rules) |
| 79.3 If so, what is the length of the notice period? | There is no specifically stated notice period for amendments to the Rules. The CCP is required to give “reasonable notice” prior to the amendments taking effect, and any omission by the CCP to give notice does not affect the validity of any amendments to the Rules.Hide noteFutures Rule 14.2A (Amendment to Rules) |
| 79.4 Can rule changes be made to take effect retrospectively? | The Rules do not provide for changes to take effect retrospectively. |
| 80. CM rights in respect of rule changes | |
| 80.1 Describe any rights of CMs (including ballot rights) to approve, object to, and/or prevent the implementation of a particular change to the Rules under normal circumstances. | The CCP is required to consult with relevant CMs (see item 79.1) on proposed changes to the Rules prior to submission of the amendments to the Australian Securities and Investments Commission in accordance with the Corporations Act. However, the Rules have not provided any rights to the CM to approval, object or prevent the implementation of any particular change to the Rules.Hide noteRule 14.2B (Amendment to Rules) |
| 81. Regulatory approval of rule changes | |
| 81.1 Do Rules changes need to be approved by one or more of the regulators under normal circumstances? | Rule changes must be submitted by the CCP to the Australian Securities and Investments Commission as soon as practicable after being made. Changes cease to have effect 21 days after the change is made if not lodged with the Australian Securities and Investments Commission.As soon as practicable after it receives notice of such change, the Australian Securities and Investments Commission must submit a copy of such notice for ministerial review.The Minister for Revenue and Financial Services(the Minister) (who has primary responsibility for licensing clearing and settlement facilities operating in Australia and for granting exemptions from the requirement to hold a clearing and settlement facility licence) has the power to disallow all or part of the amendments to the Rules of the CCP within 28 days after receipt by the Australian Securities and Investments Commission of the notice of such changes. The power to disallow changes to the rules has been delegated by the Minister to authorised officers of the ASIC.Hide noteCorporations Act, sections 822D and 822ECCP response of 6 February 2015 |
| 81.2 Are different types of changes (e.g., changes under normal circumstances and changes in emergency situations) subject to different regulatory approval processes? | No, all Rule changes must be submitted by the CCP for ministerial review as soon as practicable after being made.Hide noteCCP response of 6 February 2015 |
| 82. Emergency rule change process | |
| 82.1 Does the CCP have any special rulemaking powers in the event of an emergency (including a market emergency)? | Yes. Physical Emergencies1If, in the opinion of the managing director of the CCP or his delegate, a physical emergency occurs or is likely to occur, he or she may take such action as shall be deemed necessary to deal with the emergency. For the scope or definition of physical emergency, see item 82.2.The CCP’s power to take action in these circumstances is very broad and will include special rulemaking powers. The Rules specifically provide that the CCP will be entitled to apply the Rules as varied or modified so far as necessary to give effect to a relevant decision or direction made or given in these circumstances. Market Emergencies2If the CCP determines that an undesirable situation or practice is developing or has developed which is contrary to the maintenance of a fair and orderly market, the CCP may take or refrain from taking, or direct a CM to take or refrain from taking, any action which the CCP considers is appropriate and in the interests of maintaining a fair and orderly market or underlying market. For these purposes:‘market’ means a market:(i) conducted by the Australian Securities Exchange Limited and/or the New Zealand Futures & Options Exchange Limited;(ii) conducted by an organisation to which the CCP provides services; or(iii) a market in which an organisation to which the CCP provides services is a participant.‘underlying market’ means, in relation to:(i) a Transaction or Contract which in either case is a futures contract, the market in the underlying commodity, security or index or things which comprise the underlying index; and(ii) a Transaction or Contract which in either case is an options contract, a market in the underlying futures contract or the underlying market in relation to the futures contract as defined in (i) above.Similar to where there is a physical emergency, the CCP’s power to take action in these circumstances is very broad and will include special rulemaking powers. The Rules specifically provide that the CCP will be entitled to apply the Rules as varied or modified so far as necessary to give effect to a relevant decision or direction made or given in these circumstances.In addition, the CCP is entitled to give effect to any direction of the Australian Securities and Investments Commission made pursuant to the Corporations Act or requirement of the Securities Commission pursuant to the Securities Act of New Zealand in relation to Transactions or the operation of the CCP or any other lawful direction. The CCP is obliged to notify one Commission of any direction or requirement of the other Commission.Under the Corporations Act, the ASIC may, if it considers that it is necessary or in the public interest to protect people dealing in a financial product or class of financial products or if it considers that the CCP has not done all things reasonably practicable to ensure the CCP’s services are provided in a fair and effective way, give the CCP a direction not to provide its services in relation to any transactions that relate to a specified financial product or class of financial products or any other direction concerning dealings with transactions that relate to a specified financial product or financial products.Under the Corporations Act the ASIC may also, if it considers that the CCP has not done all things reasonably practicable to reduce systemic risk in the provision of the CCP’s services, give the CCP a direction in writing to take specified measures to comply with the whole or a part of a Financial Stability Standard determined under section 827D of the Corporations Act or to take any other action that the ASIC considers will reduce systemic risk in the provision of the CCP’s services. Force Majeure3Yes. In the event of force majeure (see item 83.1 for the scope or definition of force majeure), the CCP is to be released from its obligations under the Rules to the extent that the performance of such obligations are prevented or hindered in whole or in part by the circumstances and the CCP may vary or modify the Rules to the extent that in the opinion of the CCP is reasonably necessary in the circumstances and, without limiting the generality of the above, the steps that the CCP may take will include:the close out (Invoicing Back) of any Contract;the exercise of any power which would be exercisable by the CCP in a CM event of default; andanything permitted under the OTC Rules in connection with a CM or a Contract. Recognition of CCP powers under emergencies by the Recovery Rules4The Recovery Rules specifically provide that nothing in the Recovery Rules limits any of the rights or remedies available to the CCP in the event of an emergency (as set out above).Hide note1 Futures Rules 81.1 (a), (b) and 81.4 (Emergency Situations; Physical Emergencies)2 Futures Rules 81.2 and 81.3 (Emergency Situations; Market Emergencies); Corporations Act, sections 823D and 823E3 Futures Rule 82 (Force Majeure); Futures Rule 7 (Emergencies and Force Majeure)4 ASX Recovery Rulebook, Rule 9 (Emergencies and Force Majeure) |
| 82.2 Can the CCP invoke emergency rulemaking powers solely by reason of a CM default? | No. |
| 82.3 Are there any internal procedural checks to such emergency rulemaking powers? | Not addressed in the Rules. |
| 83. Definition of “emergency” | |
| 83.1 What constitutes an “emergency”? | The below will constitute an “emergency” under the Rules. Physical emergencies1Yes. A physical emergency occurs when a situation arises where the physical functions of the CCP are or are threatened to be severely and adversely affected by an event external to the trading of the CCP, such as (but not limited to) fire, accident, flood, bomb threat, threat of violence, substantially inclement weather, power failure, communication breakdown, computer malfunction or danger to personnel. Market disruption2Yes. A market emergency occurs if the CCP determines that an undesirable situation or practice is developing or has developed which is contrary to the maintenance of a fair and orderly market. State of war3Yes. See under “Physical Emergency” above; in particular, the reference to “bomb threat, threat of violence”.See under “Force Majeure” below; in particular, the reference to “war or the threat of war”. Government action4Yes. See under “Force Majeure” below; in particular, the reference to “the intervention of any government or government authority or agency”. International action5Yes. See under “Force Majeure” below; in particular, the reference to “the intervention of any government or government authority or agency”. Force Majeure6Yes. Where the business of the CCP is materially adversely affected for any reason including, without limiting the generality of the foregoing, the intervention of any government or government authority or agency, fire, power failure or restrictions, communication breakdown, accident, flood, war or the threat of war, embargoes, boycotts, labour disputes, unavailability of data processing or bank clearance systems or act of God such that the CCP is unable to properly conduct the business of the CCP in whole or in part. OtherN/AHide note1 Futures Rule 81.1(a) (Emergency Situations; Physical Emergencies)2 Futures Rule 81.23 Futures Rules 81.1(a) and 82 (Force Majeure)4 Futures Rule 82 (Force Majeure)5 See footnote 46 See footnote 4 |
| 84. Procedural checks on emergency rule changes | |
| 84.1 Describe any notification or consultation obligation on the CCP and/or any notice period before any action can become effective in an emergency situation rule change. | The CCP has notice and consultation obligations for proposed amendment to the Rules which clearly apply in normal circumstances. See item 79.1 and 79.2.The CCP’s power to take action in an emergency situation is very broad and includes special rulemaking powers. The Rules specifically provide that the CCP will be entitled to apply the Rules as varied or modified so far as necessary to give effect to a relevant decision or direction made or given in these circumstances.(We also note that, in the event of a physical emergency, the Rules provide that no person will be entitled to make any claim or commence any action against the CCP, the Board or the person making decisions in respect of any decision made or action taken in respect of such physical emergency.)Given the breadth of the CCP’s power in these circumstances, it is likely that the CCP could vary or modify the Rules without notice or consultation.However, any such Rule change would remain subject to sections 822D and 822E of the Corporations Act, which provide that changes cease to have effect 21 days after the change if not lodged with the Australian Securities and Investments Commission and that the Minister is able to disallow changes to the Rules within 28 days of the changes being lodged with the Australian Securities and Investments Commission. See item 81.1.Hide noteFutures Rule 14 (Amendment to Rules)Futures Rule 81.4 (Emergency Situations)Futures Rule 81.1(d) (Emergency Situations; Physical Emergencies) |
| 84.2 Describe any rights of CMs (including ballot rights) to approve, object to and/or prevent the implementation of a particular action in an emergency situation. | For the same reasons set out in item 84.1, given the breadth of the CCP’s power in an emergency situation, it is likely that the CCP could act without CMs having the right to approve, object and/or prevent the implementation of any such action. |
| 84.3 Can the CCP override any of these consultation rights, notice periods, ballot or other rights of CMs in an emergency? | Yes – this is likely to be the case. See items 84.1 and 84.2.See also items 81.1 and 84.1. Any Rule change effected in an emergency would remain subject to sections 822D and 822E of the Corporations Act, which provide that changes cease to have effect 21 days after the change if not lodged with the Australian Securities and Investments Commission and that the Minister is able to disallow changes to the Rules within 28 days of the changes being lodged with the Australian Securities and Investments Commission. |
| 85. Additional procedural checks on emergency rule changes | |
| 85.1 Are there any other procedural checks to such emergency rulemaking powers? | No. |
| 86. Additional CCP rights to waive/suspend Rules | |
| 86.1 Does the CCP have any other rights outside of any emergency powers to waive or suspend the Rules? | Yes. The CCP may where it believes it to be just and equitable, and to the extent permitted by law, and on payment of the application fee (if any) prescribed by the Board, exempt a specified, or a class of, CM or Client from compliance with such provisions of the Rules and on such conditions as it sees fit. A breach of a condition imposed in respect of an exemption will be deemed to be a breach of the Rules.The CCP may, at any time, revoke such exemption. Any exemption granted to a class of CM or Client (but not an exemption granted to a specified CM or Client) will, for the purposes of the Corporations Act, be deemed to be an amendment to the Rules.Hide noteCCP responses of 6 February 2015Futures Rule 9A.3.8 (Exemptions) |
| 87. Invoicing Back | |
| 87.1 Does the CCP have the ability to (i) close out a CM’s Contract or (ii) liquidate Contracts on opposite sides of the market in emergency (but not default) conditions through Invoicing Back Contracts with CMs or third party-CMs for the purposes of liquidation of Contracts? | Yes. See item 82.1. The powers of the CCP are very broad in an emergency situation. Physical Emergency1The CCP may take such action as shall be deemed necessary to deal with the physical emergency. Market Emergency2The CCP may take or refrain from taking, or direct a CM to take or refrain from taking, any action which the CCP considers is appropriate and in the interests of maintaining a fair and orderly market or underlying market. See item 82.1. Force Majeure3The CCP has broad discretion including, without limitation, taking the steps set out in item 82.1.Hide note1 Futures Rule 81 (Emergency Situations)2 See footnote 13 Futures Rule 82 (Force Majeure) |
| 87.2 If so, by what mechanism is the pricing determined? | Physical Emergency1Not addressed in the Rules. Market Emergency2Not addressed in the Rules. Force Majeure3Not addressed in the Rules. (The CCP’s rules provide a pricing mechanism for listed contracts cleared through the Futures Service.)Hide note1 Futures Rule 81 (Emergency Situations)2 See footnote 13 Futures Rule 82 (Force Majeure) |
| 87.3 What is the timing for Invoicing Back? | Not addressed in the Rules. |
| 87.4 For Invoicing Back, is Client business treated separately from house business? | Not addressed in the Rules. |
| 88. Forced Allocation | |
| 88.1 Does the CCP have the right to force-allocate Client and house Contracts to third-party CMs in emergency (but not default) conditions? | Not specifically, but the powers of the CCP are very broad in an emergency situation.Physical Emergency1The CCP may take such action as shall be deemed necessary to deal with the physical emergency. Market Emergency2The CCP may take or refrain from taking, or direct a CM to take or refrain from taking, any action which the CCP considers is appropriate and in the interests of maintaining a fair and orderly market or underlying market. See item 82.1. Force Majeure3The CCP has broad discretion including, without limitation, taking the steps set out in item 82.1.However, emergency conditions and force majeure are designed to capture market-wide circumstances rather than those specific to particular CMs. An attempt to transfer a CM’s Contracts to a third party CM in such circumstances would be questionable.Hide note1 Futures Rule 81 (Emergency Situations)2 See footnote 13 Futures Rule 82 (Force Majeure) |
| 88.2 If so, by what mechanism are the pricing, size of allocations, and CM recipients determined? | Not addressed in the Rules. |
| 88.3 What is the timing for Forced Allocation? | Not addressed in the Rules. |
| 88.4 For Forced Allocation, is Client business treated separately from house business? | Not addressed in the Rules. |
| 89. Amendments to Contract specifications | |
| 89.1 Can the CCP make amendments to Contract specifications? | Yes. The CCP’s power to amend the Rules is summarised in item 79.1. The CCP will need to notify and consult CMs on proposed changes to Contract specifications; CM approval would not however be required.Hide noteFutures Rule 14 (Amendment to Rules) |
| 89.2 Can amendments to Contract specifications be made on a retroactive basis? | The Rules do not provide for changes to take effect retrospectively. |
| 89.3 Describe any rights of CMs (including ballot rights) to approve, object to and/or prevent the implementation of a particular change to the Contract specifications. | The Rules do not provide for any rights of CMs to approve, object to and/or prevent the implementation of a particular change to the Contract specifications. |
| 90. Events of default | |
| 90.1 What constitutes an “event of default” by a CM? Please list all possible options that may constitute an event of default (including any grace periods) and note where the CCP has discretion to determine these | Where there is, in the opinion of the Board or managing director, an event of default with respect to a CM, the Board or managing director may declare the CM to be in default. The CCP therefore has discretion to determine an event of default. The Rules do not provide for any grace periods. Events of defaultThe below will constitute “events of default” by a CM under the Rules. Breach of Rulebook/agreement; suspension of transfer, termination and other rights under co-operating clearing house rules1Yes.the CM fails to meet any of its obligations under the Contracts, the Rules, the Exchange Operating Rules or any agreement or understanding entered into with the CCP or fails to comply with any reasonable directions of the CCP;the CM fails to comply, or indicates that it will or may fail to comply, with any of the Rules or the Procedures or the terms of any agreement with the CCP;2the CM breaches any of the Financial Requirements prescribed by the CCP;the CM breaches any conditions prescribed by the CCP on its admission as a CM or on its authorisation as an OTC Participant; andupon request by the CCP, which may be made at any time, the CM fails to confirm on or before the cut-off time reasonably specified by the CCP in its request that it is able to pay its debts as they become due. Breach of exchange/clearing house membership terms and/or rules2Yes.the CM has failed to comply with a determination made by a tribunal pursuant to the Old Australian Securities Exchange Disciplinary Processes and Appeals Rulebook;the CM fails to comply with (1) any action taken by the CCP in accordance with the provisions of the ASX Enforcement and Appeals Rulebook where the CCP considers that a breach of the Rules may have occurred or (2) the provisions of the ASX Enforcement and Appeals Rulebook; andthe CM is in breach of the rules of any recognised, designated or overseas investment exchange or clearinghouse. Suspension of membership/authorisation and/or other action by a regulatory body3Yes. The CM or a related body of corporate of the CM is suspended, expelled or terminated as a member or participant of or subject to any sanction imposed by, or declared in default or non-compliance under the rules of any Australian or overseas, futures, securities, commodity or stock exchange or market or any other Australian or overseas clearing and settlement facility or is subject to any sanction imposed by any Australian or overseas regulatory authority. Failure to pay the CCP4Yes.the CM fails to pay initial margins or variation margins or Daily Settlement Amounts (Daily Settlement Amounts are relevant only to Contracts under the Futures Service) or Intra-Day Margins or Extra Margins within the period provided by the Rules;the CM fails to pay an amount(s) (other than the amount(s) referred to in the preceding paragraph) in total exceeding A$1,000 which is due and payable to the CCP Failure to pay under any agreement5Yes. The CM fails to pay any sum (including any sum due and payable under the Recovery Rules) due and payable, or threatens to suspend payment under the terms of any agreement. See also last bullet point under “Others” below. Insolvency-related events6Yes.an administrator or similar person is appointed of the CM or a related body corporate of the CM;an application or an order is made, proceedings are commenced, a resolution is passed or proposed in a notice of meeting or an application to a court or other steps are taken for:the winding up, dissolution or official management or administration of the CM or a related body corporate of the CM; orthe CM or a related body corporate of the CM enters into any arrangement, compromise or composition with or assignment for the benefit of its creditors or any class of them;the CM ceases or suspends or threatens to cease or suspend substantially all of its business or threatens to dispose of substantially all of its assets;the CM is or is deemed under any applicable legislation to be unable to pay its debts as and when they fall due (other than as a result of failure to pay a debt or claim the subject of a good faith dispute) or stops or suspends or threatens to stop or suspend payment of all or a class of its debts;the CM becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due;the CM is dissolved (other than pursuant to a consolidation, amalgamation or merger); andwith respect to all or any of the assets and undertaking of the CM or a Related Body Corporate of the CM:a receiver, receiver and manager, administrative receiver, administrator or similar officer is appointed; a security interest is enforced ora distress, attachment, or other execution is levied or enforced; the CM takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the above acts (which Rule originates from the OTC Rules). Automatic Early Termination Events7Yes. A CM is automatically taken to have defaulted if an event occurs in connection with insolvency or bankruptcy with respect to it of a type which is specified by the CCP from time to time. (The CCP has not specified any particular type(s) of insolvency or bankruptcy events which will trigger an automatic termination.) If such an event occurs, then all of the CM’s Contracts are subject to termination, such termination to be effective immediately on the occurrence of such event. Others8Yes.an investigator, inspector or other officer is appointed or an investigation is directed or commenced under the Corporations Act or any other legislation to investigate all or any part of the affairs of the CM or a related company of the CM, in circumstances which are material to its capacity to meet its obligations to the CCP;anything analogous to any of the events referred to above (which event originates from the Futures Rules as distinct from the OTC Rules), or having substantially similar effect, occurs with respect to a CM or a related body corporate of the CM including, without limitation, anything occurring outside Australia or under the law of a jurisdiction other than Australia;the CM is the subject of a notice under any insurance referred to in the CCP’s default waterfall, or any other insurance taken out by the CCP to enable it to meet its obligations to CMs which affects the amount or conditions or operation of such insurance;there is an event deemed or described as a default by the Exchange Operating Rules or as otherwise provided under the Rules including a failure to comply with the requirements relating to position limits under the Rules or the Exchange Operating Rules;the CM acts fraudulently or in a misleading or deceptive manner with respect to any Contract or Transaction whose registration gives rise to a Contract;upon request by the CCP, which may be made at any time, the CM fails to confirm on or before the cut-off time reasonably specified by the CCP in its request that it is able to pay its debts as they become due and payable; andany other event or series of events, whether related or not, occurs (or appears likely to occur) which in the opinion of the Board or managing director has (or appears likely to have) a material effect on the CM’s capacity to meet its obligations to the CCP Declaration of an Event of Default9Where there is, in the opinion of the CCP, an event of default with respect to a CM, the CCP may declare the CM to be in default.Without limiting the above, however, a CM is automatically taken to have defaulted if an event occurs in connection with insolvency or bankruptcy with respect to it of a type which is specified by the CCP from time to time. If such an event occurs, then all of the CM’s Contracts are subject to termination, such termination to be effective immediately on the occurrence of such event. Subject to such automatic default, the CCP has discretion to determine an event of default. In addition to the events of default originating from the Futures Rules, additional events of default are applied under the OTC Rules. Particularly in relation to insolvency-related events, there is considerable overlap between the Futures Rules and the OTC Rules, both of which apply.The events of default originating from the Futures Rules do not provide for grace periods. However, a couple of events of default which originate from the OTC Rules do provide for limited grace periods (for example, where a proceeding seeking a judgment of insolvency has been instituted against the CM, there will only be an event of default if such proceeding is not dismissed within 15 days of its institution).Hide note1 Futures Rule 71.3(a) (Existence of Default); Rules 6.4(c), (d) and (e)2 Futures Rule 71.3(n) (Existence of Default); Futures Rules 71.3(ga) and (gb) (Existence of Default); OTC Rulebook Rule 6.4(a)3 Futures Rule 71.3(g) (Existence of Default)4 Futures Rules 71.3(c) and (d) (Existence of Default)5 OTC Rulebook Rule 6.4(b); ASX Recovery Rulebook, Rule 2.2 (Default and Defaulted Participant) and ASX Recovery Rulebook, Rule 12.2(b) (Consequences of Participant not complying)6 Futures Rules 71.3(e), (f) and (h) (Existence of Default); OTC Rulebook Rules 6.4(f) (i), (ii) (iii), (iv), (v), (vi), (vii) and (ix)7 Futures Rule 71.1 Rules (Existence of Default) (as varied or supplemented by OTC Rulebook Rule 6.3); CCP response of 20 April 20158 Futures Rules 71.3(i), (j), (k), (l), (m) (o) and (p) (Existence of Default)9 Futures Rule 71.1 (Existence of Default) (as varied or supplemented by OTC Rulebook Rule 6.3); Futures Rule 71.3 (Existence of Default) (as varied or supplemented by OTC Rulebook Rule 6.4) |
| 91. Process for declaration of CM default | |
| 91.1 What is the process for declaring a default (including whether the CCP has to consult with its board, its risk committee and/or its local regulators)? | A CM is obliged to immediately notify the managing director of the CCP:if an event of default occurs under the Rules; orif the CM has reasonable grounds to suspect that an event of default may occur.Where there is in the opinion of the CCP an event of default with respect to a CM, the CCP may declare the CM to be in default.The Rules do not require the CCP to consult with its risk committee and/or its local regulators in order to declare an event of default.A CM is, however, automatically taken to have defaulted if an event occurs in connection with insolvency or bankruptcy with respect to it of a type which is specified by the CCP from time to time. (The CCP has not specified any particular type(s) of insolvency or bankruptcy events which will trigger an automatic termination.) If such an event occurs, then all of the CM’s Contracts are subject to termination, such termination to be effective immediately on the occurrence of such event.Hide noteFutures Rule 71.1 (Existence of Default) (as varied or supplemented by OTC Rulebook Rule 6.3)CCP responses of 6 February and 20 April 2015 |
| 91.2 Is the CCP required to inform, and/or get consent from, a local regulator prior to determining that there has been an event of default by a CM? | No. There is no such requirement under the Rules or under any law requiring the CCP to get consent from any regulator prior to declaring an event of default. In practice, the CCP will work closely with the Australian regulators.Hide noteCCP responses of 6 February 2015 |
| 92. CCP communication procedures in respect of CM default | |
| 92.1 Upon the occurrence of default, what are the CCP’s procedures for communication relating to the default (specifically, does the CCP communicate the occurrence of a default and/or the suspension of membership to CMs, Clients and/or other CCPs, in addition to regulators)? | The CCP’s declaration of an event of default is made by the giving of a notice of termination in writing to the CM. See item 91.1.The Rules do not specify any communication requirements in relation to CMs, Clients, other CCPs or regulators.In practice, the CCP will publish a market notice, notifying other CMs, Clients and other CCPs that it has declared the CM in default.The CCP will also communicate directly with the defaulting CM’s Clients holding individual client accounts (see the Client Clearing Module) and CMs identified as Replacement CMs for the purpose of determining whether Client positions can be ported.Hide noteFutures Rule 72.1A(a)(1) (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss)CCP responses of 6 February 2015 |
| 93. CCP determination of CM or Client default | |
| 93.1 How does the CCP determine whether a default is associated with a Client account or house account? | The Rules do not require the CCP to determine whether a default is associated with a Client Account or House Account, as a default by a CM affects all its accounts. |
| 94. CCP rights in respect of collateral upon a CM default | |
| 94.1 Upon a CM default, what rights does the CCP have with respect to collateral? | The Rules provide that the CCP will in its absolute discretion have the power:to sell, realise, apply and set off any monies, securities, collateral or other property deposited with the CCP by the defaulting CM by way of initial margin, default fund contributions or otherwise (whether or not arising from obligations under the Rules);to re-hypothecate deposited securities, collateral, or property—whether for Initial Margin, Extra Margin, or otherwise—to manage the default; andto apply the proceeds towards satisfaction of any amount payable by the defaulting CM to the CCP under or in connection with the Futures Rules or the OTC Rules,without being required to give notice to or obtain the consent of the defaulting CM or any court order, with full power to execute any documents in its own name or as attorney for the defaulting CM for that purpose, provided always that any monies, securities, collateral or other property deposited with the CCP with respect to Contracts designated to a Client Account may only be used to meet obligations in a Client Account and will not be used to meet any obligations in a House Account. The CCP also has absolute discretion to apply any surplus in any House Account of the defaulting CM to any deficiency on any Client Account of the defaulting CM.See item 100.1.Hide noteFutures Rule 72.1(b), (ba) and Futures Rule 72.1(c) (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) |
| 94.2 Does the CCP have to take any steps to enforce its rights in relation to collateral? | There are no formalities required in order for the CCP to enforce collateral. The Rules provide that collateral may be realised and applied towards satisfaction of the defaulting CM’s obligations owed to the CCP without the CCP being required to give notice to or obtain the consent of the defaulting CM or any court order. See item 109.Hide noteFutures Rule 72.1(b) (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) |
| 94.3 Does the CCP ordinarily liquidate all non-cash collateral to cash? | House AccountsThe CCP has confirmed that the CCP will liquidate all non-cash collateral in relation to (1) House Accounts (2) Client Accounts which are omnibus sub-accounts and (3) individual Client sub-accounts (i.e. non-omnibus accounts) where assets have not been attributed to a CM.Client AccountsClient Account enhancements were introduced as of 31 August 2015 to comply with the regulatory guidance of the RBA (see Client Clearing Module item 14.2).Individual sub-accountsIn particular, in relation to Client Accounts which are individual sub-accounts, a CM has the ability (but not the obligation) to instruct the CCP to attribute specific cash and non-cash collateral (“attributed assets”) to an individual sub-account so that in the event of a CM default, the CCP can port to a Replacement CM or return (less close-out costs) directly to the Client, attributed assets (or equivalent assets) (together with cash, if the haircut value of attributed assets is less than the value of Initial Margin). However, the CCP may realise some or all of those attributed assets (as required) in circumstances where:(a) the Client has individual sub-accounts in respect of both Contracts relating to the Service as well as the OTC Service and those individual sub-accounts are to be transferred to different Replacement CMs; or (b) the Contracts in the individual sub-account have been terminated by the CCP and: (i) the realisation of some or all of the equivalent non-cash assets is required to meet losses, costs and expenses allocated to the individual sub-account; or (ii) the CCP is unable to transfer equivalent non-cash assets to the Client including due to lack of timely, complete or valid transfer instructions, impossibility, impracticability or any other event or circumstance. In any of those circumstances the CCP may realise such equivalent non-cash assets and transfer or pay cash instead.This will in effect mean that, broadly, in relation to Client Accounts which are individual sub-accounts where non-cash collateral has been attributed, the CCP would not ordinarily liquidate all non-cash collateral to cash.]Omnibus sub-accountsIn contrast, in relation to Client Accounts which are omnibus sub-accounts, a CM does not have the ability to instruct the CCP to attribute specific cash and non-cash collateral to such omnibus sub-accounts. If a CM defaults, the CCP is unlikely to be able to post-default port the Contracts in an omnibus sub-account to a Replacement CM. The CCP will terminate the Contracts in an omnibus sub-account and return any remaining “collateral value” (see Client Clearing Module item 14.2) to the CM or its external administrator (such as a liquidator) in cash, less applicable costs and losses. The CCP will sell any non-cash collateral lodged by the defaulting CM that is not attributed to an individual sub-account in order to return the cash amount as described above. Please refer to the Client Clearing Module item 14.2 for further information and/or the CCP’s Client Protection Model Client Fact Sheet, available at: https://www.asx.com.au/documents/clearing/asx-client-clearing-client-fact-sheet-31aug2015.pdf.Hide noteCCP responses of 27 January 2017Futures Rule 116.2A and 116.3 (Margin)Futures Rule 119 (Clearing Participant Default (Application to Individual Sub-Accounts)Futures Rule 121 (Clearing Participant Default (Termination of Option Positions and Collateral Value), in particular, Rule 121.4Procedures Rule 121.4 (Clearing Participant Default (Termination of Option Positions and Collateral Value)https://www.asx.com.au/documents/clearing/asx-client-clearing-client-fact-sheet-31aug2015.pdf |
| 95. Settlement of payment obligations following a CM default | |
| 95.1 How do CCP Rules enable it to settle payment obligations on time following any individual or combined default among its CMs? | See CM Default – Default Process (items 100-108) |
| 96. Netting and set-off following a CM default | |
| 96.1 Do the Rules provide for the netting and set-off of obligations, including obligations to return collateral, upon the default of a CM? | Yes. In addition, the Rules expressly provide that the CCP may do anything necessary to effect such set-off, including varying the timing for payment of any amount owing by the CCP to the defaulting CM and making currency exchanges.Hide noteFutures Rule 72.3 (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) (as varied and/or supplemented by OTC Rulebook Rule 6.7)ASX Recovery Rulebook, Rule 12.8 (Set-off) |
| 96.2 Is a net amount calculated per account? | Yes. A net amount(s) (due and payable by the defaulting CM to the CCP or by the CCP to the defaulting CM) is calculated by the CCP separately in respect of the House Account and the Client Account. The CCP will then demand immediate payment of any net amount payable by the defaulting CM to the CCP.Without limitation, the amounts netted by the CCP may include amounts determined to be payable under, or in connection with, the rules applicable to the Futures Service or due under the indemnity granted to each related body corporate of the CCP (e.g. ASX Clear Pty Limited) under the Rules.House AccountsThe net amount is calculated with respect to all House Accounts of a CM.Client AccountEach CM has only a single Client Account with the CCP. Client sub-accounts of a CM’s Client Account do not form separate Client Accounts for the purposes of the Rules.If a CM has Clients to which the CPM Provisions apply, then netting is to be conducted separately in respect of each Client sub-account within the Client Account of that CM and in respect of any remaining part of that Client Account. A net cash amount is to be payable in respect of each separate netting which takes place.Even if the same Client has sub-accounts with multiple CMs, normally the CCP will treat each of such sub-accounts of the same Client as being separate. However, the CCP has discretion to choose to make calculations for its own purpose with respect to such Client, across the different sub-accounts held for that Client with multiple CMs.The CPM Provisions now apply to all Clients of the Service as well as all Clients of the Futures Service.Hide noteFutures Rule 23 (Extension of Indemnities and Disclaimers), Rule 72.3 (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) (as varied and/or supplemented by OTC Rulebook Rule 6.7)Futures Rule 72.4Futures Rule 115 (Client Sub-Accounts) (as varied and/or supplemented by OTC Rule Rulebook 2.15)CCP responses of 6 February 2015 |
| 97. Calculation of termination amount | |
| 97.1 How is the termination amount calculated (describe the methodology for determining the termination amount, including timing; specify each termination amount that could be calculated and each service that would be included in the calculation of each termination amount, and note any distinctions between Client and house accounts)? | See item 96.2.A net amount is calculated separately in respect of the House Account and the Client Account (but if there are Client sub-accounts, then a net amount is to be calculated for each Client sub-account).On the interaction between House Account(s) and Client Account, on a CM default, the CCP has absolute discretion to apply any surplus in any House Account of the defaulting CM to any deficiency on any Client Account of the defaulting CM. Monies or other property deposited with the CCP with respect to a Client Account may however only be used to meet obligations in a Client Account and will not be used to meet any obligations in a House Account.On timing of payment, the CCP may demand immediate payment of any net amount payable by the defaulting CM to the CCP.Both the Service and the Futures Service would be included in the calculation of the termination amount. The Futures Rules specifically provide that the amounts netted by the CCP may include amounts determined to be payable under, or in connection with, the Rules applicable to the Service or the Recovery Rules. Note that the CCP may choose to include any early termination amount determined to be due and payable under an ISDA Master Agreement entered into between the CM and the CCP in the netting described above. The inclusion of the early termination amount in such netting terminates the parties’ obligation to pay that early termination amount under the Rules, without affecting the netting in any way.Hide noteFutures Rule 72.1(b) and (c) (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) (as varied and/or supplemented by OTC Rulebook Rule 6.6)Futures Rule 72.3 (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) (as varied and/or supplemented by OTC Rulebook Rule 6.7)OTC Rulebook Rule 6.12 (Default Management Process) |
| 98. Net termination amounts for multiple services | |
| 98.1 If the CCP offers more than one service, does the net termination amount include amounts due to/from the CCP in respect of other services? | Yes. The CCP offers 2 services – the Service and the Futures Service. The net amount payable to or from the CCP under the Rules can include amounts determined to be payable under, or in connection with, the Rules applicable to the Service as well as the rules applicable to the Futures Service. See items 96.2 and 97.Hide noteFutures Rule 72.3 (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) (as varied and/or supplemented by OTC Rulebook Rule 6.7) and Rule 23 (Extension of Indemnities and Disclaimers) |
| 99. Payment of termination amounts and return excess collateral/remaining default contributions to defaulting CMs | |
| 99.1 When is the CCP required to pay any termination amount, return surplus collateral and any remaining default contribution to the defaulting CM? | Not addressed in the Rules but the CCP has broad discretion as to when amounts are repaid to a defaulting CM. We would expect this to be after (i) the CCP’s determination of all amounts due/payable to the defaulting CM across all lines and (ii) application by the CCP of all assets to which it has recourse for the purposes of reducing the CCP’s losses.It is assumed that, once all the amounts due in respect of the CM default has been determined, the CCP would return all excess collateral (cash and non-cash), in respect of house business to the defaulting CM.Hide noteFutures Rules Part 7 (Procedures on a Default) (as varied and/or supplemented by OTC Rulebook Rule 6.3, 6.4, 6.6 and 6.7) |
| 100. Default process | |
| 100.1 What are the CCP’s specific default procedures? | The CCP is given very broad powers which it can exercise in its absolute discretion in a default scenario. These powers include transfer, on or off-market liquidation, expiry, exercise and hedging (see below). Notwithstanding this, in respect of the Service, the CCP’s preferred approach is hedge/auction, reflecting the lower liquidity of OTC derivatives products.In particular, the CCP may exercise its powers under the Recovery Rules.Broadly speaking, there are two sets of default processes: non-recovery process and recovery process. These two processes can be taken by the CCP at the same time or one after the other. Each of these two processes is described below.Non-recovery process: hedge/auctionThe CCP’s preferred approach is hedge/auction.(2)(1)The CCP would first suspend the defaulting CM and terminate all or selected Open Contracts of the Defaulting CM (excluding OTC Open Contracts). This applies to contracts within both House and Client Clearing Accounts. The CCP would decide the time at which such termination is to be effective (termination date) and then calculate a termination value in respect of one or more terminated Contracts as selected by the CCP. All future payment obligations related to these terminated Open Contracts, such as Variation Margin payments, are nullified. Client positions are reverted to general positions and may be combined with house positions;The CCP may enter into hedging transaction(s) in order to hedge the effects of the termination of such Contracts and to stabilise the portfolio of the Clearing Participant in Default using Open Contracts that arise from this hedging strategy. These are also classified as DM Auction Transactions. The CCP will at all times maintain the ultimate decision on whether or not and under what terms and conditions a hedging transaction is executed.(3)The CCP can calculate a termination value for these contracts at any point, factoring in unperformed obligations before termination, hypothetical obligations if contracts had continued, and costs from managing the default, including hedging costs and DM Auction expenses. The calculated termination value may be used in netting processes, aiding in reconciling the financial positions of involved parties. For Client Sub-Accounts, deductions related to losses or charges are taken from their guaranteed initial margin value, ensuring alignment with client protection model provisions.(4)The CCP may establish new Open Contracts that are functionally equivalent to those of the defaulting participant. These new contracts are crafted to mirror the original portfolio’s position and are subject to auction to interested parties. (including hedges). (Based on the CCP’s response, this is a reference to a sale situation. The CCP can only sell the defaulting CM’s portfolio against the recommendation of the default committee before putting it up for auction if the sale would not result in the application of default fund contributions paid in by non-defaulting CMs.)The structured termination and subsequent auctioning of newly established or hedged Open Contracts aim to minimise the disruption caused by the default and to efficiently redistribute the financial risks associated with the terminated contracts through a controlled auction process.The CCP has discretion obtain the advice of the default committee before entering into hedging transactions. However, the CCP will not enter into hedging transactions comprising Transactions without first obtaining the advice of the default committee, unless the CCP reasonably determines it is necessary to manage its risk or otherwise meet its continuing regulatory obligations including those applicable to it as a CS Facility licensee.(5) Terminated contracts can be compiled into portfolios for auction or further disposition. Losses and expenses from the default management are proportionally allocated across relevant Clearing Participant accounts based on their risk exposure, determined by Initial Margin values.If the CCP (in consultation with the relevant default committee) determines that it is appropriate, then one or more auctions is/are to be conducted to establish new Contracts which are equivalent to the Contracts terminated (including hedges). (6) The defaulting CM’s portfolio may be split into auction portfolios. Each auction portfolio may consist of one or more OTC transaction types. An auction will be held in respect of each auction portfolio. If there is more than one auction portfolio, the CCP will determine an auction portfolio risk weighting applicable to each auction portfolio which will be notified to each auction participant for such auction.(7) Each auction portfolio may be split into more than one auction unit. Each auction unit of an auction portfolio is to be identical.(8) CMs which satisfy certain criteria are obliged to participate in each auction in accordance with the auction procedures.(9) The CCP will determine a price at which a bid in each auction will be deemed uneconomic. This is used to determine the order of application of the CMs’ default fund contributions relating to the Service in accordance with the CCP’s juniorisation procedures described in (9) below.(10) Juniorisation proceduresIf, following the completion of all auctions, the CCP suffers any loss, then the CCP’s juniorisation procedures (designed to encourage competitive bidding) will apply to apportion the default fund contributions of CMs under the Service to be utilised in accordance with the default waterfall. The CCP will use the auction portfolio risk weighting for each auction portfolio (see (5) above) to determine the proportion of each CM’s default fund contribution which will be ascribed to that auction portfolio.Following an auction, the CCP will rank each of the bids received in order from highest to lowest. This action is replicated in respect of each auction, before the bids across all auctions are grouped together in priority groups by ranking. Auction participants comprised in the lowest priority group will have their default fund contributions applied first. The proportion of each CM’s default fund contribution attributed to each auction portfolio is then applied to each priority group to determine the amount of default fund contributions which may be utilised for that priority group.The CCP will utilise the CMs’ default fund contributions in order of priority group, from lowest bid received to highest bid. Each default fund contribution amount for each priority group will be utilised in full before applying the weighted default fund contribution amount for the next priority group unless all the CCP’s losses have been met, or all the default fund contribution amounts for all priority groups have been utilised, as applicable.The OTC Handbook provides very detailed worked examples of how the juniorisation procedures work and how the CCP’s losses are applied to the CMs’ default fund contributions in accordance with such procedures.Other non-recovery process apart from hedge/auctionIn addition, the Rules specifically provide that on a CM default, the CCP will in its absolute discretion have the power to do all or any of the following in any order:(4) to close-out all or any Contracts under the Service and contracts under the Futures Service of the defaulting CM including in its absolute discretion such Contracts or contracts in the Client Account by closing out any opposite positions in any House Account or Client Account and/or buying or selling opposite positions on the markets of the Australian Securities Exchange Limited or the New Zealand Futures & Options Exchange Limited as if a request to close out had been made by the defaulting CM under the Rules and to appropriate any excess after the application of the netting and set-off provisions of the Rules; the price attributable to the close out of any such Contracts or contracts is to be determined by the CCP in its discretion provided that the price is fair and equitable as between Contracts regardless of the account in which they were registered and whether they were closed out on-or-off market. Without limitation, if any two CMs are in default and hold Contracts that the CCP determines to be opposite positions, the CCP will in its absolute discretion have the power to close out these Contracts by matching of these opposite positions. The price attributable to the close out of such Contracts is to be determined by the CCP in its discretion;(5) to sell, realise, apply and set off any monies, securities, collateral or other property deposited with the CCP by the defaulting CM by way of initial margin, default fund contributions or otherwise (whether or not arising from obligations under the Rules) and to apply the proceeds towards satisfaction of any amount payable by the defaulting CM to the CCP under or in connection with the Rules and the rules applicable to the Futures Service, without being required to give notice to or obtain the consent of the defaulting CM or any court order, with full power to execute any documents in its own name or as attorney for the defaulting CM for that purpose, provided always that any monies, securities, collateral or other property deposited with the CCP with respect to Contracts under the Service and contracts under the Futures Service designated to a Client Account may only be used to meet obligations in a Client Account and will not be used to meet any obligations in a House Account;(6) to re-hypothecate any securities, collateral or other property deposited with the CCP by the CM in default by way of initial margin, extra margin or otherwise (whether or not arising from obligations under the Rules) for the purpose of managing the default;(7) to apply any surplus in any House Account of the defaulting CM to any deficiency on any Client Account of the defaulting CM;(8) to transfer all or any Contracts under the Service and contracts under the Futures Service designated to a Client Account of the defaulting CM to another CM with the written authority of such transferee CM, together with any initial margins which in the opinion of the CCP are held with respect to such Contracts or contracts;(9) to exercise or abandon any Option Contract of the defaulting CM; any such exercise or abandonment will be deemed to have been effected by the CM which is the party to the Option Contract;(10) to itself give or take delivery of any commodity;(11) to close out any remaining Contracts of the defaulting CM in order to offset any exposure arising from a CM default by trading Transactions; any Transactions so traded are to be registered; the CCP may close out the Contracts so traded against Contracts of the CM as if such Transactions had been entered into by the defaulting CM;(12) to terminate Contracts of the defaulting CM at a price determined by the CCP subject to the Rules; in determining the price at which the CCP will terminate such Contracts, the CCP expects to use the same calculations as used for the termination of the Contracts of any non-defaulting CM in accordance with the Recovery Rules;(13) to terminate the defaulting CM’s rights and status as a CM;(14) to do anything permitted by the Rules; and(15) to do all such other necessary acts and things as are ancillary or incidental to the execution of the CCP’s powers enumerated under the Rules in connection with the CM event of defaultprovided that, in exercising its powers outlined above, the CCP may not:(1) affect the order in which assets are applied under the default waterfall; or(2) Invoice Back or Force Allocate Contracts to another CM.Recovery processApart from the actions that the CCP can take in a non-recovery process as described above, the CCP can also take the following recovery actions to discharge the CCP Loss. These actions are summarised below together with a reference to the items in which the actions are fully covered.(16) Call for assessments (item 118)(17) Effect a Payment Reduction (item 109).(18) Effect a Partial Tear Up to restore a “matched book” (item 107.1)*(19) Effect a complete Invoicing Back (item 107.1).(20) Call for a replenishment (item 117).(21) Invite or accept voluntary payments from the CMs (item 109.1).* Note that Partial Tear Up is not available as a general loss absorption tool, but only to restore a “matched book”.Conditions to call for assessmentThe CCP may exercise its rights and powers to call for assessment from non-defaulting CMs after occurrence of a CM default if the following conditions are satisfied:(22) a CM has defaulted;(23) the CCP reasonably expects that there is a CCP Loss or that a CCP Loss may arise in the future with respect to the Default Period which has been, or may be, allocated to the default fund at the relevant time; and(24) the CCP has not determined that it will affect a complete Invoicing Back.Conditions to Payment ReductionSee item 109 for conditions to Payment Reduction.Conditions to voluntary payment:The CCP may at any time after a default, by notice invite each CM to make a voluntary payment (see item 109.1 for further details of voluntary payment).Conditions to replenishmentThe replenishment may only be called upon by the CCP if all of the following conditions are satisfied:(25) a CM has defaulted;(26) a DMP Completion Date has occurred with respect to a Default Period; and(27) the CCP has not decided it will voluntarily wind-down all of its product classes.Once a call for a Participant Replenishment Amount has been made by the CCP, it cannot be made again until the end of next Default Period. See item 117 for further details of replenishment. Subject to the cap described in item 117.2, the CCP may call for more than one Interim Participant Replenishment Amount in respect of a Default Period.Conditions to complete Invoicing BackPlease see item 107.1 for conditions to complete Invoicing Back.Hide noteCCP response of 20 April 2015 Futures Rule 72.1(aa) and 72.1B (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) non-recovery process apart from hedge/auctionRBA 2018/19 Assessment Appendix C1, Standard 12OTC Rulebook Schedule 3 (Default Management Process)Para 2 (DM Hedging Transactions and DM Hedging Transaction Costs)Para 3 (Independent DM Transactions)Para 4 (DM Auctions)Para 5 (Juniorisation)OTC Handbook Schedule 5 (Juniorisation Worked Examples)Futures Rule 72.1 (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) (as varied and/or supplemented by OTC Rulebook Rule 6.6)OTC Rulebook Schedule 3 (Default Management Process), Para 3 (Independent DM Transactions)ASX Recovery Rulebook, Rule 3 (Recovery Powers)ASX Recovery Rulebook, Paragraph 13 of Schedule 5 (Call for Participant Replenishment Amount)ASX Recovery Rulebook, Paragraph 3 of Schedule 5 (Interim commitments by Participants) |
| 100.2 Is the CCP required or permitted to hedge Contracts? | The CCP is not required, but is permitted to hedge Contracts. The CCP is empowered to manage and mitigate exposures resulting from a CM’s default by taking strategic trading actions. The CCP may engage in hedging or offsetting activities to manage exposure from a default. This can be done through:Market Trading: Executing trades on a trading system maintained by the Relevant Exchange via a CM of the exchange.Direct Agreements: Entering into direct trading agreements with market participants or other permissible entities, as guided by the Relevant Exchange’s rules.It is relevant to note that any Market Contracts executed for these purposes must be registered by the CCP. These Market Contracts may be put up for auction or closed out against the defaulting CM’s Open Contracts. This process is treated as if the defaulting participant had entered into these Market Contracts themselves.This approach allows the CCP to effectively handle potential risks and losses by using market mechanisms to stabilise positions during a CM’s default.The RBA 2018/19 Assessment Appendix C1 states that the CCP may first suspend the defaulted CM and would then look to hedge its exposure arising from the defaulting CM’s portfolio. To close-out the defaulter’s portfolio, the CCP may then conduct one or more auctions of the portfolio (including the hedges) to non-defaulted CMs.Hide noteRule 72.1 and 72.2 (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss)OTC Rulebook Schedule 3 (Default Management Process), Para 2 (DM Hedging Transactions and DM Hedging Transaction Costs); RBA 2018/19 Assessment Appendix C1, Standard 12.1 |
| 100.3 Are non-defaulting CMs required to enter into hedging Contracts with the CCP? | No, the CCP has confirmed that non-defaulting CMs are not required to enter into hedging Contracts with the CCP. CMs must, however, have the capacity to bid on and take a defaulting CM’s portfolio (which will include hedging transactions).In this respect, note that each CM is obliged to:comply with its obligations in connection with the default management provisions, including maintaining internal systems and processes (as determined by the CM) required for participation in an auction and acceptance of, where required by the Rules, hedging transactions, new Contracts equivalent to the Contracts terminated (including hedges) and auction transactions;approve the CCP as a counterparty with which it can enter into hedging transactions, new Contracts equivalent to the Contracts terminated (including hedges) and auction transactions in accordance with the default management provisions and deal with the CCP as counterparty in a manner consistent with, and in any event on no less favourable terms, than the manner in which it deals with any bank counterparty of the CM with the same or similar creditworthiness or risk profile; andco-operate with, act in good faith toward, and not cause any hindrance to, the CCP in respect of any hedging transactions, new Contracts equivalent to the Contracts terminated (including hedges) or auction transactions including providing competitive quotes in a timely manner upon request, such quotes to be two way prices in accordance with usual bid/offer conventions.Hide noteOTC Rulebook Rule 6.2 (Default management process)CCP response of 20 April 2015 |
| 100.4 If so, what are the consequences for refusal to enter into such hedging Contracts? | N/A |
| 100.5 Does the CCP have to consult any committees (e.g., a risk committee or a default committee) in making decisions and managing a default process? | Yes, the CCP must consult with the risk committee in the circumstances set out in item 28.3 and the default committee as set out in item 29.3.In addition, the CCP may, but is not obliged to, consult the default committee. See items 29.3 and 29.5.Although the Rules provide that the CCP may choose to convene a meeting of the default committee upon the occurrence of a CM default, in practice, the CCP will call a meeting of the default committee. The CCP values the skills and knowledge the default committee can bring, in particular, to (1) the hedging and execution process and (2) the auction process.Hide noteASX Recovery Rulebook – Rule 7.1 (Reserve Bank of Australia)ASX Recovery Handbook – Rule 7.2 (Risk Committee)CCP response of 20 April 2015 |
| 101. Publication of CCP default process | |
| 101.1 How, if at all, are these procedures and their outcome publicised? | General1Whenever the default process is implemented by the CCP, the CCP will endeavour, in consultation with each relevant default committee, to keep CMs reasonably informed of the progress of the default process.The CCP is not however obliged to disclose information in respect of the default process which, in the CCP’s reasonable opinion, may be subject to obligations of confidentiality, may constitute market sensitive data or is, in the CCP’s opinion, inappropriate for disclosure to CMs.The CCP is under no obligation under the Rules to publicise the non-recovery procedures or the outcome of a default process.In practice, if a CM is declared in default, the CCP will publish a market notice, notifying other CMs, Clients and other CCPs that it has declared the CM in default and again subsequently when the default management process is completed. In the absence of a declaration of default, there will be no publication.The recovery procedures are set out in the Recovery Rules which provide that the CCP will notify CMs at various stages in the default process. Auctions2In the context of auctions, the CCP is obliged to keep bid details confidential but may disclose bid levels to the default committee after closure of the auctions.In any event, the CCP will not disclose:the identity of the participating bidder that submitted the winning bid for an auction unit to any party;the auction price for any auction unit of an auction portfolio, to any party other than the participating bidder who submitted the winning bid; orbids of participating bidders to other participating bidders,unless it is required to do so by law, regulation or regulators.Hide note1 CCP responses of 6 February 2015; OTC Rulebook Schedule 3 (Default Management Process), Para 7 (Information Regarding Default Management Process); CCP response of 20 April 20152 OTC Handbook Schedule 4 (Default Management Auction Procedures), Para 7.5 (Non-disclosure) |
| 102. Auction mechanism | |
| 102.1 Does the CCP use an auction mechanism to liquidate the portfolio of the defaulting member? | Yes. |
| 102.2 Are non-defaulting CMs required to participate? | Yes. |
| 102.3 If so, to what extent? | Non-defaulting CMs who satisfy the following criteria (see below) must participate in each auction corresponding to the relevant auction portfolio in accordance with the auction procedures.Non-defaulting CMs:which are authorised to act as CMs under the Service with respect to all auction transactions comprised in the relevant auction portfolio that are to be Contracts under the Service;having, or having access to, the necessary account structure to settle all auction transactions comprised in the relevant auction pool; andwhich, at the time of default of the relevant defaulted CM under the Service, have at least one Contract under the Service of the same OTC transaction type(s) and currency as the auction transactions comprised in the relevant auction portfolio.The CCP has sole discretion to waive the requirement that a non-defaulting CM participate in an auction.The CCP also has discretion to invite other CMs under the Service to become participating bidders.Hide noteOTC Rulebook Schedule 3 (Default Management Process), Para 4.5 (Mandatory OTC Participants)OTC Handbook Schedule 4 (Default Management Auction Procedures), Para 5.1 (DM Auction Invitees) |
| 102.4 If a CM refuses to participate, what are the consequences for not bidding? | Refusal to participate in an auction where the CM satisfies the criteria set out in item 102.3:may lead to a “juniorisation” of the CM’s default fund contributions (see item 100.1, paragraph (9) for juniorisation procedures);would constitute a breach of the Rules; andmay trigger a CM event of default (see items 90 and 100.3).Hide noteOTC Rulebook Rule 6.2 (Default management process)OTC Rulebook Schedule 3 Para 4.5 (Mandatory OTC Participants), Para 5 (Juniorisation)CCP response of 20 April 2015 |
| 102.5 Are Clients allowed to participate? | No. The Rules only provide for OTC Participants to participate. See item 102.3. Clients may not participate through an OTC Participant.Hide noteCCP response of 20 April 2015 |
| 102.6 If so, what are a CM’s obligations with respect to a bid submitted by a Client? | N/A |
| 102.7 Is there a minimum bid size? | Potentially yes. In respect of any auction, the CCP will notify each relevant CM that satisfies the criteria set out in item 102.3 of the applicable auction terms which may include the minimum number of auction unit(s) which such auction participant is required to bid for. A price offered for auction units will only constitute a valid bid for such auction participant if a price is submitted for at least the minimum number of auction unit(s) required to be bid by such auction participant.Hide noteOTC Handbook Schedule 4 (Default Management Auction Procedures), Para 5.2(a) (Content of Specific DM Auction Terms) and Para 6.2 (Bids and Bidding Periods) |
| 102.8 Does the CCP allow CMs to submit bids for part only of an auction portfolio? | The CCP has discretion to split an auction portfolio into smaller auction units. See items 100.1 and 102.9. Once the number of auction units in respect of an auction portfolio has been determined, CMs can bid for one or more auction units, subject to the minimum bid size requirement described in item 102.7, rather than the entire auction portfolio. |
| 102.9 On what basis does the CCP decide the size and composition of the auction portfolio? | The CCP (after consultation with the relevant default committees) will determine the groups of auction transactions which are to be the subject of separate auctions (each as an auction portfolio). The CCP may:include a single OTC transaction type in more than 1 auction portfolio;split 1 auction transaction into multiple transactions with each transaction being included in a different auction portfolio as a separate auction transaction; and/orinclude in the same auction portfolio auction transactions:relating to Client positions and house positionsrelating to different defaulting CMs; and/ordenominated in different currenciesThe CCP (after consultation with the relevant default committees) will also determine if each auction portfolio may be split into more than 1 auction unit. Each auction unit of an auction portfolio is to be identical.Hide noteOTC Rulebook Schedule 3 (Default Management Process), Para 4.3 (Auction Pools and Auction Pool Weighting) and Para 4.4 (Auction Units) |
| 102.10 Are the house and Client Contracts kept in separate auction portfolios? | No. The CCP may include house and Client Contracts in the same auction portfolio. See item 102.9. |
| 102.11 How would the auction be structured/conducted in respect of multiple auction portfolios? | The CCP (after consultation with the relevant default committees) will determine if each auction pool is to be separated into homogenous units (each referred to as an auction unit). If there is more than one auction unit then each auction unit must be composed of identical components of auction Contracts.Hide noteOTC Rulebook Schedule 3 (Default Management Process), Para 4.4 (Auction Units) |
| 102.12 What is the consequence if two or more bidders submit the same price for an auction portfolio (e.g., is the auction portfolio allocated on a pro-rata basis, and/or is timeline of price submission used to determine the allocation)? | The winning bid will be the bid that was received first by the CCP.Hide noteOTC Handbook Schedule 4 (Default Management Auction Procedures), Para 7.1 (Winning Bids) |
| 102.13 Does the CCP retain the power to set minimum bid price thresholds? | Yes, the terms applying to an auction may specify that the CCP can set a reserve price. If a reserve price specified for one or more auction units is higher than the otherwise winning bid for such auction unit(s), then there is taken to be no winning bid for such auction unit(s).Hide noteSchedule 4 (Default Management Auction Procedures), Para 8.2 (Reserve Price), OTC Handbook |
| 102.14 If so, how is this determined and is the minimum bid communicated to auction participants? | The Rules do not address how the minimum bid or reserve price (see item 102.13) is determined. If, in respect of an auction, the CCP intends to set a reserve price, when notifying the terms applying to such auction, the CCP will inform auction participants that it can set a reserve price. The Rules do not, however, expressly provide that the reserve price (if set) will be disclosed. The CCP has confirmed that the reserve price (if set) will not be disclosed.Hide noteOTC Handbook Schedule 4 (Default Management Auction Procedures), Para 8.2 (Reserve Price)CCP response of 20 April 2015 |
| 102.15 Can the CCP reject specific bids or reject the auction entirely? | The CCP can reject any and all bids. See item 102.16. |
| 102.16 If so, under what conditions? | Non-compliance with auction procedures1The CCP reserves the absolute right to reject at any time any and all bids that do not comply with the auction procedures. Reserve price2The specific terms applicable to an auction may specify that the CCP can set a reserve price in connection with an auction (see item 102.13). If a reserve price specified for 1 or more auction units is higher than the otherwise winning bid for such auction unit(s), then there is taken to be no winning bid for such auction unit(s). CCP’s licensing obligations3If the CCP determines that acceptance of the highest bid submitted as the winning bid for an auction unit is not acceptable, given its licensing obligations, it may determine that subsequent lower bids are instead the winning bid, regardless of the procedures specified in the particular auction format.Hide note1 Schedule 4 (Default Management Auction Procedures), Para 10 (Irregularities), OTC Handbook2 Schedule 4 (Default Management Auction Procedures), Paras 8.2 (Reserve Price) and 8.3(e) (Highest Bidder Wins Auction Format), OTC Handbook3 Schedule 4 (Default Management Auction Procedures), Para 7.1 (Winning Bids), OTC Handbook |
| 102.17 How are “off market” or “non-competitive” bids defined and what are the consequences of submitting “off market” bids? | Reserve price1See item 102.16.Hide note1 Schedule 4 (Default Management Auction Procedures), Para 8.2 (Reserve Price), OTC Handbook |
| 102.18 How does the CCP deal with a scenario where it does not receive any bids in the auction? | If the CCP determines that an auction or any part of it has failed for any reason (which we would interpret to include a scenario where it does not receive any bids in an auction), the CCP may reallocate auction units and hold a further auction, or take such other action as the CCP determines in its discretion is appropriate.Hide noteOTC Handbook Schedule 4 (Default Management Auction Procedures)Para 7.4 (Failed Auction) |
| 102.19 How does the CCP determine to whom Contracts are allocated pursuant to the auction and for what price? | The default portfolio comprises Contracts under the Service and cross-margined contracts under the Futures Service (see item 44.2) equivalent to:terminated house and/or non-ported Client Contracts of the defaulted CM; andhedging transactions (see item 100.1, “Non-recovery process: hedge/auction”, paragraph (2)).The CCP may combine terminated house and/or Client Contracts of multiple defaulting CMs within a default portfolio.A default portfolio may be split into several auction portfolios (based on currency, product, tenor, carry, trade volume). There will be a separate auction for each auction portfolio. An auction portfolio may be split into auction units comprising identical components. See item 102.9.The auction terms applicable to any particular auction will specify the format of such auction with regard to:content of a bid i.e. what Contracts are included in the bid;specific procedures of the bidding; anddetermination of a winning bid.Applying the relevant auction format, the CCP will determine to whom and at what price Contracts are to be allocated.The CCP has sole discretion to apply any auction format for an auction; however, unless otherwise specified, the CCP will apply the “Highest Bidder Wins Auction Format”. Highest Bidder Wins Auction FormatWhere the “Highest Bidder Wins Auction Format” applies:the default portfolio could be split into a number of different auctions such that there may be one or more auction portfolios, and the “Highest Bidder Wins Auction Format” could be applied to each auction;there will be one auction unit per auction portfolio;each CM bids for 100% of the auction portfolio; andin respect of each auction, subject to there being any reserve price (see item 102.13) and acceptance by the CCP of the winning bid, the highest valid bid will be the winning bid and therefore the price at which Contracts are to be entered into between the CCP and the auction participant who submitted the winning bid. Multi-Unit Auction FormatWhere the “Multi-Unit Auction Format” applies (i.e. where an auction portfolio is sub-divided into identical auction units):(a) each auction participant must bid on a minimum number of auction units, determined by the CCP and set by reference to the initial margin amount ascribed to it for the particular auction portfolio.The formula used by the CCP to determine the minimum number of auction units is as follows:(i) the Proportionate Initial Margin Value for the auction participant for the relevant auction portfolio divided bythe sum of the Proportionate Initial Margin Values for all auction participants for the relevant auction portfoliomultiplied by(ii) the Weighted Number of Auction Units for the relevant auction portfolio.For this purpose:“Proportionate Initial Margin Value” is the value of initial margin allocated to an auction participant for the relevant auction portfolio as determined by the CCP on the basis of the proportion of Contracts under the Service and other contracts under the Futures Service held by such auction participant as compared with the Contracts under the Service and other contracts under the Futures Service held by each other auction participant taking into consideration the terminated Contracts (including hedges) comprised in such auction portfolio.“Weighted Number of Auction Units” is:(1) the value of initial margin of the defaulting CM for the relevant auction portfolio, as determined by the CCP as if for this purpose it were an auction participantdivided by(2) the auction unit size in A$ as determined by the CCP in its sole discretionmultiplied by(3) a multiplier (which must be greater than 1) determined by the CCP in its sole discretionThe resulting minimum number of auction units for such auction participant will be rounded up to the nearest whole auction unit.(b) subject to there being any reserve price (see item 102.13) and acceptance by the CCP of the winning bid, the highest valid bid will be the winning bid with respect to each auction unit and therefore the price at which Contracts relating to the relevant auction unit are to be entered into between the CCP and the auction participant who submitted the winning bid.Hide noteOTC Rulebook Rule 6.8 (Combination and Allocation in default management process)OTC Rulebook Schedule 3 (Default Management Process) Paras 4.1, 4.3 and 4.4OTC Handbook Schedule 4 (Default Management Auction Procedures)Para 8.1 (General)Para 8.3 (Highest Bidder Wins Auction Format)Para 8.4 (Multi-Unit Auction Format)CCP response of 20 April 2015 |
| 102.20 Does the CCP have any obligation to accept a majority percentage of the bids? | No. The CCP has absolute discretion to reject any bids (in which case it may choose to initiate another auction). See item 102.16. |
| 103. Utilisation of default process | |
| 103.1 Is the CCP required to utilise the specified default process? | No. However, notwithstanding that the CCP is given very broad powers which it can exercise in its absolute discretion in a default scenario and that it is not obliged to carry out the specified hedge/auction procedures, in respect of the Service, reflecting the lower liquidity of OTC derivatives products, the CCP’s preferred approach is hedge/auction. See item 100.1. |
| 104. Outsourcing of the CCP’s CM default process | |
| 104.1 Is the CCP permitted to outsource aspects of the default process? | Not addressed in the Rules. As the Rules do not prohibit outsourcing, there is no restriction on this; however, the CCP would be responsible as principal for the actions of any outsourced staff in relation to its contractual obligations and regulatory obligations under the Corporations Act, which would place some constraints on any such outsourcing.In practice, the CCP does not outsource aspects of the default process to third parties.See also item 11.2 under the heading “Offshoring and outsourcing requirements” for factors that may impact on the ability of the CCP to outsource aspects of the default process. Certain Financial Stability Standards may also have an impact. These include:FSS 2.9: a CCP that is part of a group of companies should (among other things) consider specific procedures for preventing and managing conflicts of interest, including with respect to intra-group outsourcing arrangements.FSS 16.5: a CCP should identify, monitor and manage the risks that key participants, other financial market infrastructures and service and utility provides might pose to its operations. A CCP should inform the RBA of any critical dependencies on utilities or service providers.FSS 16.9: a CCP that relies upon, outsources to, or has other dependencies with a related body, another financial market infrastructure or a third party service provider should ensure that those operations meet the resilience, security and operational performance requirements of the Financial Stability Standards and equivalent requirements of any other jurisdiction in which it operates.FSS 16.10: all of a CCP’s outsourcing or critical service provision arrangements should provide rights of access to the RBA to obtain sufficient information regarding the service provider’s operation of any critical functions provided. A CCP should consult with the RBA prior to entering into an outsourcing or service provision arrangement for critical functions.FSS 16.11: a CCP should organise its operations, including any outsourcing or critical service provision arrangements, in such a way so as to ensure continuity of service in a crisis and to facilitate effective crising management actions by the RBA or other relevant authorities. These arrangements should be commensurate with the nature and scale of the CCP’s operations.FSS 21.1(h): a CCP should inform the RBA as soon as reasonably practicable if it or a service it relies on from a third party or outsourced provider experiences a significant operational disruption, including providing the conclusions of its post-incident review.Hide noteCCP responses of 6 February 2015 |
| 104.2 If so, under what circumstances? | N/A. |
| 104.3 If the CCP is permitted to outsource aspects of the default process, is the CCP’s ability to outsource limited to certain obligations? | N/A. |
| 104.4 To whom may the CCP outsource aspects of the default process and what decision-making rights would be outsourced? | Not addressed in the Rules. |
| 104.5 Is any indemnification provided to the CCP if the outsourcing results in a loss? | Not addressed in the Rules. |
| 104.6 Will the CCP remain liable for the performance of its obligations regardless of whether such obligations are outsourced or delegated? | Not addressed in the Rules.The CCP will remain liable for its contractual and regulatory obligations. |
| 105. Outsourcing of CM obligations | |
| 105.1 Is the CM permitted to outsource any of its obligations to an affiliate or a third-party? | Not addressed in the Rules.A CM is not prohibited from outsourcing, so there is no restriction on this. |
| 105.2 If so, under what circumstances? | N/A. |
| 105.3 Is the CM’s ability to outsource limited to certain obligations? | Not addressed in the Rules. |
| 105.4 Is any indemnification provided to the CCP by the CM if the outsourcing results in a loss? | Not addressed in the Rules. |
| 105.5 Will the CM remain liable for the performance of its obligations regardless of whether such obligations are outsourced or delegated? | Not addressed in the Rules.A CM will remain liable for its contractual and regulatory obligations. |
| 106. Forced Allocation | |
| 106.1 Does the CCP have the right to forcibly allocate Client and house Contracts to non-defaulting CMs? | The Rules specifically provide that, in exercising its powers on a CM default, the CCP may not Force Allocate Contracts to other CMs. See item 100.1.This would apply to Contracts designated to both Client Accounts and House Accounts.Hide noteFutures Rule 72.1(k) (proviso (ii)) (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss) |
| 106.2 If so, by what mechanism are pricing, size of allocations and CM recipients determined? | N/A. |
| 106.3 What is the timing for Forced Allocation? | N/A. |
| 106.4 Is Client business treated separately from house business? | N/A. |
| 107. Invoicing Back | |
| 107.1 Does the CCP have the ability to liquidate Contracts on opposite sides of the market through Invoicing Back Contracts with non-defaulting members for purposes of liquidating Contracts or hedging market risks of the defaulting member? | Yes.Rule 72.1(k) specifically provides that, in exercising its powers on a CM default, the CCP may not Invoice Back Contracts to another CM (see item 100.1). However, the Recovery Rules provide that the CCP can in its discretion Invoice Back Contracts to non-defaulting CMs on a CM default. However, it is provided that the Recovery Rules always prevail over any other Rules if there is any inconsistency; and, despite Rule 72.1(k), the CCP has the ability to liquidate Contracts on opposite sides of the market through Invoicing Back Contracts with non-defaulting CMs. A. Partial Tear Up:I. Conditions to Partial Tear UpThe CCP may exercise its rights and powers to effect Partial Tear Up if the CCP determines that:a CM has defaulted;it has an “unmatched book” (as defined below);it reasonably expects that:exercise the power of Partial Tear Up may restore a “matched book”;it is unlikely to be able to otherwise restore a “matched book” in a reasonable time as determined by the CCP;the termination amounts (see item 107.2 under the title of “Netting of the termination values” for the determination of termination amount) which are to be payable by the CCP in accordance with the Partial Tear Up rules will be paid in full; andit has not determined that it will effect a complete Invoicing Back.For the purpose of partial and complete Invoicing Back, “matched book” and “unmatched book” are determined as below:“Unmatched book” means that, after a default of a CM, the CCP is exposed to the risk that its payment and delivery obligations to CMs under Contracts will not be matched by the payments and deliveries made by CMs to it under Contracts as determined by the CCP.“Matched book” means that, following such an “unmatched book” determination, such risk has been appropriately managed, as determined by the CCP, by measures such as (but not limited to) the following:entering into new Contracts or terminating existing Contracts; andtransferring obligations; andentering into other transactions,The CCP will notify CMs of this determination. However, any failure to provide this notice does not affect whether or not the CCP has restored a “matched book”.Any determination or notification in respect of the CCP restoring a “matched book” does not affect the CCP’s ability to subsequently determine that it has an “unmatched book”. II. Selection of Contracts for Partial Tear UpWhen the CCP determines which Contracts (of the non-defaulting CMs) are to be subject to Partial Tear Up, the CCP must use best endeavours to:select the minimum number of Contracts which it believes are necessary in order for it to restore a “matched book; andselect the Contracts to be Invoiced Back so that:the Contracts to be Invoiced Back are shared between the CMs who held those types of Contracts on a pro rata basis (to the extent practicable). The pro rata determination is to be made by reference to the net position in the relevant Contracts held by a CM across its accounts (including its Client Account); andeach CM is given an opportunity to agree with the CCP which of its Contracts are to be Invoiced Back (and if the CCP and the CM so agree, the Contracts which the CM and the CCP so agree are to be terminated) but if:the CM does not submit to the CCP a valid allocation of its Contracts which are to be Invoiced Back within the timeframe set by the CCP; orthe Invoicing Back of Contracts set out in the allocation submitted by the CM would increase the CCP’s uncollateralised exposure to the CM to an extent that is unacceptable to the CCP in its absolute discretion,then the CCP is to select that CM’s Contracts on a pro rata basis across the CM’s accounts (including its Client Account). III. Notification to the CMsThe CCP must notify the CMs holding the Contracts which have been selected for Invoicing Back and the time at which the Invoicing Back is to take effect. The obligations of the CCP and the CM under the Contract terminate at the time notified. B. Complete Invoicing BackI. Conditions to complete Invoicing BackThe CCP may exercise its rights and powers to effect a complete Invoicing Back if:a CM has defaultedthe CCP reasonably expects that:if it has an “unmatched book”, it is unlikely to otherwise be able to restore a “matched book” within a reasonable time (including exercise its right of Partial Tear Up) as determined by the CCP; orthe amount of payments (excluding any payments in respect of initial margin and additional margin) which are, or will become, payable by it under the Rules (including the Recovery Rules) is likely to exceed the Default Resources that the CCP reasonably determines will be available at that time; orthe use of its other rights and powers to allocate CCP Losses or to restore a “matched book” would not be consistent with its obligations, including that the CCP must, to the extent that it is reasonably practicable to do so, comply with the financial stability standards which apply to it and do all other things necessary to reduce systemic risk; andif the CCP has chosen to do so, it has invited CMs to make voluntary payments to the CCP as described in item 109.1. -II. Notification to CMsIf the CCP has determined that all Contracts which all CMs have with the CCP are to be Invoiced Back then it must notify the CMs of the time at which the Invoicing Back is to take effect.The obligations of each of the CCP and the CM under each of the Contracts are Invoiced Back from the time specified in the notice and the registration of the Contracts is to be cancelled.Hide noteOTC Rulebook Rule 2.17 (Recovery Rules)Futures Rule 72.1(k) (provision (ii)) (Powers of ASX Clear (Futures) upon a Default and Determination of a Loss)ASX Recovery Rulebook, Rule 1.4 (Inconsistency)ASX Recovery Rulebook, Rule 2.4 (Unmatched Book and Matched Book)ASX Recovery Rulebook, Schedule 3 (Partial Termination) |
| 107.2 If so, how are the prices for such Contracts determined? | A. Determination of the termination value for each Contracts subject to Invoicing BackThe termination value for Contracts subject to Invoicing Back would be determined by the CCP in good faith, in a commercially reasonable manner, in compliance with all applicable laws and in a manner which is consistent with the CCP’s applicable pricing protocols.However, if the CCP cannot determine the termination value in accordance with its applicable pricing protocols, or believes that a price determined in accordance with the applicable pricing protocols would not produce a commercially reasonable result then the CCP is to calculate the termination value by taking into account:the amount of trading losses or costs incurred and trading gains realised by the CCP in connection with any transactions which it enters into in order to terminate, close-out, offset, hedge, reduce the risk of, transfer or liquidate part of its exposures in connection with the terminated Contracts; andthe CCP’s valuations of the Contracts subject to Invoicing Back and any transactions referred to in the bullet point above taking into account their terms, including any payments or deliveries which would have been required under them after that date, and any option rights in relation to them. For this purpose, the CCP may consider any relevant information, including:relevant quotations (firm or indicative) and relevant market data supplied by one or more third parties (including relevant price and other market data provided by another exchange, market or clearing house); orsuch quotations and market data from internal sources (including pricing or other valuation models) which are, at that time, used by the CCP or CMs in the regular course of their business for the valuation of similar transactions; andwith respect to each Contract subject to Invoicing Back, all amounts which became due and which remain unpaid by the CM to the CCP on or before the date on which the Contracts were subject to Invoicing Back.The termination value so determined may be positive (if it is owing by the CM to the CCP), negative (if it is owing to the CM by the CCP) or zero. The termination value of obligations which cannot be valued by the CCP is to be zero.The determination by the CCP of such termination value is final and binding on the CCP, CMs and each other person affected by the determination.The termination value so determined is a genuine pre-estimate by the CCP of the loss or damages which the CM or the CCP will suffer from such Invoicing Back of a Contract. B. Netting of the termination valuesFollowing the calculation of the termination values with respect to the Contracts of a CM which have been subject to Invoicing Back in accordance with the Rules, the termination values with respect to Contracts held in the same account will be netted, producing a single net amount payable between the CCP and the CM with respect to that account. This amount is referred to as the termination value. C. Calculation of complete Invoicing Back payment and termination amount shortfallIn respect of a complete Invoicing Back, the CCP will calculate:in respect of each CM, the termination amount across all the CM’s accounts; andthe net termination value shortfall. The net termination value shortfall (if any) is an amount equal to the greater of zero and:the absolute value of the aggregate amount of termination amounts payable by the CCP under the Rules related to complete Invoicing Backminusthe sum of:the aggregate amount of amounts paid to the CCP with respect to the termination of Contracts conducted in accordance with rules related to Complete Termination; andthe amount of then available Default Resources (if any). D. Reductions to net termination valuesIf there is a net termination value shortfall:the CCP will allocate the net termination value shortfall to reduce net termination values payable by it;the net termination value shortfall will be allocated to those CMs in respect of which a termination amount has been calculated as due to the CM pursuant to a complete Invoicing Back, pro rata to the termination amounts with respect to each such CM; andthe amount of the termination amount shortfall which is allocated a CM will be allocated to reduce each termination amount to be made to that CM on a pro rata basis.Payment of the reduced amount of a termination amount by the CCP discharges in full its obligations in respect of that termination amount. E. Effects of the payment by the CCP under Invoicing BackPayment by the CCP (including by entry into a CM’s account) of a termination amount as determined above with respect to Contracts that have been Invoiced Back:satisfies in full the CCP’s obligation to make any further payments or deliveries under the terminated Contracts; anddischarges any obligation of the CCP to pay, and any right of a CM to receive, any amounts, including interest, in connection with such Contracts; anddoes not give rise to any obligation for the CCP to make good the amount of any reduction made to such Contracts,except to the extent of any reimbursement (Reimbursement) (see item 109.1).Hide noteASX Recovery Rulebook, Schedule 3 (Partial Termination)ASX Recovery Rulebook, Schedule 4 (Complete Termination)ASX Recovery Rulebook, Rule 8.3 (Effect of payment by the ASX CCP) |
| 107.3 What is the timing for Invoicing Back? | Timing for termination of ContractsAfter the CCP decides to effect an Invoicing Back, the CCP shall notify the CMs of such decision. The obligations of the CCP and the CM under the Contract only terminate (i.e., Invoicing Back only takes effect) upon the notification by the CCP to the CM holding the Contracts which have been selected for Invoicing Back. Timing for payment of termination amountIf the termination amount (see item 107.2 for calculation of termination amount) is positive then that amount is payable by the CM to the CCP on the day on which it is notified to the CM by the CCP. If the termination amount is negative then the absolute value of that amount is payable by the CCP to the CM on the day on which it is notified to the CM by the CCP.The CCP will account for this amount payable by debiting or crediting the termination amount to the CM’s relevant account.Hide noteASX Recovery Rulebook, Rule 3.4 (Conditions to Partial Termination)ASX Recovery Rulebook, Paragraph 4 of Schedule 3 (Payment of Net Termination Value) |
| 107.4 Is Client business treated separately from house business? | No. |
| 108. Fire drills | |
| 108.1 Does the CCP conduct mock default “fire drills” to test the resiliency, response time and efficiency of its default management protocols? | Yes, the CCP is obliged to arrange default simulations to ensure best practicable level of preparation for any CM default. CMs are obliged to support the CCP in carrying out any such default simulation.At the CCP’s request, each CM will in the course of such default simulations act as potential counterparty for a simulated hedging transaction and will support any simulated auction as described in the default management auction procedures, with respect to the auction portfolios that such CM is active in.In practice, the CCP holds a fire drill for both the Service and the Futures Service on an annual basis. Unlike the fire drill for the Futures Service (which is wholly internal and does not involve CMs or other third parties, although regulators are invited to attend), the fire drill for the Service involves default committee members i.e. CM representatives. Based on the RBA 2018/19 Assessment, Appendix C1 the CCP’s in-house default management group regularly tests its default management and recovery framework by way of fire drills. These fire drills assist in ensuring that relevant ASX personnel are familiar with the default management process and identify areas where the default management and recovery framework should be updated. Findings including any recommended enhancements to the default management and recovery framework are reported to the Default Management and Recovery Working Group (DMRWG, described in item 29.2) after each fire drill.Separate fire drills are held for both the Service and the Futures Service on an annual basis. The CCP has introduced a second fire drill for the Service, which is focused on testing auction processes with CMs, to complement the existing annual fire drill that tests the DMRWG’s involvement in hedging as well as auction processes.Hide noteOTC Rulebook Schedule 3 (Default Management Process), Para 6 (OTC Default Simulations)CCP responses of 6 February and 20 April 2015RBA 2018/19 Assessment, Appendix C1, Standard 12.4 |
| 108.2 If so, what is the frequency of these fire drills? | At least annual, but no more than three times a year.1Based on the RBA 2018/19 Assessment Appendix C1, the last fire drills for the Service were conducted in September 2017 (This fire drill assessed the effectiveness of changes to the CCP’s default management processes introduced in June 2017. These amendments included changes to simulate the pricing of hedging trades by obtaining hypothetical quotes from CMs, and to strengthen the governance of hedging decisions made by the default committee by referring these to the default management committee for approval.).2Hide note1 OTC Rulebook Schedule 3 (Default Management Process), Para 6 (OTC Default Simulations)2 RBA 2018/19 Assessment, Appendix C1, Standard 12.4CCP responses of 27 January 2017 |
| 108.3 Are the results of the fire drills shared with CMs? | The high level results of fire drills of both the Service and the Futures Service are shared with CM representatives on the risk committee. The results of fire drills of the Service are also shared with CM representatives on the default committee.The RBA 2018/19 Assessment Appendix C1 separately states that ASX provides detailed responses to any targeted requests for information by CMs. CMs have the ability to provide feedback and seek further information on default processes through this mechanism.Hide noteCCP responses of 6 February and 20 April 2015RBA 2018/19 Assessment Appendix C1, Standard 12.3 |
| 109. CCP loss allocation structure/waterfall | |
| 109.1 Please describe the loss allocation structure that the CCP has in place. For each item in the waterfall, please indicate whether utilised resources are repayable if the CCP subsequently recovers losses. | The margin and other collateral (including the defaulted CM’s contributions to the default fund) posted by the defaulted CM would be drawn on first in the event of that CM’s default. Should this prove insufficient to meet the CCP’s obligations, the CCP may draw on a fixed quantity of the default fund.Accordingly, in the event that prefunded financial resources were exhausted, it is provided in the Recovery Rules that CCP could use any of the following recovery tools: (a) assessment, (b) Payment Reduction and (c) complete Invoicing Back to allocate the uncovered losses.1The order of application of assets in the Default Resources is referred to as the “default waterfall”. The recovery tools of Payment Reduction and complete Invoicing Back are not part of the default waterfall.2 Default waterfallA. Order of application in the default waterfallThe CCP has the following default waterfall structure:(1) first, any moneys, securities, collateral or property held by the CCP in any account of, or in respect of, the defaulting CM (including without limitation any amounts of variation margin or other amounts which would otherwise be payable to the defaulting CM and, subject to segregation requirements under the Rules, restricting access to a Client Account, the Client Account of the defaulting CM);(2) second, default fund contributions (including all OTC Commitment and all Futures Commitment (being default fund contributions in respect of Futures Participants calculated in accordance with the rules applicable to the Futures Service)) of the defaulting CM (see item 112.1);(3) third, the CCP’s designated assets up to the amount specified in the Rules (such amount to be A$120,000,000 or such greater amount as the Board in its discretion may from time to time determine);(4) fourth:(i) if the defaulting CM is a Futures Participant and not an OTC Participantthe proceeds of the default fund contributions in respect of the Futures Service of all Futures Participants (other than the defaulting CM), up to the total aggregate amount committed by all Futures Participants under the default fund contributions in respect of the Futures Service calculated in accordance with the formula set out in the Futures Rules (including the default fund contributions in respect of the Futures Service of the defaulting CM) (“Relevant Futures Commitments”);(ii) if the defaulting CM is an OTC Participant and not a Futures Participantthe proceeds of the default fund contributions in respect of the Service of all OTC Participants (other than the defaulting CM), up to the total aggregate amount of default fund contributions in respect of the Service committed by all OTC Participants calculated in accordance with the Rules (including the default fund contributions in respect of the Service of the defaulting CM) (“Relevant OTC Commitments”);(iii) if the defaulting CM is both a Futures Participant and an OTC Participantan amount equal to the aggregate of:(A) the Futures Commitment Proportion of the Relevant Futures Commitments; and(B) the OTC Commitment Proportion of the proceeds of the Relevant OTC Commitments.For this purpose:“Futures Commitment Proportion” is the proportion calculated by dividing:(a) the daily average initial margin obligation of the defaulting CM that was attributable to Contracts other than Contracts under the Service and “OTC Allocated Futures Contract” (being Futures Contracts allocated to the calculation of OTC initial margin in accordance with the Futures Rules and the Rules)by(b) the daily average initial margin obligation of the defaulting CM that was attributable to all of its Contracts (including Contracts under the Service and OTC Allocated Futures Contracts).“OTC Commitment Proportion” is the proportion calculated by dividing:(a) the daily average initial margin obligation of the defaulting CM that was attributable to Contracts under the Service and OTC Allocated Futures Contractsby(b) the daily average initial margin obligation of the defaulting CM that was attributable to all of its Contracts (including Contracts under the Service and OTC Allocated Futures Contracts).For the purpose of each of the above calculations, the “daily average initial margin obligation” is calculated by dividing the sum of the CM’s initial margin obligation for the relevant Contracts on each Business Day in the 90 days immediately preceding the day on which the event of default first occurred by the number of Business Days in that period.(5) fifth, proceeds of any insurance or other assets available to the CCP and designated for this purpose (such amount to be A$150,000,000 or such greater amount as the Board in its discretion may from time to time determine) provided that in the case of any relevant policy of insurance the relevant excess has been exceeded;(6) sixth, proceeds of(i) the Relevant Futures Commitments; and (ii) the Relevant OTC Commitments,in each case to the extent that they have not already been applied above. If there are both Relevant Futures Commitments and Relevant OTC Commitments available to be applied, then the allocation between them is to be conducted proportionally on the basis of the total amount of each of them which was available to be applied under this paragraph (6);(7) seventh, the proceeds of any additional financial backing of CMs (the CCP may obtain from a CM additional financial backing to support the CCP’s obligations on such terms as is agreed with the CM); and(8) eighth, any other monies or other assets available to the CCP designated for this purpose up to A$180,000,000; and(9) ninth, assessments received from non-defaulting CMs.B. Exceptions to the order of application in the default waterfallThe Board may in its absolute discretion (without being under any express or implied obligation to do so) elect to meet any CM default from assets available pursuant to paragraph (8) and determine that such assets will replace the obligation to apply assets referred to in any or all of paragraphs (4), (5), (6) or (7) above. A CM’s default fund contribution cannot be applied by the CCP to discharge, or to compensate the CCP for discharging, any obligation incurred before the CCP makes its determination to require such default fund contribution.6The CCP may choose to treat the CCP Losses which arise in respect of the defaults of multiple CMs during a Default Period as one combined CCP Loss and apply assets in the default waterfall to that CCP Loss, if the CCP considers it would be appropriate. If the CCP does not choose to do so, the CCP will apply the assets in the default waterfall separately and consecutively in respect of each CM.7The CCP may apply the assets referred to above to satisfy its obligations prior to its final determination of the total obligations of the relevant default.8The Rules provide that pending recovery of an asset in a paragraph in the default waterfall, the CCP may access assets referred to in a subsequent paragraph of the waterfall. However, such access is subject to prompt adjustment when an asset in a preceding paragraph has been recovered provided that no access shall be had to the assets referred to in:paragraphs (4) or (6) of the default waterfall until the assets referred to in paragraph (3) have been exhausted; andparagraph (6) of the default waterfall until the assets referred to in paragraph (5) have been exhausted,and provided further that the CCP will not be required to have access to assets referred to in a paragraph of the default waterfall pending the realisation of available assets referred to in a preceding paragraph.C. Variation to the order of application in the default waterfallThe order of application in the default waterfall will be varied after the end of a Default Period. After the end of a Default Period, the CCP will calculate the amount of default fund that is still available to meet any future CCP Loss not including any CCP Interim Replenishment Amounts and Interim Participant Replenishment Amounts determined in respect of the immediately preceding Default Period which have not been applied to meet the CCP Loss (the “Remaining Waterfall Amount”), thenif the Remaining Waterfall Amount is zero, then the items (3) to (6) in subsection A (Order of application in the default waterfall) above will be varied and items (8) and (9) in subsection A (Order of application in the default waterfall) above will be replaced by the following:firstly, the CCP’s designated assets, up to A$120 million minus the Applied CCP Interim Replenishment Amount (subject to a minimum of zero);secondly, to the default fund contributions of non-defaulting CMs, up to A$100 million minus one half of the Applied Interim Participant Replenishment Amount (subject to a minimum of zero);thirdly, the CCP’s designated assets, up to A$80 million; andfourthly, to the default fund contributions of non-defaulting CMs, up to A$100 million minus one half of the Applied Interim Participant Replenishment Amount (subject to a minimum of zero),provided that where the Replacement Default Fund Size (as defined in item 117.2 below) is less than A$400 million, the new amounts specified above (each prior to the deduction of any Applied CCP Interim Replenishment Amount and Applied Interim Participant Replenishment Amounts) are to be reduced on a pro rata basis (by multiplying each such amount by the fraction equal to the Replacement Default Fund divided by A$400 million.if the Remaining Waterfall Amount is more than zero, then the items (3) to (6) in subsection A (Order of application in the default waterfall) above will be varied and item (8) in subsection A (Order of application in the default waterfall) above will be replaced by the following:firstly, the CCP’s designated assets, up to A$120 million;secondly, to the default fund contributions of non-defaulting CMs, up to A$100 million;thirdly, the CCP’s designated assets, up to the sum of:A$80 million; andthe lesser of: (x) A$70 million and (y) the amount of CCP’s designated assets which forms part of the remaining waterfall minus A$180 million (if any, subject to a minimum of zero);fourthly, to the default fund contributions of non-defaulting CMs, up to A$100 million; andfifthly, to the CCP’s designated assets, up to an amount equal to the lesser of:A$180 million; andthe amount of CCP’s designated assets which forms part of the remaining waterfall minus (if any)D. Total amount of default fund contributionThe CCP has confirmed in its responses of 27 January 2017 that currently:total Futures Commitments equal A$100,000,000; andtotal OTC Commitments equal A$100,000,000.See the Appendix which includes a graphic illustration of default waterfall structure. E. Assets excluded from default waterfallThe Rules provide that the Default Resources do not including any of the following:amounts paid to the CCP with respect to Partial Tear Up of Contracts with non-defaulting CM(s) or complete Invoicing Back of Contracts with all the CMs conducted in accordance with the Recovery Rules; orfunds, assets or property of the CCP which have not been designated by the CCP to be allocated to meet a CCP Loss in accordance with the default waterfall. Recovery tools available to loss absorptions (apart from assessment)In addition to Default Resources, the CCP can also allocate the CCP Loss by way of application of the following tools. The following recovery tools are normally used after utilising the resources in the default waterfall as described above and in the order as below; but it does not have to be the case.Reduce outgoing payments under Payment Reduction (see below). Effect a Partial Tear Up to restore a “matched book” (item 107.1).Invite or accept a voluntary payment from CMs (see below).Effect a complete Invoicing Back (item 107.1).Call for a replenishment (item 117)Payment Reduction13Upon a CM default, the CCP has the power to reduce (haircut) ASX Payments (as defined below) to non-defaulting CMs in order to allocate losses suffered on the defaulting CM’s portfolio (“Payment Reduction”). Collateral of a non-defaulting CM that may be subject to Payment ReductionThe payments payable by the CCP to a non-defaulting CM that could be reduced by the CCP in accordance with its power of Payment Reduction (“ASX Payment”) include all amounts payable by the CCP under the Rules (including, but not limited to, variation margin and amounts payable under the Recovery Rules) other than:amounts of initial margin and additional margin; andamounts payable in connection with default management, including amounts payable with respect to any auction but excluding variation margin forming part of a default management payment; andtermination amounts (see item 107.2 under the title of “Netting of the termination values” for the determination of termination amount) payable by the CCP under Contracts terminated in accordance with Partial Tear Up rules (see item 100.1); andtermination amounts payable by the CCP under Contracts terminated in accordance with complete Invoicing Back rules (see item 100.1 and item 109.1 under the title of “Complete Invoicing Back”)). Conditions to Payment ReductionThe CCP may exercise its rights and powers to effect a Payment Reduction after the occurrence of a CM default if the following conditions are satisfied:the CCP reasonably expects that there is a CCP Loss or that a CCP Loss may arise in the future with respect to the Default Period which has been, or may be, allocated to the default fund at the relevant time; andeither:the CCP reasonably expects that the CCP Loss will not be, or may not be able to be, fully allocated to the Default Resources (i.e., the default fund and assessments); orthe CCP reasonably expects that, in respect of any account (excluding the accounts of defaulting CM), the amount of an equivalent type to ASX Payment which are payable to the CCP (“ASX Receipts”) with respect to that account is not sufficient to pay off the amount of ASX Payments payable by the CCP as and when they become due and payable; andthe CCP has not determined that it will effect a complete Invoicing Back. Determination of reduced amount for a non-defaulting CMThe amount of the reduced outgoing payments to a non-defaulting CM is calculated as below. Calculation of Net ASX Receipts, Net ASX Payments, Net Participant ASX Receipts and Net Participant ASX PaymentsThe CCP will calculate, in respect of each account (excluding any account of any defaulting CM) on any day during the Default Period, the net amount of:ASX Receipts payable to the CCP in respect of the account on that day (such amounts having a positive value); andASX Payments payable by the CCP in respect of the account on that day (excluding the effect of any reduction for that day) (such amounts having a negative value).If the net amount calculated in respect of an account is:positive, the net amount is payable to the CCP and is referred to as a “Net ASX Receipt”; ornegative, the net amount is payable by the CCP and is referred to as a “Net ASX Payment”.The CCP will then calculate, in respect of each CM (excluding any defaulting CM), the net amount of Net ASX Receipts and Net ASX Payments across all the CM’s accounts with the CCP.If the net amount calculated in respect of a CM is positive, that amount is referred to as a “Net Participant ASX Receipt”. If the net amount calculated in respect of a CM is negative, that amount is referred to as a “Net Participant ASX Payment”. Calculation of ASX Payment ShortfallThe ASX Payment Shortfall for a day (if any) is an amount equal to the greater of zero and:the absolute value of the aggregate amount of Net ASX Payments on that dayminusthe sum of:the aggregate amount of Net ASX Receipts which are received by the CCP on that day; andthe amount of then available Default Resources, if any, which the CCP determines will be used to make Net ASX Payments on that day. This amount is determined by the CCP in its absolute discretion and may be zero, whether or not any Default Resources are available at that time. Allocation of ASX Payment Shortfall to reduce Net ASX PaymentsOn any day, the CCP may choose to allocate the ASX Payment Shortfall for that day to reduce Net ASX Payments payable by it on that day.The ASX Payment Shortfall will be allocated to those CMs (other than defaulting CMs) in respect of which a Net Participant ASX Payment has been calculated, pro rata to the Net Participant ASX Payments with respect to each such CM.The amount of the ASX Payment Shortfall which is allocated to a CM will be allocated to reduce each Net ASX Payment to be made to that CM on a pro rata basis. Payment of the reduced amount of a Net ASX Payment by the CCP discharges in full its obligations in respect of that Net ASX Payment.For the purpose of making these calculations, the CCP may make any currency conversions which it considers necessary, provided that they are made in a commercially reasonable manner.The Rules do not govern the manner in which a CM may choose to deal with its Clients in relation any reductions which are attributable to, or made in respect of, Net ASX Payments otherwise to be made to the CM’s Client Account. TimingThe CCP will calculate reductions to be made and effect those reductions, at the time payments to be made by the CCP are due to settle under the Rules (or at such other times as the CCP considers appropriate, including at different times in respect of different settlement cycles), on each day on which the CCP chooses to exercise its rights and powers of Payment Reduction.If the CCP has not received all of the ASX Receipts which were payable to it on a day by the time that it is to make its anticipated Net ASX Payments (as reduced in accordance with the above) then the CCP will recalculate the ASX Payment Shortfall, its allocation and the reduced Net ASX Payments based on the ASX Receipts which it has received at that time. However, the CCP may also calculate, or effect, those reductions or make any Net ASX Payment at any other time during the day, if it considers it necessary to do so.If it considers it necessary to do so, the CCP can calculate and make reductions by reference to the ASX Payments and the ASX Receipts for a particular settlement cycle which runs during a day rather than by reference to the ASX Payments and the ASX Receipts for the entire day. Cumulative calculationThe period which:commences from (and includes) the first day in the Default Period on which the CCP reduced a Net ASX Payment; andconcludes on (and includes) the day that the CCP has determined that it will not make any further reductions to Net ASX Payments in respect of the Default Period,is referred to as the “Reduction Period”.Any determination by the CCP of the conclusion of a Reduction Period does not affect the CCP’s ability to subsequently determine further Reduction Periods in respect of the same Default Period.Within one Business Day of the last day of the Reduction Period, the CCP will calculate, in respect of each CM (other than any defaulting CM):the net amount which would have been paid (expressed as a positive amount) or received (expressed as a negative amount) by the CM during the Reduction Period if the Rules described above under the title of “Net ASX Receipts, Net ASX Payments, Net Participant ASX Receipts and Net Participant ASX Payments”, “ASX Payment Shortfall” and “Allocation of ASX Payment Shortfall to reduce Net ASX Payments” had been applied to all the CM’s ASX Payments and ASX Receipts during the Reduction Period as if the Reduction Period were a single day (such amount is the “Expected Amount”);the net sum of:amounts paid by the CM to the CCP (such amounts having a positive value); andamounts paid by the CCP to the CM (such amounts having a negative value),during the Reduction Period (such net sum is the “Actual Amount”); andthe Expected Amount less the Actual Amount. This is referred to as the “Adjustment Amount”.In respect of each CM, the Adjustment Amount so determined may be positive (if the Expected Amount exceeds the Actual Amount), negative (if the Actual Amount exceeds the Expected Amount) or zero.The CCP will notify each CM of its Expected Amount, Actual Amount and Adjustment Amount.If the Adjustment Amount is positive then that amount is payable by the CM to the CCP. If the Adjustment Amount is negative then the absolute value of that amount is payable by the CCP to the CM. Such amounts must be paid by the time specified in the notice to the CM, which will be no earlier than the next following Business Day.If a CM fails to pay any amounts due to the CCP by the time specified in the notice from the CCP then that CM is in default and the payments of Adjustment Amounts will be suspended (and any such payments made are to be reversed) and the exercise of the rights and powers relating to Payment Reduction will continue until the CCP determines once more that it will not make any further reductions to Net ASX Payments in respect of the Default Period. No adjustment to amounts payable to the CCPNothing described above affects any Net ASX Receipt or any other amount which is payable to the CCP by a non-defaulting CM on any day. All such amounts payable to the CCP must be paid in full in accordance with the Rules. NotificationOn any day the CCP will use its best endeavours to notify CMs of any Payment Reduction it anticipates that it will make. The CCP will notify CMs of any reduction made to Net ASX Payments under the Rules and any adjustment to the notification, if any, it previously gave CMs in respect of such reductions. However, any failure to provide a notice described herein does not affect the reduction or its operation. No cap on the amount of Payment ReductionThere is no cap on the use of the amount of the payment that can be reduced by the CCP, although the CCP would consult with the risk committee in determining whether to continue Payment Reduction if losses allocated via this tool exceed A$650 million. Effect of payment by the CCPPayment by the CCP (including by entry into a CM’s account) of a Net ASX Payment as reduced in accordance with Recovery Rules in connection with Payment Reduction:satisfies in full the CCP’s obligation to pay the relevant Net ASX Payment(s); anddischarges any obligation of the CCP to pay, and any right of a CM to receive, any amounts, including interest, in connection with the Net ASX Payment; anddoes not give rise to any obligation for the CCP to make good the amount of any reduction made to any Net ASX Payment,except as expressly provided by Rule 5 (Reimbursement) (see item 109.1) and the CCP’s obligation, if any, to pay an Adjustment Amount (see the sub-section above under the title of “Cumulative calculation”). Voluntary paymentA. Voluntary payment noticeAt any time after a CM default has occurred, the CCP may, by notice, invite each CM to make a payment of funds (referred to as a voluntary payment) to the CCP.The CCP may not invite a CM to make a voluntary payment if that CM is defaulting CM at the time of such notice.A CM is not obliged to make a voluntary payment. The CCP may choose, in its absolute discretion, whether or not to accept any voluntary payment. B. Treatment of voluntary paymentA voluntary payment, once received by the CCP:may not be withdrawn or revoked for any reason whatsoever; andis the absolute and beneficial property of the CCP and is to be applied or otherwise used by the CCP for the purpose agreed with the CM who made the voluntary payment. C. Effect of voluntary paymentThe payment of a voluntary payment does not give rise to:any obligation for the CCP to make good; orright, title or interest of the CM (including under equity) to,any part or all of the voluntary payment or other amount, including interest, in connection with the voluntary payment, except:as described in the sub-section under the title of “Repayment of utilised resources if CCP subsequently recovers losses” below; andto the extent the CCP specifically states otherwise in writing in which case any such obligations or right, title and interest will be strictly limited to the amounts, obligations or rights set out in the CCP’s written statement. Repayment of utilised resources if CCP subsequently recovers lossesAt the end of a Default Period, the CCP must account to the Contributors for any Excess Amounts (as defined below) with respect to that Default Period up to the Reimbursable Amount (as defined below) for each Contributor.An “Excess Amount” is:any amount which the CCP subsequently recovers from a defaulted CM; andany amount of assessments paid to the CCP during a Default Period which were not required to enable the CCP to meet a CCP Loss in respect of that Default Period,less any costs and expenses incurred by the CCP in connection with the recovery and any amounts payable by the Contributors to the CCP.A “Reimbursable Amount” is the aggregate amount of a CM’s assessments, the amount by any termination amount payable to it has been reduced, the amount of its default fund contribution and its voluntary payments referred to above for that Default Period, less any amounts remaining payable by the CM to the CCP.Excess Amounts are to be applied in the following order:first, to reimburse the amount of any voluntary payments. These payments are to be made pro rata to the Contributors who made such payments, up to the amount of such payments;second, to reimburse the amount of any reductions made to any termination amount payable by the CCP. These payments are to be made pro rata to CMs who have suffered such a reduction, up to the amount of such reductions;third, to reimburse the amount of assessments paid. These payments are to be made pro rata to the Contributors who paid the assessments, up to the amount of the assessments which have been paid; andfourth, in reverse order to the order for the application of assets set out in the default waterfall (see above) (including but not limited to any assets of the CCP). These payments are to be made pro rata to the Contributors whose assets were so applied, up to the amount of such applications. No Contributor will be entitled to be reimbursed for the assets which were so applied unless all Contributors have been reimbursed for assets which were so applied that were ranked lower in the default waterfall. However, the CCP is not required to account to any Contributor which is not the CCP for any amount:which is liable to be set aside under any law relating to insolvency or bankruptcy; orwhich is necessary to meet an assessment required from the Contributor or to discharge any other overdue debt obligation of the Contributor to the CCP at that time. Despite the above, at any time during a Default Period, the CCP may decide to reimburse the amount of any reductions made to any Net ASX Payments payable by the CCP (see above) out of the Default Resources which are available to it at that time. These payments are to be made pro rata to the Contributors who suffered such a reduction, up to the amount of such reductions. Application of Interim Replenishment Amounts16Any CCP Loss which arises as a result of the default of a CM on or after a DMP Completion Date but prior to the last day of the Default Period to which such DMP Completion Date relates is to be allocated in the following order: first, to any Interim Participant Replenishment Amounts of any defaulting CMs and any other moneys, securities, collateral or property held by the CCP in respect of any defaulting CMs;second, to any remaining amount of default fund, excluding all Interim Participant Replenishment Amounts and CCP Interim Replenishment Amounts available to the CCP;third, to the total CCP Interim Replenishment Amounts committed by the CCP during that Default Period; andfourth, to the Interim Participant Replenishment Amounts of CMs, other than any defaulting CMs, paid during that Default Period. On the last day of that Default Period, any remaining amounts referred to in second, third or fourth bullet points above are to be included in the replacement default fund. Please click [here] [Note to Integreon: Insert link to diagram 1] for a graphic depiction of the waterfall structure in respect of the Service as well as the interaction, if any, across other services.Hide noteRBA 2021/2022 Assessment, Appendix B 3 (Prefunded financial resources)CCP responses of 27 January 20172 ASX Recovery Rulebook, Rule 2.6 (Default Resources, Default Fund and Committed ASX Assets)3 Futures Rule 7 (Satisfaction of obligations of ASX Clear (Futures))4 Futures Procedure 7.1(c) (Satisfaction of obligations of ASX Clear (Futures))5 Futures Rule 7.9 (Satisfaction of Obligations of ASX Clear (Futures))6 Futures Rule 7.17 Futures Rule 7.1A8 Futures Rule 7.1B9 Futures Rule 7.2 (Satisfaction of obligations of ASX Clear (Futures))10 ASX Recovery Rulebook, Paragraph 15 of Schedule 5 (Future application of Default Waterfall)11 ASX Recovery Rulebook, Rule 2.6 (Default Resources, Default Fund and Committed ASX Assets)12 ASX Recovery Rulebook, Rule 3 (Recovery Powers)13 ASX Recovery Rulebook, Rule 2.3 (ASX CCP Loss and Defaulted Participant Assets)ASX Recovery Rulebook, Rule 2.6 (Default Resources, Default Fund and Committed ASX Assets)ASX Recovery Rulebook, Schedule 2 (ASX Payment Reduction)ASX Recovery Handbook, Schedule 2 (ASX Payment Reduction)RBA 2018/2019 Assessment Appendix C1, Standards 7.9ASX Recovery Rulebook, Rule 2.6 (Default Resources, Default Fund and Committed ASX Assets)ASX Recovery Rulebook, Rule 8.3 (Effect of payment by the ASX CCP)14 ASX Recovery Rulebook, Rule 11 (Voluntary Payments)15 ASX Recovery Rulebook, Rule 5 (Reimbursement)16 ASX Recovery Rulebook, Paragraph 7 of Schedule 5 (Application of Interim Replenishment Amounts) |
| 110. Application of default fund and/or margin across services | |
| 110.1 Can a defaulting CM have its default fund contribution or initial margin provided for one service used to pay for losses in respect of another service? | Yes.Default fund contributionsAll proceeds of the defaulting CM’s default fund contributions (whether in respect of the Service or the Futures Service) are available for application in the default waterfall to satisfy its obligations to the CCP.Initial marginAll collateral held by the CCP (which will include initial margin, whether provided in respect of the Service or the Futures Service) in any account of, or in respect of, the defaulting CM are available for application in the default waterfall to satisfy its obligations to the CCP.Hide noteFutures Rules 7.1(a) and (b), (Satisfaction of obligations of ASX Clear (Futures)) |
| 110.2 If so, are defaulting CM funds reserved until losses across all of the relevant services are crystallised? | Not addressed in the Rules. |
| 111. Use of non-defaulting CM initial margin to cover obligations of defaulting CMs | |
| 111.1 Can the CCP use the initial margin of a non-defaulting CM to satisfy the obligations of any other CM upon its default? | No.The Recovery Rules entitle the CCP to, after the occurrence of a default, allocate the CCP Loss by reducing certain amounts payable by the CCP to the non-defaulting CMs under the conditions and in the manners as prescribed in the Recovery Rules (see item 109). However, the initial margin of the non-defaulting CMs is expressly excluded from such payment obligations that the CCP can reduce.Hide noteASX Recovery Rulebook, Paragraph 1 of Schedule 2 (ASX Payments and ASX Receipts) |
| 111.2 If so, please describe how such losses are allocated. | N/A. |
| 111.3 If so, is there a cap on a CM’s liability in respect of its initial margin? | N/A. |
| 111.4 If so, please describe the cap. | N/A. |
| 112. Default fund calculation methodology | |
| 112.1 How does the CCP calculate the funded default fund requirement of a CM (including whether there is any floor and/or cap on the CM’s contribution to the CCP’s default fund), and how frequently does the CCP reset the size of the default fund? | Default fund contributionsCM default fund contributions1Each CM’s default fund contribution in respect of the Service comprises:a Fixed Commitment; anda Variable Commitment.Both the Fixed Commitment and the Variable Commitment are described in further detail below. Aggregate commitment of CMs default fund2Overall, the aggregate amount to be committed by all CMs in the form of default fund contributions in respect of the Service is currently A$100,000,000 (referred to as the “Aggregate OTC Commitment”). Fixed Commitment3The “Fixed Commitment” for each CM is A$5,000,000. Variable CommitmentEach CM may be required to pay an additional default fund contribution (referred to as the Variable Commitment). A Variable Commitment is an amount which, if provided by each CM (in addition to its Fixed Commitment), would be sufficient to bring the total aggregate default fund contribution (the “Aggregate Fixed Commitment”) up to the Aggregate OTC Commitment.For any period during which the Aggregate Fixed Commitment is equal to or in excess of the Aggregate OTC Commitment, no Variable Commitment will be called.If, on the other hand, the Aggregate Fixed Commitment is less than the Aggregate OTC Commitment, the Variable Commitment for each CM under the Service will be calculated by the CCP using the formula set out below.Variable Commitment will be calculated so as to take effect from the 1st day of each new quarter. (Quarters start on 1 March, 1 June, 1 September and 1 December and end on 30 May, 31 August, 30 November and 28/29 February respectively.) To ensure that such a calculation can be performed in time to take effect from the 1st day of each new quarter, the calculation period of each CM’s Variable Commitment Proportion (see below) will be from the 11th day of the final month of the 2nd previous quarter up to (and including) the 10th day of the final month in the previous quarter. (1) Aggregate Variable Commitment for all CMs who OTC Participants areThe aggregate Variable Commitment for all CMs under the Service (the “Aggregate Variable Commitment”) will be determined for the 1st day of each quarter as:Aggregate Variable Commitment = Aggregate OTC Commitment – Aggregate Fixed Commitment (2) A CM’s Variable Commitment ProportionThe Variable Commitment Proportion for a CM under the Service in respect of a calculation period (the “Variable Commitment Proportion”) will be calculated by taking the percentage that the daily average of such CM’s initial margin under the Service (where the average is calculated by taking the sum of such CM’s initial margin under the Service (with respect to both the House Account and the Client Account) on every Business Day in the calculation period and dividing it by the number of Business Days in the calculation period) represents of the aggregate of these daily average CM initial margins for all CMs under the Service.Variable Commitment Proportion = daily average of such CM’s initial margin in respect of the Service/ sum of the daily average of each CM’s initial margin in respect of the Service for all CMs under the Service (3) A CM’s Variable CommitmentThe Variable Commitment requirement i.e. the actual contribution required from each CM under the Service (the “CM Variable Commitment”) is calculated as follows:CM Variable Commitment = Aggregate Variable Commitment x Variable Commitment ProportionThe CM Variable Commitment will be rounded to the nearest multiple of A$10,000 or as otherwise ensures that the CCP has exactly the Aggregate Variable Commitment required. (4) Timing of CCP’s notification of each CM Variable CommitmentEach CM under the Service will be advised by the CCP of its CM Variable Commitment by close of business of the 17th day of the final month of the previous quarter.If the 17th day of the final month is not a Business Day, then the next succeeding Business Day will apply.These Variable Commitments will apply as of midnight on the last day of the previous quarter. Any adjustments to Variable Commitment for a new quarter must be completed by 10:30 am (Sydney time) on the second last Business Day of the previous quarter. New CM’s Variable Commitment4The calculation of the Variable Commitment Proportion for a CM not previously included in the quarterly recalculation (a “New CM”) will be estimated by the CCP.Any estimates by the CCP will be final and not be open to dispute.The following factors may be incorporated into any such estimate of the New CM’s Variable Commitment contribution, but the CCP is not required to do so nor limited to these factors:If the New CM or any related companies or any business operations it has acquired, have not held any initial margins with the CCP or with a CM under the Service, prior to the commencement of the Variable Commitment calculation, then its Variable Commitment will be estimated by the CCP on the basis of forecast levels of market activity during the new quarter (i.e. the quarter for which the Variable Commitment is being calculated).If the New CM, any related companies or any business operations it has acquired, have held any initial margins with the CCP in a clearing account, or in the accounts of a futures broker(s), prior to the commencement of the Variable Commitment calculation, then these initial margins will be incorporated into the calculation of its Variable Commitment.In addition, the CCP may, at its absolute discretion, incorporate additional initial margins based on forecast levels of market activity into the calculation of its Variable Commitment.Where the New CM has not held initial margins for the full duration of the previous quarter, an average Variable Commitment Proportion will be calculated for the period the CM held initial margins with the CCP.To calculate the final Variable Commitment Proportion for each CM under the Service, the aggregate of all the daily average initial margin in respect of the Service for all CMs will have to be recalculated including the average Variable Commitment Proportion for the New CM.If the New CM’s Variable Commitment commences with the 1st day of a new quarter, then the New CM will be incorporated into the recalculation of all CMs under the Service. This will involve recalculating the Variable Commitment Proportion for all CMs after incorporating the initial margin estimate for the New CM and readjusting each CM’s Variable Commitment on the 1st day of each New CM’s Variable Commitment. Floor and/or Cap of default fund requirement 5The Fixed Commitment effectively works as a floor in respect of a CM’s default fund contributions. If default fund contributions are utilised as a result of one or more CM defaults, the CCP may request the non-defaulting CMs to make such further commitments by way of replenishment in such amount and at such times as the CCP considers necessary.A CM’s exposure to a CCP Loss is capped by the amount of its funded (paid-up) default fund contributions including its Variable Commitment and (if any) replenishment amount. The Participant Replenishment Amount to be paid by a non-defaulting CM after each Default Period shall not exceed twice the default fund contribution paid by the CM at the commencement of the immediately preceding Default Period, minus the aggregate Interim Participant Replenishment Amounts paid by that CM in respect of the immediately preceding Default Period which have been applied to meet a CCP Loss (subject to a minimum of zero). The Interim Participant Replenishment Amount to be paid by a non-defaulting CM during each Default Period shall not exceed the default fund contribution paid by the CM at the commencement of the immediately preceding Default Period. See item 117.1 for details of replenishment. Frequency of the default fund size resetVariable Commitment – quarterly recalculationVariable Commitment will be calculated so as to take effect from the 1st day of each new quarter. Quarters start on 1 March, 1 June, 1 September and 1 December and end on 30 May, 31 August, 30 November and 28/29 February respectively. Default fund size reset 6The Board will review the size, structure and composition of the CCP’s financial resources (which will include proceeds of the default fund contributions), taking into account any recommendations made by the risk committee, changes (including anticipated changes) in the CCP’s regulatory obligations and any other matters considered relevant by the Board. Calculation of remaining default fund – at the end of a Default Period7: At or after the end of a Default Period (but before another Default Period commences), the CCP calculates:the aggregate amount of CCP assets committed to the default fund which would have been applied to meet the CCP Loss during the immediately prior Default Period, without including any of theaggregate CCP Interim Replenishment Amounts applied during that Default Period (the “Applied CCP Interim Replenishment Amount”) (see item 109.1, “Application of Interim Replenishment Amounts”);the aggregate amount of default fund contribution which would have been applied to meet the CCP Loss during the immediately prior Default Period, without including any of the aggregate Interim Participant Replenishment Amounts applied during that Default Period (the “Applied Interim Participant Replenishment Amount”) (see item 109.1, “Application of Interim Replenishment Amounts”).; andthe amount of the default fund (if any) still available in accordance with the default waterfall structure (see item 109.1) to meet a CCP Loss in respect of future Default Periods, not including any CCP Interim Replenishment Amounts and Interim Participant Replenishment Amounts determined in respect of the immediately preceding Default Period which have not been applied to meet a CCP Loss (see item 109.1, “Application of Interim Replenishment Amounts”).If such remaining amount is zero, the CCP is to determine the size of the default fund available to meet a CCP Loss – the Replacement Default Fund Size (see item 117.2). Based on the CCP’s response, there are currently 8 CMs and the default fund contributions are still in the transitional phase. The effect of this is that each CM is paying A$12,500,000 in default fund contributions.The aggregate A$100,000,000 of default fund contributions was calculated with respect to the risk that CMs were expected to bring to the CCP. If there was a significant increase in the number of CMs and volume, the CCP would reassess the aggregate default fund contributions that should apply. It is therefore highly unlikely that if there were 20 CMs, the aggregate default fund contributions would continue to be A$100,000,000.A$100,000,000 was approved as the starting point for default fund contributions for the Service based on the expected number of CMs and volume of trades.Hide note1 OTC Rulebook Schedule 2 (OTC Commitment); CCP response of 6 February and 20 April 20152 OTC Rulebook Rule 3.2 (OTC Commitment); CCP responses of 27 January 20173 OTC Handbook Para 3.2 (OTC Commitment)4 OTC Rulebook Para 5 (New OTC Participant), Schedule 2 (OTC Commitment)4 Futures Rules Schedule 10 (Calculation of Futures Commitments of a Futures Participant), Paras 10.1, 10.2, 10.3 and 10A5 ASX Recovery Rulebook, Paragraph 12 of Schedule 5 (Participant Replenishment Amount and Maximum Replenishment Amount) and Paragraph 4 of Schedule 5 (Allocation of interim commitments to Participants)6 Futures Rule 7.10 (Satisfaction of obligations of ASX Clear (Futures))CCP response of 20 April 20157 ASX Recovery Rulebook, Paragraph 8 of Schedule 5 (Utilised Participant Commitment and Utilised ASX CCP Commitment) and Paragraph 9 of Schedule 5 (Remaining Waterfall Amount, ASX CCP Regulatory Requirement and Replacement Default Fund Size) |
| 112.2 Please describe the methodology used by the CCP (e.g., Cover 1 or Cover 2) to calculate the size of the default fund and any stress/back testing methodology specified in the Rules. | As described in item 112.1, the size of the default fund (referred to as the Aggregate OTC Commitment) is currently set at A$100,000,000. The Rules do not describe any other stress/back testing methodologies relating solely to the default fund, nor whether the CCP ‘s default fund is Cover 1 or Cover 2. However, based on the RBA 2018/2019 Assessment Appendix C1:the CCP conducts daily stress tests to determine whether the level of its “prefunded financial resources” would be sufficient to cover the default of the two CMs (and their affiliates) that would potentially cause the largest aggregate credit exposure to the CCP under a wide range of scenarios, i.e. Cover 2; andthe CCP’s default fund for the Service is one component of such “prefunded financial resources” (the others being its own equity, and the default fund of the Futures Service, plus initial margin and other collateral calls based on CMs’ positions).Notwithstanding the above, if daily stress tests exceed a predetermined stress-test exposure limit, then the CCP may call additional initial margin from CMs (but would not increase default fund contributions).For further details on the daily stress tests used to establish the adequacy of the CCP’s prefunded financial resources, see item 44.2 under the heading “Initial margin – Additional initial margin”.The CCP has separately confirmed that the methodology used by the CCP is Cover 2.Hide noteRBA 2018/19 Assessment Appendix C1, Standards 4.1, 4.2 and 4.4 – 4.7CCP responses of 6 February and 20 April 2015 |
| 113. Unilateral changes to default fund methodology | |
| 113.1 Can the CCP unilaterally change the methodology used to calculate the size of the default fund and/or any associated floor and cap? | Yes, the Rulebook contains powers that are arguably general enough to achieve this. If the CCP were to amend the calculation methodology by way of a change to the Rulebook (as distinct from the Procedures), then see item 79.1 for the approval process.The Recovery Rules contain a specific power to unilaterally change, but only for the purpose of complying with applicable regulatory requirements and the CCP is only entitled to unilaterally increase (but not reduce) the amount of default fund. Determination of the increased amount for regulatory complianceThe amount to be increased should be determined by the CCP in consultation with the risk committee and the size of the default fund after such increase shall not be greater than A$650 million. Procedures for calling additional default fun contributions Notification obligation and quarterly calculation by the CCPThe CCP shall notify CMs of the default fund increase at least 45 calendar days before the date on which payment is due (the “Quarterly Contribution Date”) of any adjusted contribution in respect of the quarterly calculation of default fund contributions. Any failure to provide this notice does not affect the validity of the results or the actions taken by the CCP. Proportion to be allocated to the CMsThe quarterly calculations of default fund contribution will take into account the inclusion of 50% of the increased amount in the default fund.The amount of the increase in a CM’s default fund contribution which results from this inclusion (“Additional Participant Contribution”) is to be calculated by the CCP and paid by the CM on the Quarterly Contribution Date (or such other date determined by the CCP in its discretion) in the same manner as any other commitment which would otherwise be due on that date.The increase in the default fund will take effect on the Quarterly Contribution Date (or such other date determined by the CCP in its discretion) to the extent the Additional Participant Contributions have been received by the CCP. Further actions to be taken by the CCPFollowing the payment of the Additional Participant Contribution to it, the CCP is to:commit an additional amount which is equal to the aggregate Additional Participant Contributions of all CMs which were received by it (this amount is the “Additional CCP Contribution”); andvary the default waterfall so that the aggregate Additional Participant Contribution of all CMs and the Additional CCP Contribution are available to meet any CCP Loss which may arise in respect to future Default Periods on a pari passu basis with each other and only after all other CM default fund contributions (item 109.1) and amounts committed by the CCP to the default waterfall (item 109.1) have been applied in accordance with the default waterfall (except in the case of the Additional Participant Contribution of a defaulting CM, which is to be applied at the same time as any other default fund contribution of that defaulting CM).Hide noteFutures Rule 14.1 (Amendment to Rules)ASX Recovery Rulebook, Paragraph 16 of Schedule 5 (Scaling to meet regulatory requirements) |
| 113.2 If so, what is the notice period, if any? | The minimum notice period with respect to an increase in the size of the default fund for regulatory compliance is 45 calendar days before payments for the additional amount due to such change is due. Please see item 113.1 for more details. |
| 114. Default fund eligible assets | |
| 114.1 What assets may be posted as default fund contributions and how, when and with what notice period can the CCP change the list of eligible assets and any applicable concentration limits? | The Rules provide that only cash in immediately available funds is acceptable as default fund contributions (including any assessment amount and replenishment amount).Hide noteOTC Rulebook Rule 3.2 (OTC Commitment)OTC Handbook Para 3.2 (OTC Commitment)ASX Recovery Rulebook, Paragraph 5 of Schedule 1 (Nature of Recovery Assessment)ASX Recovery Rulebook, Paragraph 13 of Schedule 5 (Call for Participant Replenishment Amount) |
| 114.2 How are default fund contributions provided (e.g. title transfer, segregated fund or by way of security)? | Based on the CCP responses and the Recovery Rules, default fund contributions (including the prefunded contribution, assessment and replenishment amounts) are paid in cash by way of title transfer.Hide noteOTC Handbook Para 3.2 (OTC Commitment); OTC Rulebook Rule 3.2 (OTC Commitment))CCP responses of 6 February 2015ASX Recovery Rulebook, Paragraph 5 of Schedule 1 (Nature of Recovery Assessment) |
| 114.3 When does the CM contribute its default fund contribution? | Each CM is obliged to provide default fund contributions by such time as is prescribed by the CCP to ensure that its obligations to the CCP are met at all times. Variable Commitment1Each CM will be advised by the CCP of its Variable Commitment by close of business of the 17th day of the final month of the previous quarter. If the 17th day of the final month is not a Business Day, then the next succeeding Business Day will apply.This Variable Commitment will apply as of midnight on the last day of the previous quarter.Each CM must complete any adjustments to its Variable Commitment for a new quarter before 10:30am (Sydney time) on the second last Business Day of the previous quarter.(Quarters start on 1 March, 1 June, 1 September and 1 December and end on 30 May, 31 August, 30 November and 28/29 February respectively.) Effects on the default fund contributions of the commencement of a Default Period2During a Default Period:any calculation or re-calculation of a CM’s default fund contribution and the CCP’s right to call additional default fund contribution; andthe CMs’ right to withdraw or otherwise request the return, or re-calculation, of default fund contribution,are suspended.Hide note1 Futures Rule 5.7 (Commitment to support obligations of ASX Clear (Futures)); OTC Rulebook Schedule 2 (OTC Commitment) Para 3.2 (Timing of Variable OTC Commitment Calculations)2 ASX Recovery Rulebook, Rule 2.8 (Effect on Participant Commitment) |
| 115. Segregation of default fund contributions | |
| 115.1 Are the default fund contributions of CMs held on a segregated basis by the CCP? | The default fund contributions are received by the CCP and treated as its assets. The CCP will keep separate records to identify the amounts provided by each CM.Hide noteCCP responses of 6 February 2015 |
| 116. Segregation of financial resources across services | |
| 116.1 If the CCP clears different Products through more than one service within the same legal entity, are the financial resources available in respect of one service segregated from those of any other service (e.g., securities, futures, CDS, etc.)? | No, the financial resources available in respect of the Service and the Futures Service are not segregated but are commingled across the 2 services. The order of application of the default fund contributions in respect of the Service and the Futures Service is governed by the Rules and depends on the type of Contracts entered into by the defaulting CM, as explained below.See also items 109 and 110.1. Defaulting CM’s assets1Assets held by the CCP in the defaulting CM’s accountsAll moneys, securities, collateral or property held by the CCP (whether provided in respect of the Service or the Futures Service) in any account of, or in respect of, the defaulting CM are available for application in the default waterfall to satisfy the defaulting CM’s obligations to the CCP. Default fund contributionsAll proceeds of the defaulting CM’s default fund contributions (whether in respect of the Service or the Futures Service) are available for application in the default waterfall to satisfy the defaulting CM’s obligations to the CCP. Non-defaulting CM’s assets2The type of contracts entered into by the defaulting CM and its related initial margin obligations determine the extent of the application of the non-defaulting CMs’ default fund contributions in respect of this Service and/or the Futures Service.if the defaulting CM is an OTC Participant only and not a Futures Participant, then initially only the non-defaulting CMs’ default fund contributions in respect of the Service is to be applied (see item 109(4)); the non-defaulting CM’s default fund contributions in respect of the Futures Service are however still at risk albeit later in the default waterfall at item 109(6), after the CCP’s contribution of A$150,000,000 at item 109(5);if the defaulting CM is a Futures Participant only and not an OTC Participant, then initially only the non-defaulting CMs’ default fund contributions in respect of the Futures Service are to be applied (see item 109(4)); the non-defaulting CMs’ default fund contributions in respect of the Service are however still at risk albeit later in the default waterfall at item 109(6), after the CCP’s contribution of A$150,000,000 at item 109(5); andif the defaulting CM is both a Futures Participant and an OTC Participant, then the non-defaulting CMs’ default fund contributions in respect of both services would be applied; the exact proportion of such application as between the two services will in part be determined based on the defaulting CM’s initial margin obligations in respect of each of the two services.See items 109(4) and (6) for more details. CCP’s designated assets3The CCP’s designated assets are available for loss allocation. These appear to be a combined pool of assets commingled for both the Service and the Futures Service. See item 109(3).Hide noteCCP’s responses of 6 February 20151 Futures Rules 7.1(a) and (b) (Satisfaction of obligations of ASX Clear (Futures))2 Futures Rules 7.1(d) and (f) (Satisfaction of obligations of ASX Clear (Futures))3 Rule 7.1 (Satisfaction of Obligations of ASX Clear (Futures)), Procedures |
| 117. Replenishments | |
| 117.1 Is there a cap on the amount of replenishment the CCP may require from non-defaulting CMs in respect of a single default? | Yes.Hide noteASX Recovery Rulebook, Paragraph 12 of Schedule 5 (Participant Replenishment Amount and Maximum Replenishment Amount), Paragraph 11 of Schedule 5 (Total Participant Replenishment Amount) and Paragraph 4 of Schedule 5 (Allocation of interim commitments to Participants) |
| 117.2 If so, please describe the cap. | Replenishment is capped for each Default Period (there may be one or more than one default in a Default Period) rather than for each default.The cap on Interim Participant Replenishment Amount payments in respect of a single Default Period (the “Maximum Interim Participant Replenishment Amount”) for a CM is the default fund contribution paid by the CM at the commencement of such Default Period (if any).The cap on Participant Rreplenishment Amount payments in respect of a single Default Period is the sum of:twice the amount of the Futures Commitment of the CM at the commencement of the immediately preceding Default Period minus one half of the aggregate Interim Participant Replenishment Amounts (see below) paid by that CM in respect of the immediately preceding Default Period which have been applied to meet CCP Loss (subject to a minimum of zero) (the “Maximum Futures Replenishment Amount”);twice the amount of the OTC Commitment of the CM at the commencement of the immediately preceding Default Period minus one half of the aggregate Interim Participant Replenishment Amounts (see below) paid by that CM in respect of the immediately preceding Default Period which have been applied to meet CCP Loss (subject to a minimum of zero) (the “Maximum OTC Replenishment Amount”)(such sum, the “Maximum Replenishment Amount”).The formula for determining the amount of replenishment in each case is described below. Formula for replenishmentThe CCP can require CMs to pay a replenishment in two scenarios.Replenishment during a Default Period – Interim Participant Replenishment Amount: If :the CCP has committed aggregate CCP Interim Replenishment Amounts which are at least equal to the Maximum CCP Interim Replenishment Amount (see item 120.4); anda DMP Completion Date has occurred for all outstanding defaults of CMs; andthe final day of the Default Period has not occurred,then the CCP may, in its reasonable discretion, call on CMs to make a contribution of assets to the default fund. The CCP determines, in its reasonable discretion, the total amount which CMs are required to provide to the default fund (this is referred to as the “Total Interim Participant Replenishment Amount”) and the CCP may call for more than one Total Interim Participant Replenishment Amount. However, the aggregate amounts provided by CMs to the default fund during a Default Period cannot exceed an amount currently set at A$100 .If the CCP calculates a Total Interim Participant Replenishment Amount then it must allocate that amount to each CM (excluding defaulting CMs and CMs that have withdrawn from the Service from the calculation). The amount allocated to each CM (the “Interim Participant Replenishment Amount”) is to be made so that:during a Default Period, no CM is allocated such amounts which, in total, exceed its Maximum Interim Participant Replenishment Amount; andthe allocation between CMs is made so that the relative proportions between the CM (excluding defaulting CMs and CMs that have withdrawn from the Service) of the amount so allocated is equal to the relative proportions amongst them of their Maximum Interim Participant Replenishment Amounts. Replenishment after the end of a Default Period – Participant Replenishment Amount: After the end of a Default Period, the CCP calculates the amount of replenishment that each non-defaulting CM needs to make in accordance with the formula below: Replenishment amount = MIN [(Total Futures Participant Replenishment Amount × Futures Participant Proportion + Total OTC Participant Replenishment Amount × OTC Participant Proportion), Maximum Replenishment Amount]where:Total Participant Replenishment Amount:After the end of a Default Period, the CCP calculates the amount of default fund that is still available to meet any future CCP Loss (see item 112.1 under the heading “Default fund size reset”):if such remaining amount is zero, then the CCP determines the size of the new default fund (the “Replacement Default Fund Size”) (before taking into account any Applied CCP Interim Replenishment Amount or Applied Interim Participant Replenishment Amount) which shall be no more than A$400 million. The Total Participant Replenishment Amount is equal to the sum of:in respect of the Futures Commitments of all Futures Participants, one-quarter of the Replacement Default Fund Size minus one half of the Applied Interim Participant Replenishment Amount (subject to a minimum of zero) (this amount is referred to as the “Total Futures Participant Replenishment Amount”); andin respect of the OTC Commitments of all OTC Participants, one-quarter of the Replacement Default Fund Size minus one half of the Applied Interim Participant Replenishment Amount (subject to a minimum of zero) (this amount is referred to as the “Total OTC Participant Replenishment Amount”); andif such remaining amount is more than zero, the Total Participant Replenishment Amount is equal to the sum of:in respect of the Futures Commitments of all Futures Participants, the lesser of A$100 million and the aggregate amount of the Futures Commitments that was applied to meet the CCP Loss during the previous Default Period; andin respect of the OTC Commitments of all OTC Participants, the lesser of A$100 million and the aggregate amount of the OTC Commitments that was applied to meet the CCP Loss during the previous Default Period.“Futures Participant Proportion” = Maximum Futures Replenishment Amount for the relevant CM / the sum of Maximum Futures Replenishment Amount for all the non-defaulting CM.“OTC Participant Proportion” = Maximum OTC Replenishment Amount for the relevant CM / the sum of Maximum OTC Replenishment Amount for all the non-defaulting CM.Hide noteASX Recovery Rulebook, Paragraph 3 of Schedule 5 (Interim commitments by the Participants), Paragraph 4 of Schedule 5 (Allocation of interim commitments to Participants), Paragraph 9 of Schedule 5 (Remaining Waterfall Amount, ASX CCP Regulatory Requirement and Replacement Default Fund Size), Paragraph 11 of Schedule 5 (Total Participant Replenishment Amount) and Paragraph 125 of Schedule 5 (Participant Replenishment Amount and Maximum Replenishment Amount), |
| 117.3 Is there a cap on the amount of replenishment the CCP may require from non-defaulting CMs in respect of multiple defaults? | Yes, if all the defaults have the same Default Period.No if the defaults are sequential and each has their own Default Period.Hide noteASX Recovery Rulebook, Paragraph 12 of Schedule 5 (Participant Replenishment Amount and Maximum Replenishment Amount), Paragraph 4 of Schedule 5 (Allocation of interim commitments to Participants) and Paragraph 11 of Schedule 5 (Total Participant Replenishment Amount) |
| 117.4 If so, please describe the cap. | There may only be one call for a Participant Replenishment Amount after defaults relating to each Default Period, regardless of the number of CM defaults relating to that period however, the CCP may call for more than one Interim Participant Replenishment Amount in respect of a single Default Period. The caps on replenishment during and following each Default Period are the same as that in item 117.2. |
| 117.5 By when is the default fund required to be replenished by the CM, following utilisation? | Interim Participant Replenishment AmountsBy notice to a CM, the CCP may require the CM to pay an Interim Participant Replenishment Amount which has been allocated to it. The notice must specify the time within which the CM must pay the Interim Participant Replenishment Amount, provided that the time must be no sooner than 5 business days after the time at which notice is given to the CM. However, if there is an Interim Default Fund Shortfall on a DMP Completion Date such that the CCP is entitled to call an Interim Participant Replenishment Amount from CMs then the CCP may require payment by a CM by giving whatever notice the CCP decides subject to a minimum of not less than one business day. Participant Replenishment AmountsIf any default fund contribution of a CM is applied in whole or in part, the CCP may give notice requiring a Participant Replenishment Amount and specifying the time within which the CM must provide such Participant Replenishment Amount, provided that the specified time is no sooner than one business day after the time at which the notice is given to the CM.A call for a Participant Replenishment Amount may only be made at or after the end of a Default Period.Hide noteASX Recovery Rulebook, Paragraph 5 of Schedule 5 (Call for Interim Participant Replenishment Amount)ASX Recovery Rulebook, Paragraph 13 of Schedule 5 (Call for Participant Replenishment Amount) |
| 117.6 Can the CCP use replenished default fund resources to meet losses incurred on account of past default or a default that caused utilisation of the default fund? | No.Hide noteASX Recovery Rulebook, Paragraph 6 of Schedule 5 (Treatment of Interim Participant Replenishment Amounts)ASX Recovery Rulebook, Paragraph 14 of Schedule 5 (Treatment of Participant Replenishment Amounts)] |
| 118. Assessments | |
| 118.1 Is there a cap on the amount of assessment the CCP may require from non-defaulting CMs in respect of a single default? | Yes.Hide noteASX Recovery Rulebook, Paragraph 4 of Schedule 1 (Payment of Recovery Assessment) |
| 118.2 If so, please describe the cap. | The cap for the assessment amount that the CCP may require from a non-defaulting CM in respect of a single default is the default fund contribution of the CM at the time which the Default Period commenced. Review of the cap by the CCPThe CCP will review such cap for the assessment amount in accordance with the annual review of financial resources conducted under the Rules (see item 112.1). Calculation of the assessment amountThe amount of assessment for a non-defaulting CM is calculated in accordance with the formula below:Assessment amount = Total Assessment × Assessment Proportionwhere:Total Assessment is the amount determined by the CCP any time during a Default Period to be the aggregate amount of assessments to be paid by all the non-defaulting CMs. There are no restrictions in the Rules as to the amount of such Total Assessment. There could be multiple determinations of Total Assessments during a Default Period; andAssessment Proportion is calculated in accordance with the formula below:Assessment Proportion = the non-defaulting CM’s most recently calculated default fund contribution / aggregate amount of the most recently calculated default fund contribution of all the non-defaulting CMsHide noteASX Recovery Rulebook, Paragraph 1 of Schedule 1 (Participant’s Proportion)ASX Recovery Rulebook, Paragraph 2 of Schedule 1 (The ASX CCP’s determination of Total Recovery Assessment)ASX Recovery Rulebook, Paragraph 3 of Schedule 1 (Recovery Assessment due from each Participant)ASX Recovery Rulebook, Paragraph 4 of Schedule 1 (Payment of Recovery Assessment) |
| 118.3 Is there a cap on the amount of assessment the CCP may require from non-defaulting CMs in respect of multiple defaults? | Yes.Hide noteASX Recovery Rulebook, Paragraph 4 of Schedule 1 (Payment of Recovery Assessment) |
| 118.4 If so, please describe the cap. | The cap for the assessment amount that the CCP may require from a non-defaulting CM in respect of multiple defaults occurred during a single Default Period is an amount equal to three times the default fund contribution of the CM at the time which the Default Period commenced.Note that the cap applies per Default Period, so if a Default Period covers multiple defaults, a single cap applies across all those defaults, whereas if the defaults are spread across more than one Default Period, there will be a separate cap for each Default Period regardless of the number of defaults covered by that Default Period.Please see item 118.2 for the determination of calculation of a CM’s assessment amount.Hide noteASX Recovery Rulebook, Paragraph 4 of Schedule 1 (Payment of Recovery Assessment) |
| 118.5 By when is the CM required to provide its assessment? | The CM must pay the assessment by 11:00 AM, Sydney time, on the Business Day after notice from the CCP that the assessment issue or such later time as the CCP determines.*Note: There is an inconsistency in the Rules. The ASX Recovery Rulebook states that the assessment is due at the time specified by the CCP, which must be no later than the time specified in the ASX Recovery Handbook on the next Business Day after notice is given. However, the ASX Recovery Handbook specifies 11:00 AM on the Business Day after notice is given or such later time as the CCP determines.Hide noteASX Recovery Rulebook, Paragraphs 3 (Recovery Assessment due from each Participant) and 4 (Payment of Recovery Assessment) of Schedule 1ASX Recovery Handbook, Paragraph 3 of Schedule 1 (Recovery Assessment due from each Participant) |
| 119. CMs’ ability to cap default fund liability | |
| 119.1 Are CMs required to terminate their CCP membership to cap their default fund liability? | Yes, in respect of replenishment or assessment across more than one Default Period.There is a cap for the amount of each assessment and replenishment that a CM would be required to contribute per Default Period (see items 117 and 118). However, there is no overall cap as to the aggregate amounts of assessments and replenishments that a CM would be required to contribute for multiple Default Periods (see items 117 and 118).ReplenishmentInterim Participant Replenishment AmountsThe CCP may not request an Interim Participant Replenishment Amount from a CM at any time after the CM’s resignation notice has been accepted by the CCP, even though the resignation of the CM will not become effective until the end of the relevant Default Period; Participant Replenishment AmountsThe CCP may not request a default fund contribution from a CM whose Withdrawal Effective Date occurs at the end of the Default Period which immediately preceded the call of the default fund contribution. If the CM’s Withdrawal Effective Date has not occurred by this time, the CM’s withdrawal cannot become effective until the end of the Default Period. The CM will still be subject to the Recovery Rules, even if the CCP accepts the CM’s notice of withdrawal before, or during, the Default Period. Accordingly, a CM can only cap its default fund liability by terminating its membership. AssessmentThe CCP may not request an assessment from a CM once its Withdrawal Effective Date has occurred. If the CM’s Withdrawal Effective Date has not occurred, the CM’s withdrawal cannot become effective until the end of the Default Period. The CM will still be subject to the Recovery Rules, even if the CCP accepts the CM’s notice of withdrawal before, or during, the Default Period.If the CCP reasonably believes that one or more assessments may be made in respect of one or more defaults in a Default Period then the CCP may retain any amounts it determines to cover those assessments from any amounts which would otherwise be payable by it to the resigning CM. If the CCP subsequently determines that these amounts are no longer needed, then it will pay them to the CM which resigned, without being obliged to pay any additional amounts for the delay in payment of those amounts.Accordingly, a CM can only cap its default fund liability by terminating its membership.See items 75-77 for the liabilities of a withdrawing CM, item 117 for a CM’s replenishment obligations and item 118 for a CM’s assessment obligations.Hide noteASX Recovery Rulebook, Rule 4.4 (Effectiveness of resignation)ASX Recovery Rules, Rule 4.6 (Effect of resignation on Recovery Assessment)ASX Recovery Rulebook, Rule 4.10 (Effect of resignation on Replenishment)CCP responses of 6 and 16 February 2015 |
| 120. CCP contributions to the default fund/waterfall | |
| 120.1 Does the CCP contribute to the default fund or otherwise to the default waterfall? | Yes. See also item 109, paragraphs (3), (5) and (8) of the default waterfall structure and 120.2.Hide noteFutures Rule 7(Satisfaction of obligations of ASX Clear (Futures))ASX Recovery Rulebook, Rule 2.6 (Default Resources, Default Fund and Committed ASX Assets) |
| 120.2 If the CCP contributes to the default fund or otherwise to the default waterfall, how much does it contribute and is there a cap? | Initial contribution by the CCP1Initially, the CCP contributes A$450,000,000 in total to the default fund or otherwise to the default waterfall in several tranches.The CCP’s contribution by way of designated assets is capped at the amount specified in the procedures to the Rules (such amount to be A$120,000,000 or such greater amount as the Board in its discretion may from time to time determine).The designated assets (as referred to in item 109 at paragraph (3)) are:(i) proceeds of a subordinated loan to the CCP by ASX Clearing Corporation Limited (ASXCC) under an agreement dated 27 April 2009 (as amended or replaced from time to time), up to A$90,000,000; and(ii) share capital invested in the CCP by ASX Clearing Corporation Limited up to A$30,000,000.For the purpose of item 109, paragraph (5) (insurance and other designated assets), the designated assets are share capital invested in the CCP by ASX Clearing Corporation Limited (excluding share capital that is from time to time designated for the purpose of item 109 at paragraph (3) described above), up to A$150,000,000.For the purpose of item 109, paragraph (8) (other monies or assets available to the CCP), these include share capital invested in the CCP by ASX Clearing Corporation Limited (excluding share capital that is from time to time designated for the purpose of item 109, paragraphs (3) and (5) described above), up to A$180,000,000. Increase to the CCP’s contribution if there is an upsize to the default fund2If the size of the default fund has been subsequently increased by the CCP for the purpose of complying with applicable regulatory requirements (see item 113.1), the CCP shall committee additional amount to the default fund. The additional amount to be committed by the CCP to the default fund (i.e., the Additional CCP Contribution as defined in item 113.1) shall be the same as the aggregate additional default fund contribution from all the CMs which were received by the CCP. (i.e., the Additional Participant Contribution as defined in item 113.1). Please see item 113.1 for details of such upsize to the default fund. Hide note1 CCP responses of 6 February 2015; Procedures, determinations and practice notes Rule 7.1 Satisfaction of Obligations of ASX Clear (Futures))2 ASX Recovery Rulebook, Paragraph 16 of Schedule 5 (Scaling to meet regulatory requirements) |
| 120.3 If there is a cap, please describe it. | The initial contribution to be made by the CCP is capped at A$450,000,000.The size of the default fund can be subsequently increased for the purpose of complying with applicable regulatory requirements. However, the size of the default fund cannot be greater than A$650,000,000. The additional amount to be allocated to the CCP is half of the increased amount (see item 113.1).Accordingly, the cap of contribution to be made by the CCP (subject to further replenishment that may be required to be made by the CCP as described in item 120.4) is equal to (i) A$450,000,000; plus (ii) (A$650,000,000 minus the size of the default fund before increase) / 2.Hide noteASX Recovery Rulebook, Paragraph 16 of Schedule 5 (Scaling to meet regulatory requirements) |
| 120.4 When does it provide and replenish such contribution? | The CCP will commit additional amounts to the default fund to meet any CCP Loss which may arise in respect to future defaults in two scenarios.Replenishment during a Default Period – CCP Interim Replenishment Amount: Within 24 hours of a DMP Completion Date the CCP calculates the amount of the default fund available to meet a CCP Loss. If the remaining amount is less than an amount currently set at A$100 million (the “Minimum Interim Default Fund Amount”) then the amount of the shortfall is called the “Interim Default Fund Shortfall”. If an Interim Default Fund Shortfall has been calculated then, as soon as reasonably practicable after the immediately previous DMP Completion Date (as determined by the CCP), the CCP is to commit additional amounts of a value equal to the Interim Default Fund Shortfall to the default fund (a “CCP Interim Replenishment Amount”); provided that the aggregate additional amounts required to be committed by the CCP during a Default Period must not exceed an amount currently set at A$ 100 million (the “Maximum CCP Interim Replenishment Amount”). Replenishment at or after the end of a Default Period: At or after the end of a Default Period, the CCP will commit additional amounts to the default fund to meet any CCP Loss which may arise in respect to future defaults calculated as follows:if the Remaining Waterfall Amount (see item 112.1 under the heading “Default fund size reset”) is zero, one-half of the new default fund minus the aggregate CCP Interim Replenishment Amounts committed by the CCP in respect of the immediately preceding Default Period (subject to a minimum of zero) (see items 113.1 and 117.2); andif the Remaining Waterfall Amount (see item 112.1 under the heading “Default fund size reset”) is more than zero, the lesser of the following:the aggregate amount of the CCP’s contribution to the default fund which was applied to meet the CCP Loss in accordance with the default waterfall during the previous Default Period; andA$200 million,each minus the aggregate CCP Interim Replenishment Amounts committed by the CCP in respect of the immediately preceding Default Period (subject to a minimum of zero).Hide noteASX Recovery Rulebook, Paragraph 1 of Schedule 5 (Interim calculation of remaining Default Fund)ASX Recovery Rulebook, Paragraph 2 of Schedule 5 (Interim Commitments by the ASX CCP)ASX Recovery Rulebook, Paragraph 10 of Schedule 5 (ASX CCP Commitment Amount) |
| 121.Treatment of CCP default fund/waterfall contributions | |
| 121.1 Are such contributions separately identified on the balance sheet and, if so, are these funds held in a segregated account away from the other assets of the CCP? | Not addressed in the Rules. Such contributions are separately identified on the balance sheet but they are not held in a segregated account, however, the permitted application of these contributions is prescribed by the Rules.Hide noteCCP responses of 27 January 2017 |
| 122. Recourse to CCP assets in a default situation and any linked recourse | |
| 122.1 What recourse is there to the CCP’s assets (i.e., other than those submitted to the default fund) in a default situation? | The Rules expressly provide that the Default Resources do not include any funds, assets or property of the CCP which have not been committed by the CCP to be allocated by the CCP to meet a CCP Loss in accordance with the default waterfall. In other words, there is no recourse to the CCP’s assets other than those submitted to the default fund or prescribed as such in the Rules. See also the section entitled “Limited Recourse” in item 148.1.Hide noteFutures Rules 7.1(h) and 7.9; (Satisfaction of Obligations of ASX Clear (Futures))ASX Recovery Rulebook, Rule 2.6 (Default Resources, Default Fund and Committed ASX Assets) |
| 122.2 Are these assets subject to non-recourse or other ring-fencing provisions? | See item 122.1. |
| 123. Default resources for CCP link arrangements | |
| 123.1 Are there separate default resources for any interoperability/link arrangements that the CCP has in place with other CCPs? | The CCP has no interoperability or link arrangements.]Hide noteCCP responses of 27 January 2017 |
| 124. CCP disclosure of Rules | |
| 124.1 How, if at all, does the CCP disclose the Rules (including any changes to the Rules) to the public? | The CCP makes the latest version of its Rules publicly available on its website at:https://www2.asx.com.au/about/regulation/rulesguidance-notes-and-waivers/asx-clear–futures–operating-rules–guidance-notes-and-waivers and https://www2.asx.com.au/about/regulation/rules-guidance-notes-and-waivers/asx-recovery-rules |
| 125. CCP disclosure of fees | |
| 125.1 How, if at all, does the CCP publicly disclose its fees at the level of its individual service and policies on any available discount? | The CCP publishes its fees on its services, including the Service, on its website: https://www2.asx.com.au/participants/apply-to-become-a-participant/asx-participant-fee-scheduleA comprehensive list of fees and charges associated with utilising the CCP can be found at the following link https://www2.asx.com.au/markets/market-resources/asx-schedule-of-fees. This link is included in ASX’s Principles for financial market infrastructures disclosure document at https://www.asx.com.au/documents/asx-compliance/pfmi-disclosure-framework.pdf. The Board may impose the following fees in such amount as it may determine from time to time:(a) an application fee for admission as a CM (non-refundable; to be applied against the cost of investigation into the suitability of the applicant);(b) an admission fee;(c) an annual fee;(d) a transaction fee for each Contract/transaction registered in the name of the CM;(e) a fee for the acceptance of securities or collateral for initial margins or their realisation or renewal of such securities as collateral;(f) a fee for mandatory cash settlement and delivery or exercise of options;(g) a clearing infrastructure fee;(h) a support fee if the CM requires support as described in the Rules relating to the use of exchange system, exchange equipment, licensed software etc; and(i) such other fees as it may determine,The CCP may impose different fees on different categories of CM.CMs are obliged to pay any fees so imposed, on demand unless another time is specified. Fees payable pursuant to the Rules may be deducted by the CCP from any credit balance of any account of the CM with the CCP.The CCP may impose different fees on an OTC Participant from those which are imposed on a CM which is not an OTC Participant. Also, the CCP may impose different fees on OTC Participants authorised to clear different OTC transaction types.Each OTC Participant must pay the fees imposed on it on demand or at such other specified time. Fees which are due and payable for which payment has not been received by the CCP by the due date may be deducted by the CCP from any credit balance of the House Account of the OTC Participant.Hide noteCCP responses of 6 February 2015Futures Rule 3.2.1 (Fees) (as varied or supplemented by OTC Rulebook Rule 2.9 (Fees)) |
| 126. CCP notification of service/fee changes | |
| 126.1 How, if at all, does the CCP notify its CMs and the public of changes to services and fees? | The CCP updates its list of fees and charges on a regular basis. The list of fees and charges is re-published when changed.The CCP has obligations to notify and consult with CMs in relation to Rule changes including changes to service and fees. See items 79.1 and 79.2.Hide noteCCP responses of 6 February 2015Futures Rule 14.2A Futures Rule 14.2B; (Amendment to Rules) |
| 127. CCP disclosure of technology/communication procedures | |
| 127.1 How, if at all, does the CCP disclose information on its technology and communication procedures in respect of the Service? | The CCP publishes a participant application kit on the participant portal as online that contains information about establishing participant operations and connectivity to ASX infrastructure. Refer www.asxonline.com/Participants/WelcomeHide noteCCP responses of 6 February 2015 |
| 128. CCP completion and disclosure of the CPSS-IOSCO Disclosure framework for financial market infrastructures | |
| 128.1 Does the CCP complete the CPSS-IOSCO Disclosure framework for financial market infrastructures? | Yes,Hide noteCCP’s website: https://www2.asx.com.au/about/regulationRBA’s website: https://rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.html |
| 128.2 If so, when was it last completed and how frequently is it updated? | The ASX group’s response to the CPSS-IOSCO Disclosure framework for financial market infrastructures was last completed in December 2023. The response is available on the CCP’s website, at: https://www2.asx.com.au/content/dam/asx/about/pfmi-disclosure-framework.pdfThe ASX group plans to update its response periodically and to further enhance its disclosure as necessary from time to timeHide noteCCP’s website: https://www2.asx.com.au/about/regulationRBA’s website: https://rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementationof-principles.htmlRBA 2018/19 Assessment Appendix C1, Standard 20.5 |
| 128.3 How, if at all, does the CCP disclose its responses to the CPSS-IOSCO Disclosure framework for financial market infrastructures to the public? | The ASX groups’ response to the CPSS-IOSCO Disclosure framework for financial market infrastructures is available on the CCP’s website, at: https://www2.asx.com.au/about/regulation.Hide noteCCP’s website: https://www2.asx.com.au/about/regulation |
| 128.4 Does the CCP complete or follow the CPMI-IOSCO Public quantitative disclosure standards for central counterparties? | As set out in the RBA 2018/19 Assessment Appendix C1, the CCP publishes 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.The CCP publicly reports basic risk and activity data 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.Hide noteRBA 2018/19 Assessment Appendix C1, Standard 20.5 |
| 128.5 If so, when was it last completed and how frequently is it updated? | It was last completed in June 2023. FrequencyDisclosure of quantitative data in relation to the following CPSS-IOSCO principle will be updated annually:Principle 15 (General Business Risk) Disclosure of quantitative data in relation to the following CPSS-IOSCO principles will be updated quarterly:Principle 4 (Credit Risk)item 5.3 of Principle 5 (Collateral)all the items under Principle 6 (Margin) except for item 6.3Principle 7 (Liquidity Risk)Principle 12 (Exchange of Value Settlement System)Principle 14 (Segregation and Portability)Principle 16 (Custody and Investment Risk)Principle 17 (Operational Risk)Principle 18 (Access and Participation requirements)Principle 19 (Tiered Participation arrangements)Principle 20 (FMI Links)Principle 23 (Disclosure of Rules, Key Procedures and Market Data) Disclosure of quantitative data in relation to the following CPSS-IOSCO principles will be updated when changes made:item 5.1 of Principle 5 (Collateral)item 5.2 of Principle 5 (Collateral)item 6.3 of Principle 6 (Margin) Disclosure of quantitative data in relation to the following CPSS-IOSCO principle will be updated on an ad hoc basis:Principle 13 (Default Rules and Procedures)Hide noteCCP’s website: https://www.asx.com.au/regulation/regulatory-compliance/asx-clear-futures.htm |
| 128.6 How, if at all, does the CCP disclose its responses to the CPMI-IOSCO Public quantitative disclosure standards for central counterparties to the public? | The CCP’s response to the CPMI-IOSCO Public quantitative disclosure standards for central counterparties is available on the CCP’s website, at: https://www.asx.com.au/regulation/regulatory-compliance/asx-clear-futures.htmHide noteThe CCP’s response to the CPMI-IOSCO Public quantitative disclosure standards for central counterparties is available on the CCP’s website, at: http://www.asx.com.au/regulation/regulatory-compliance/asx-clear-futures.htm |
| 129. CCP completion and disclosure of the Federal Reserve Bank of New York’s Payments Risk Committee Recommendations for Supporting Participant Due Diligence of Central Counterparties | |
| 129.1 Does the CCP complete or follow the Federal Reserve Bank of New York’s Payments Risk Committee Recommendations for Supporting Participant Due Diligence of Central Counterparties? | No. The CCP has stated that it complies with the international standards for disclosure of compliance with the principles for financial market infrastructures.Hide noteCCP responses of 16 February 2015 |
| 129.2 If so, when was it last completed and how frequently is it updated? | N/A. |
| 129.3 How, if at all, does the CCP disclose its responses to Federal Reserve Bank of New York’s Payments Risk Committee Recommendations for Supporting Participant Due Diligence of Central Counterparties to the public? | N/A. |
| 130. CCP risk disclosure document | |
| 130.1 Does the CCP provide a risk disclosure document regarding the services and account structures it provides? | Yes. Account structures1Based on the RBA 2018/19 Assessment Appendix C1, the current arrangements for segregation and portability are defined in the Rules and Procedures. ASX has also published a public overview of CM default arrangements2, which outlines the current operational constraints to portability and the implications of different account structures.ASX has published a client fact sheet and a brochure on its client protection model which outline segregation and portability arrangements at the CCP, the rights of Clients in the event of a default3 and protection available for excess Client collateral. CMs are required to make this fact sheet available to all of their Clients. The fact sheet and brochure are also available on ASX’s public website. In addition, during previous assessment periods, ASX has publicly consulted stakeholders on segregation and portability arrangements for both the Service and the Futures Service. These consultations have outlined the implications of different account structures used by the CCP and identified operational constraints to portability. Risk disclosure and services4The CCP provides a range of publicly available materials, but does not provide a single ‘risk disclosure document’ as such. For example, in addition to the Rules and Procedures (which form the basis of all material aspects of the CCP’s service to CMs), the CCP publishes information concerning risk management, default management, margin, capital-based position limits and business continuity arrangements. An overview of how the CCP would manage a CM default is also available, amongst other things.The majority of materials published by the CCP are accessible through the CCP’s website.Hide note1 RBA 2018/19 Assessment Appendix C1, Standard 13.4; CCP’s website: https://www.asx.com.au/documents/clearing/asx-client-clearing-client-fact-sheet-31aug2015.pdf2 CCP’s website: https://www.asx.com.au/documents/clearing/131001_Default_Management_-_Public_Information_Document_v2.pdf3 CCP’s website: https://www.asx.com.au/documents/clearing/asx-client-clearing-client-fact-sheet-31aug2015.pdf4 RBA 2018/19 Assessment Appendix C1, Standard 20.1 |
| 131. CCP hypothetical capital | |
| 131.1 Does the CCP disclose its hypothetical capital? | The CCP publishes its hypothetical capital, as part of its CPMI-IOSCO Public quantitative disclosure, on its website on a quarterly basis at: https://www.asx.com.au/documents/regulation/Public_Quantitative_Disclosure_Standards_for_Central_Counterparties_ASX_Clear_Futures.pdf.1Not addressed in the Rules, but the CCP has confirmed that it provides the statistics to CMs who request this information and that it currently discloses its hypothetical capital on a monthly basis to its regulator and (primary foreign bank subsidiary) CMs.2Hide note1 CCP’s website: https://www.asx.com.au/documents/regulation/Public_Quantitative_Disclosure_Standards_for_Central_Counterparties_ASX_Clear_Futures.pdf2 CCP responses of 6 February 2015 |
| 131.2 If so, how does the CCP disclose its hypothetical capital? | See item 131.1Hide noteCCP responses of 6 February 2015 |
| 131.3 Can CMs share the CCP’s hypothetical capital with their Clients? | The CCP disclose its hypothetical capital to the public on a quarterly basis. The Clients can access such information directly through the CCP’s website at: https://www.asx.com.au/documents/regulation/Public_Quantitative_Disclosure_Standards_for_Central_Counterparties_ASX_Clear_Futures.pdf.1As to the statistics sent by the CCP to a CM per the CM’s request, there are no specific restrictions in respect of a CM sharing the CCP’s hypothetical capital information with its Clients. However, the CCP notes that it does not accept any liability to CMs (or third parties) that may result directly or indirectly from the hypothetical capital information it provides.2Hide note1 CCP’s website: https://www.asx.com.au/documents/regulation/Public_Quantitative_Disclosure_Standards_for_Central_Counterparties_ASX_Clear_Futures.pdf2 CCP responses of 6 February 2015 |
| 132. CM access to CCP audit reports and/or conclusions | |
| 132.1 What, if any, access do CMs have to external/internal audit reports and/or conclusions? | CMs have access to the externally published EXIGO control opinions performed by the external auditor of ASX Limited (which is the ASX group holding company) (distributed via market notices).ASX Limited’s external auditor also provides an external audit opinion on the annual financial statements for the ASX group in the annual report.Hide noteCCP responses of 6 and 16 February 2015 |
| 133. Unforeseen/uncovered liquidity shortfalls | |
| 133.1 How do the Rules address unforeseen and potentially uncovered liquidity shortfalls? | Margin1The CCP has broad powers to call for additional margin at any time and may require that securities or other property deposited be replaced with money, other securities or other property required by the CCP. Additional financial backing2The Board may, with the agreement of a CM and in addition to the obligation of a CM to provide default fund contributions, obtain from a CM additional financial backing to support the CCP’s obligations on such terms as is agreed with the CM. Borrowing pending realisation of its financial resources3To enable the CCP to meet its obligations in a timely manner to non-defaulting CMs, pending the realisation of any part of the financial resources available for application in the default waterfall, the Board may borrow or otherwise seek accommodation or make other financial arrangements as it sees fit. Pre-funded default fund4Upon occurrence of a CM default, the CCP has power to apply the pre-funded default fund, including such as, the defaulting CM’s assets held by the CCP, default fund contribution of the non-defaulting CMs and assets committed by the CCP for loss allocation, to meet the loss. Please see item 109.1 for the resources in the prefunded default fund. Assessment5After utilising the prefunded default fund, the CCP has the power to meet a CCP Loss by calling assessments from non-defaulting CMs. These would be capped at the level of CM’s default fund contribution at the time which the Default Period commenced (a maximum of A$200 million in aggregate), if assessments were called in relation to a single default; or at three times the level of CMs’ default fund contribution at the time which the Default Period commenced (a maximum of A$600 million in aggregate), if assessments were called in relation to multiple CMs’ defaulting within a Default Period. The CCP would have the flexibility to call for assessments where it anticipates a liquidity shortfall resulting from a CM default, increasing the likelihood that these funds will be available to meet liquidity needs on a timely basis. See item 118. Payment Reduction5The CCP would also have the power to reduce (haircut) outgoing payments to CMs. For example, a haircut could be applied to variation margin payments due to CMs with net in-the-money positions in the event of mark-to-market loss on the defaulting CM’s portfolio. Payment Reduction could be applied to a broad range the CCP’s payment obligations, excluding the return of initial margin. There is no cap on the use of payment haircutting to address a liquidity shortfall, although the CCP would consult with the risk committee in determining whether to continue Payment Reduction if losses allocated via this tool exceed A$650 million.See item 109. Complete Invoicing Back5Any residual liquidity shortfall that could not be addressed via assessments or Payment Reduction could be addressed via the power to completely terminate all Contracts. Complete termination would be reserved as a last resort tool if there were no other means of addressing a liquidity shortfall. Under complete Invoicing Back all Contracts at the CCP would be settled with CMs at their current market value, with any residual liquidity shortfall of the CCP addressed by haircutting settlement payments to CMs. Reliance on complete Invoicing Back is considered extremely unlikely, since payment haircutting provides an uncapped mechanism to address liquidity obligations associated with the majority of payment flows.See item 109.1 under the title of “Complete Invoicing Back”.Hide note1 OTC Rulebook Rules 5.2 (Transfer of OTC Initial Margin), 5.3 (Securities as OTC Initial Margin), 5.4 (Change of OTC Initial Margin obligations) and 5.6 (Intra-day Margin and OTC Extra Margin)2 Futures Rule 5.10 (Commitment to support obligations of ASX Clear (Futures))3 Futures Rule 7.2 (Satisfaction of obligations of ASX Clear (Futures))4 Futures Rule 7 (Satisfaction of obligations of ASX Clear (Futures))5 RBA 2018/19 Assessment, Appendix C1, Standards 4.8 and 7.9 |
| 134. Liquidity facilities available to the CCP | |
| 134.1 Does the CCP have access to any liquidity facilities? | Yes. |
| 134.2 If so, please describe them generally (including the methodology used by the CCP to determine the amount of its required liquidity resources (e.g., Cover 1 or Cover 2)). | Liquidity facilitiesThe CCP’s liquidity facilities include margin and other collateral posted by CMs (see item 133) as well as the CCP’s own holdings of liquid assets.The CCP’s holdings of liquid assets and cash collateral posted by CMs are invested on its behalf by ASXCC in accordance with the ASXCC investment mandate (see items 158.1 and 158.2).Additionally, ASXCC holds an exchange settlement account at the RBA, meaning it is eligible for access to A$ liquidity under the RBA’s overnight and intra-day liquidity facilities (against eligible collateral specified by the RBA that is held within ASXCC’s investment portfolio), including in times of market stress. The CCP, through ASXCC, also has access to EUR, GBP, JPY and USD liquidity under intra-day liquidity facilities with two commercial banks up to a total of A$400 million (A$200 million with each bank). These facilities are used primarily to facilitate the intra-day repayment of participant cash collateral received in each aforementioned currency in the absence of a participant default. However, the intra-day facilities could also be used in a default scenario to supplement the CCP’s qualifying liquid resources. Calculation methodologyBased on the RBA 2018/19 Assessment Appendix C1, a major objective of the ASX group’s liquidity risk policy is for the CCP to maintain, with a high degree of confidence, sufficient liquidity manage the default of two CMs and their affiliates and meet reasonably foreseeable operational cash flows.ASX’s primary liquidity requirement is the core liquidity requirement (CLR). The CLR is calculated as the sum of the default liquidity requirement (DLR) for each CCP and the ordinary liquidity requirement (OLR) across the two ASX CCPs (i.e. the CCP and the CCP operated by ASX Clear Pty Limited). The DLR for the CCP is the amount required to cover the estimated payment obligations in the event of the joint default of the two largest CMs ((as measured by the payment obligations to the CCP) and their affiliates under the stressed market conditions envisaged in the CCP’s liquidity stress tests. The CCP’s DLR for AUD is the sum of:the liquidity stress test result for the two CMs and their affiliates that result in the largest payment obligation for the CCP; andthe aggregate margin requirement of the two largest CMs and their affiliates, used to cover payment obligations associated with variation margin or the close-out of positions in normal market conditions. The CCP separately calculates a DLR for each non-AUD cleared currency (currently only NZD) which comprises Cover 2 participants’ total margin requirement for NZD-denominated positions and an estimate of their stress testing exposures (calculated as 130 per cent of their initial margin requirement in NZD). The OLR is intended to cover day-to-day liquidity requirements, such as the return of margin to CMs, and is calculated by multiplying the ASXCC investment portfolio (less the DLR) by a percentage rate (OLR rate). This portfolio comprises both CCPs’ pooled prefunded resources as well as the cash margin posted at the CCP. ASX sets currency-specific OLRs for each currency in which it has payment obligations. The OLR rates for AUD and NZD are calibrated to the maximum daily margin outflow ASXCC’s investment portfolio (as a percentage of the value of the sub-portfolio in each currency) over the last 12 months, subject to a floor of 10 per cent. The current OLR rates for AUD and NZD are 10 and 20 per cent respectively. The OLR rates for non-cleared currencies which the CCP accepts as collateral (currently EUR, GBP, JPY and USD) are set at 100 per cent of the ASXCC portfolio denominated in these currencies. OLR rates are reviewed annually.The DLR component in the above description indicates that the methodology used by the CCP to calculate its liquidity resources is Cover 2.ASX also has introduced an Additional Liquidity Requirement (ALR) for the CCP, which is designed to reflect the potential for unexpected non-default related liquidity needs. Similar to the OLR, the ALR is calculated by multiplying the ASXCC investment portfolio (less the DLR) by a percentage rate (ALR rate). ASX has calibrated the AUD and NZD currency-specific ALRs to ensure that it has sufficient liquid assets to cover the maximum historical AUD or NZD one-day margin outflow in the ASXCC investment portfolio (as a percentage of the value of the sub-portfolio in each currency) since late 2008 (the earliest date from which data is available). The current ALRs for AUD and NZD are 11 and 21 per cent of AUD and NZD-denominated assets in the ASXCC portfolio respectively. ASX has created liquidity-specific stress tests to assess the adequacy of the liquidity requirements related to the CCP’s investment portfolio and the actual liquidity of the portfolio.No ALR is set for EUR, GBP, JPY and USD since 100 per cent of the portfolio in these currencies must be invested in CLR-eligible assets.Hide noteRBA 2018/19 Assessment Appendix C1, Standards 7.2, 7.3,7.4 and 15.4. |
| 135. CM requirements to provide liquidity facilities in respect of non-cash collateral | |
| 135.1 Must a CM provide a liquidity facility to help the CCP manage its liquidity risk for non-cash collateral? | No.The Rules do not require CMs to provide a liquidity facility to manage its liquidity risk for non-cash collateral. However, as described in item 133.1, the CCP may require a CM to replace any securities or other property which have been transferred by the CCP as initial margin with money, other securities or other property required by the CCP, thereby (indirectly) providing a mechanism to manage its liquidity risk for non-cash collateral. |
| 135.2 If so, please describe the requirement. | N/A. |
| 136. Circumstances under which liquidity facilities can be drawn | |
| 136.1 Under what circumstances can these facilities be drawn? | N/A. |
| 137. Replenishment of liquidity resources | |
| 137.1 How do the CCP’s rules allow for the replenishment of any liquidity resources during a stress event? | The CCP may reset/increase the size of the default fund, call for additional margin and/or put in place additional arrangements for increased financial backing. See items 112.1 and 133. |
| 138. CCP events of default | |
| 138.1 What constitutes an “event of default” by the CCP? (including any grace periods)? Please list all possible options that may constitute an event of default. | The below will constitute an “event of default” by the CCP under the Rules provided that nothing in connection with the Recovery Rules causes the CCP to be in default, unless the CCP is otherwise in default (see item 149.1). Failure to pay or deliverYes.If all of the following occur:(i) the CCP fails to make, when due, any payment in respect of a payment claim of a CM against the CCP arising from a Contract;(ii) such CM has notified the CCP of such failure;(iii) such CM notifies the CCP again of such failure after the expiry of a period of not less than 5 Business Days after the notification in (ii) above; and(iv) the CCP’s failure to make such payment to such CM continues for a period of more than 5 Business Days after the notification in (iii) above. Voluntary/ Involuntary insolvency proceedings /corporate actionsYes. The CCP is wound up in insolvency under the Corporations Act or is subject to statutory management either instituted by it or against it by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in Australia.Hide noteFutures Rule 76.1 (Termination)Futures Rule 76.1(a) (ASX Clear (Futures) Payment Default) Futures Rule 76.1(b) (ASX Clear (Futures) Insolvency Event) |
| 139. Procedural requirements/regulatory approvals required for CCP default | |
| 139.1 Are there any procedural requirements or regulatory approvals required to trigger a default of the CCP? | Procedural Requirements1At the election of either the CCP or the CM (if a CM makes this election, then only its Contracts are affected):(I) the present and future obligations of the CCP and each CM to make payments and deliveries under the Contracts are terminated;(II) the CCP is to calculate the termination value of those terminated obligations; and(III) the CCP will net the termination values so calculated separately in respect of the House Account and the Client Account of each CM so that only a net cash amount is payable in respect of each of these accounts and between the CCP and each respective CM. Each such net cash amount is to be payable by the party who is determined to owe it on the Business Day on which it is determined and notified to the CM.Note that the CM and the CCP agree that any early termination amount determined to be due and payable by it under an ISDA Master Agreement entered into between the CM and the CCP in connection with the default of the CCP is to be included in the netting described above2. The inclusion of the early termination amount in such netting terminates the parties’ obligation to pay that early termination amount under the Rules, without affecting the netting in any way.(Where the relevant Client(s) is/are the subject of the CPM Provisions netting in respect of the Client Account is to be conducted separately in respect of each Client sub-account; a net cash amount is to be payable in respect of each separate netting which takes place.)If the CCP is, for operational reasons, unable to make one or more required calculations or determinations, then those particular calculations are to be made by the relevant CM.Regulatory approvalsNo regulatory approvals are required to trigger a default of the CCP.Hide note1 Futures Rule 76.1 (Termination)2 Rule 6.12 (Default Management Process), OTC Handbook |
| 140. Determination, notification and processes in respect of the CCP’s default | |
| 140.1 How is a declaration of CCP default communicated to the CMs, Clients and to the public? | Not addressed in the Rules, but the CCP’s expectation is that the regulators would provide notification pursuant to the FMI resolution regime to be established.Hide noteCCP responses of 16 February 2015 |
| 140.2 Who is responsible for determining the CCP’s default? | Either the CCP or the CM (as the case may be) depending on who triggers the termination of Contracts.Hide noteFutures Rule 76.1 (Termination) |
| 140.3 How are shortfalls/excesses dealt with following termination of all Contracts as a result of a CCP “event of default”? | Not addressed in the Rules. The Rules only provide for the calculation of each net termination amount payable by either the CCP or a CM (see item 139). Shortfalls and excesses are not addressed in the Rules.In the event of an external administration of the CCP, any shortfall or excess will be dealt with under the insolvency regime in the Corporations Act. If a liquidator is appointed to the CCP and the CM has a shortfall after netting of termination values then the CM will have a right to prove in the liquidation of the CCP. |
| 140.4 Provide the citation of the principal statute that would govern the CCP’s insolvency. | The CCP’s insolvency will be governed by Chapter 5 (External Administration) of the Corporations Act. A specialised resolution regime for Financial Markets Infrastructure is expected in the near future.The netting of termination values of Contracts will be governed by Rule 76 and section 16 of the PSNA.Hide noteCCP responses of 6 February 2015 |
| 141. Use of non-defaulting CM’s initial margin to cover losses of CCP upon its default | |
| 141.1 Can the CCP use the initial margin of a non-defaulting CM to satisfy losses of the CCP upon its default? | No. Initial margin of a CM can only be used to satisfy payment obligations that such CM owes in respect of its terminated Contracts.Under general insolvency law principles, as CMs only have a contractual claim to return of collateral delivered by way of title transfer, if the CCP’s liabilities overall exceeded its assets, then CMs may be required to share in the shortfall on a pro rata basis to the extent of their exposure to the CCP’s redelivery obligation in respect of collateral delivered by way of title transfer. |
| 141.2 If yes, please describe how such losses are allocated. | N/A. |
| 141.3 Is there a cap on a CM’s liability for losses of the CCP upon its default? | There is no cap as such. A CM is, however, only liable for:such CM’s outstanding default fund contributions; andsuch CM’s other claim(s) (such as accommodation fee, interest payable on default fund contributions, any additional financial backing provided, claims for the redelivery obligation in respect of collateral delivered by way of title transfer) including each net termination amount described in item 139 payable by the CCP to such CM.And such CM is at risk for the return of assets and any termination payments due to it.Hide noteFutures Rules 5.8, 5.9 and 5.10 (Commitment to support obligations of ASX Clear (Futures)) |
| 141.4 If so, please describe the cap. | N/A. |
| 142. CM declaration of CCP default | |
| 142.1 If a default is called against the CCP by a CM, does that apply solely to the CM concerned or to all CMs? | It applies solely to the CM concerned.Hide noteFutures Rule 76.1 (Termination) |
| 143. Impact of CCP default on existing CM default processes | |
| 143.1 How does a CCP default affect any ongoing CM default processes with respect to both the applicable defaulting CM and the non-defaulting CMs? | Not addressed in the Rules. |
| 144. Netting and set-off upon a CCP default | |
| 144.1 Do the Rules provide for the netting and set-off of obligations, including obligations to return collateral and default fund contributions upon the default of the CCP, including in the context of an insolvency of the CCP? | Yes (see item 55.1 under the headings: “Set-off rights – a CM’s House Accounts and Client Accounts” and “Set-off rights – a CM’s Client Accounts”) apart from the amount payable by the CMs under the Recovery Rules as described below.(Where the relevant Client(s) is/are the subject of the CPM Provisions, netting in respect of the Client Account is to be conducted separately in respect of each Client sub-account; a net cash amount is to be payable in respect of each separate netting which takes place.)As to the amount payable by a CM to the CCP under the Recovery Rules, it is provided that such amount shall be paid by the CM in full and without any set-off. For the avoidance of doubt, the Recovery Rules do not restrict the CCP’s right to net or set-off against a CM. The Recovery Rules deal with the CCP’s ability to handle default of CMs; but it has not excluded the scenario where the CCP is also at default.See also item 96.1 in relation to the CCP’s (but not a CM’s) right to effect a set-off.Hide noteFutures Rules 47.2, 47.3 (Offset – Daily Settlement Amounts)Futures Rule 76.2 (Termination)ASX Recovery Rulebook, Rule 12.1 (Payments by Participants)ASX Recovery Rulebook, Rule 12.8 (Set-off) |
| 145. Determination of close-out value of outstanding Contracts | |
| 145.1 How, when and by whom is the close-out value for outstanding Contracts determined? | On how the close-out value is determined, see item 139.The timing as to when the close-out value is determined is not addressed in the Rules.The close-out value is to be determined by the CCP. If the CCP is, for operational reasons, unable to make one or more required calculations or determinations, then those particular calculations are to be made by the relevant CM.Hide noteFutures Rule 76.1 (Termination) |
| 146. Netting and set-off across services | |
| 146.1 If the CCP offers more than one clearing service, do the Rules provide for the netting and set-off of amounts owed in respect of one service against amounts due in respect of another service? | Yes, the Rules provide for the netting and setoff of amounts across the Service and the Futures Service. See item 55.1 under the headings:“Set-off rights – a CM’s House Accounts and Client Accounts” and “Set-off rights – a CM’s Client Accounts”See items 67 and 68 on the account structure. |
| 147. CM rights to terminate Contracts | |
| 147.1 Does the CM have the right to terminate all its Contracts at its discretion, or does the CCP have the right to compel a CM to complete Contracts after a CCP “event of default”? | The relevant CM has the right (but not the obligation) to terminate and liquidate all its Contracts on the occurrence of a CCP “event of default” (see item 139). The CCP does not have the right to compel a CM to complete transactions after a CCP’s “event of default”.Hide noteFutures Rule 76.1 (Termination) |
| 148. Exhaustion of financial resources of CCP | |
| 148.1 Upon the exhaustion of the CCP’s financial resources, would the CCP become insolvent, would a CM or the CCP itself have the right to terminate all Contracts for that service, would the CCP institute variation margin haircutting, or is there some other outcome? | Whether the CCP would become insolventThe CCP could technically become insolvent if it were unable to pay its debts as and when they fall due, although this is unlikely to arise in practice because of the CCP’s recovery powers and the limited recourse described below. Limited recourseThe CCP’s liability in connection with the payment of an amount to a CM (or entity which was a CM) following a default of a CM is limited to the aggregate amount then available of the Default Resources and (if applicable) the amounts paid to the CCP with respect to Partial Tear Up or complete Invoicing Back only. The application of this aggregate amount in accordance with the Rules towards amounts payable by the CCP under the Rules (including the Recovery Rules) constitutes a complete discharge of the CCP’s liability to the CMs and any other person in connection with those amounts. Would a CM or the CCP itself have the right to terminate all ContractsSee items 139 and 142 in respect of a CM’s right to terminate; however, the election to terminate by a CM would result in the termination of present and future obligations between the CCP and itself only, not the termination of all Contracts between the CCP and all CMs. Would the CCP institute variation margin haircutting, or is there some other outcomeYes. See item 109 for the CCP’s power of haircutting certain outgoing payments to CMs (including, but not limited to variation margins).Hide noteASX Recovery Rulebook, Rule 8.4 (Limited recourse)RBA 2021/22 Assessment, Appendix B 3 (Prefunded financial resources) |
| 149. CCP recovery and resolution | |
| 149.1 Are there provisions in the Rules describing the CCP’s recovery or resolution (e.g., are there any provisions for the recapitalisation or reestablishment of its services after a default has been resolved)? | The Recovery Rules cover both the recovery and resolution of the CCP, each of which is described below. Recovery powersThe Recovery Rules enhance the ability of the CCP to recover from extreme stress scenarios by granting the CCP the following recovery powers:assessment (see item 118);Payment Reduction (see item 109);Partial Tear Up (see item 107);complete Invoicing Back (see item 109.1);replenishment (see item 117); andvoluntary payment (see item 109.1) Resolution by way of voluntary wind-downThe Recovery Rules also provide for voluntary wind-down for the CCP. Conditions of voluntary wind-downIf no Default Period is subsisting and the CCP determines that its business is unviable and decides to cease to provide the clearing services (i.e., the Service and/or the Futures Service) the CCP must provide at least 90 days’ notice to all CMs in writing of the date on which the relevant service will cease. However, any action taken by the CCP in connection with a voluntary wind-down is not invalidated by any CM not receiving this notice. ConsultationThe CCP will consult with the risk committee regarding the process for the discontinuation of the clearing service. Effects on the outstanding ContractsIf there are any outstanding Contracts on the date for cessation of a service which has been notified by the CCP then the CCP may, at its sole discretion:terminate any or all of such outstanding Contracts and require them to be cash settled at a price determined by the CCP by reference to the last determined daily closing price for such Contracts; orpostpone the date of the cessation of the service until such time as the CCP determines. Co-operation obligations of the CMsCMs must assist and co-operate with the CCP as the CCP exercises its voluntary wind-down rights and carries out the orderly winding-down of its remaining business, and use best endeavours to effect the unwinding of their remaining Contracts, by (but not limited to) liquidating, compressing, closing-out or otherwise terminating their Contracts.Hide noteASX Recovery Rulebook, Rule 10 (Voluntary Wind-down) |
| 150. Limited recourse and segregation across services | |
| 150.1 If the CCP has more than one service, are there limited recourse and segregation provisions between the services? | In relation to a CM default, the CCP will return to clients directly or the CM’s external administrator (as applicable), a net residual amount (if any) for each segregated account.In relation to a CCP default, the CCP will net the termination values so calculated separately in respect of the House Account and the Client Account of each CM so that only a net cash amount is payable in respect of each of these accounts and between the CCP and each CM.Hide noteCCP response of 27 January 2017Rule 76 (Termination) |
| 151. Renewal default fund after CCP default | |
| 151.1 Does the CCP have rules with respect to the creation of a new default fund after the occurrence of a CCP default? | Not addressed in the Rules. The Recovery Rules are designed to avoid the occurrence of a CCP default. |
| 151.2 If so, what are they? | N/A. |
| 152. Link arrangements with other CCPs | |
| 152.1 Does the CCP have any link arrangements with another CCP (either directly or through an intermediary)? | No.Hide noteCCP responses of 6 February 2015 |
| 152.2 If the CCP has any link arrangements with another CCP, do the Rules require the CCP to monitor the risks associated with these link arrangements? | N/A. |
| 152.3 If so, how is such risk monitored? | N/A. |
| 153. Permitted investments of CM cash collateral and default fund contributions by the CCP | |
| 153.1 Do the Rules permit the CCP to invest CM cash collateral and default fund contributions? | Yes, the Rules permit the CCP to invest monies deposited with it as it sees fit. The RBA 2018/2019 Assessment Appendix C1 states that investment of CM cash collateral and default fund contributions is permissible.The Board may prescribe from time to time:the interest rate payable by the CCP with respect to monies on deposit with the CCP;the interest rate payable by CMs with respect to monies which remain owing to the CCP after the due time for payment.Subject to the above, any interest obtained by the CCP from the investment of monies on deposit with the CCP will be monies to which the CCP is absolutely entitled.The CCP disclaims liability for any failure to invest or to invest in a particular way.Hide noteFutures Rule 3.2.3 (Monies deposited with ASX Clear (Futures))RBA 2018/19 Assessment Appendix C1, Standard 15.1 |
| 153.2 If so, what investments are permissible? | Not addressed in the Rules. However, the RBA 2018/19 Assessment Appendix C1 states that CMs’ cash collateral (together with various other assets) are invested by ASXCC in accordance with the ASXCC Investment Risk Policy and the ASXCC investment mandate, which together define investment objectives, investment specifications, and audit and maintenance of the policy. This requires investments to be restricted to instruments with minimal credit, market and liquidity risks.For further details, please refer to items 158.1 and 158.2.Hide noteRBA 2018/19 Assessment Appendix C1, Standard 15.1 |
| 154. Concentration limits and other requirements in respect of the CCP’s investment of CM cash collateral and default fund contributions | |
| 154.1 Are there any concentration limits, minimum criteria or diversification requirements, or other restrictions on how the CCP can invest CM cash collateral and default fund contributions? | Yes.The various limits, criteria and requirements applicable to the CCP’s investment of CM cash collateral (and other assets) are set out in the ASXCC Investment Policy and the ASXCC investment mandate.For further details, see items 158.1 and 158.2. |
| 155. CCP rights to delegate cash management services | |
| 155.1 Does the CCP have the right to delegate cash management services? | Cash management services are delegated to ASXCC. ASXCC is a wholly-owned subsidiary of ASX Limited. ASXCC is the holding company for, and manages the financial resources of, the CCP. It invests these resources according to a treasury investment policy and investment mandate.ASXCC’s investment mandate requires that it maintains liquid assets readily available to meet the Cover 2 liquidity target as well as day-to-day liquidity requirements across the CCP and the ASX groups other central counterparty. In ASXCC’s investment mandate, establishes that liquid assets can be used to meet the CCP’s CLR and ALR.Further delegation is not specifically addressed in the Rules.Based on the RBA 2018/19 Assessment Appendix C1:AUD-denominated assets of the CCP and its CMs are administered and held within the ASX group (the CCP does not use external custodians to hold its assets or CMs’ assets);AUD-denominated non-cash collateral is lodged directly with the CCP in Austraclear;Non-AUD-denominated securities held as investments or posted as non-cash collateral are held outside the ASX group:NZD-denominated investment securities are held in NZClear, which is owned and operated by the Reserve Bank of New Zealand;Non-cash collateral and investment securities denominated in other currencies (i.e. G4 currencies) are held in Clearstream, an international central securities depository owned by Deutsche Börse As a credit institution, Clearstream is subject to the supervision of the Commission de Surveillance du Secteur Financier and Banque Centrale du Luxembourg in Luxembourg; andcash collateral and cash contributed to the default funds are held directly by ASXCC (of which the CCP is a subsidiary).Hide noteCCP response 27 January 2017RBA 2018/19 Assessment Appendix C1, Standards 7.3, 15.1 and 15.2ASX Recovery Rulebook, Rule 6.1 (ASX Investments and ASX Clearing Corporation) |
| 156. Rehypothecation rights | |
| 156.1 Does the CCP have the right to re-pledge, rehypothecate, transfer or use CM non-cash collateral (including both margin and default fund contributions) under its rules? | All default fund contributions are currently transferred in cash by way of title transfer to the CCP. Default fund contributions transferred in cash to the CCP constitutes the legal and beneficial property of the CCP and represents a debt owing by the CCP to the CM.The RBA 2018/19 Assessment Appendix C1 also states that the CCP does not re-use non-cash collateral posted by CMs, and that the re-use of such collateral is not permitted under the Rules.Hide noteFutures Rules Part 4 (Accounts and Daily Settlement) Para 49A and 49 B; CCP responses of 6 February 2015RBA 2018/19 Assessment Appendix C1, Standards 5.7 and 15.1 |
| 156.2 If so, are there any restrictions on this ability? | N/A. |
| 156.3 Is such investment/rehypothecation made in the name of the CCP or CM? | N/A. |
| 157. CCP requirements in respect of investment/rehypothecation proceeds | |
| 157.1 Is the CCP required to hold the existing proceeds in a manner consistent with other collateral? | No such requirement specified in the Rules. |
| 158. CCP investment policy | |
| 158.1 Does the CCP have a formal investment policy? | Yes.The investments of both ASX CCPs (i.e. the CCP and the CCP operated by ASX Clear Pty Ltd) are made in accordance with the same investment policy: the treasury investment policy. They are also controlled and managed by the same entity, ASXCC.In respect of both cash margin collected and pre-funded pooled risk resources, ASXCC invests funds in accordance with a defined investment policy, endorsed by the ASXCC board and itself governed by the ASX enterprise risk management policy. The investment policy is set out in the high-level ASXCC Investment Risk Policy (publicly available) and in the more detailed ASXCC investment mandate (not publicly available). Together, these policy documents define the ASX group’s investment objectives and investment specifications, and articulate the basis for the mitigation of investment-related credit, market and liquidity risks, including by setting out a variety of counterparty eligibility criteria and investment limits (as described in item 158.2).The ASXCC investment mandate is reviewed and approved annually by the ASXCC Board and the two ASX CCP boards and presented to the risk committee for noting. The investment risk policy is reviewed and approved by the ASX Limited board.Performance of the investment portfolio within the parameters of the investment policy is closely monitored by ASXCC, with trigger points to automatically escalate potential issues before binding limits are reached. Trigger points are defined for weighted average maturity.Hide noteRBA 2018/19 Assessment Appendix C1, Standard 15.4ASXCC Investment Policy |
| 158.2 If so, what is the nature, tenor and risk profile of instruments in which investments can be made? | ASXCC investment mandate: Counterparty eligibility criteria and investment limitsBased on the RBA 2018/19 Assessment Appendix C1, the ASXCC investment mandate sets the following investment counterparty eligibility criteria and investment limits (in order to control counterparty investment risk): (1) Counterparty eligibility criteriaCounterparties must be:Australian Commonwealth or state government entities (including the RBA);the New Zealand authorised deposit-taking institutions; oroff-shore bank counterparties.Authorised deposit-taking institutions and off-shore bank counterparties must also have a Standard & Poor’s short-term credit rating of A1 or above (A2 or above if approved only as a repo counterparty). Off-shore bank counterparties are only approved for the investment of NZD, EUR, GBP, JPY and USD cash and reverse repo, both on an overnight basis.The ASXCC investment mandate does not permit investments in securities of ASX group entities. ASXCC is also not permitted to create unsecured exposures to any investment counterparty that is a CM or affiliated with a CM, other than the 4 major Australian banks. (2) Counterparty investment limitsCounterparty investment limits are not specified in the Rules. However, the RBA 2018/19 Assessment Appendix C1 indicates that they are determined according to factors such as:the credit quality of the counterparty or obligor;the size of available financial resources; andwhether eligible investment counterparties and their affiliates are also CMs.Concentration limits are set on both the proportion of the portfolio and the absolute amount that can be invested with a single counterparty. ASXCC investment mandate: Liquid assets requirementThe ASXCC investment mandate requires that a portion of its portfolio be held in liquid asset form, to cover liquidity risks from both general business risks and risks related to the CCP’s clearing activities.The ASXCC investment mandate aims for quick liquidation of investments with little, if any, price effect. Only investments in AUD and NZD-denominated instruments that can be liquidated or repurchased for cash within 2 hours are treated as ‘liquid’ products. These are defined based on the depth of market liquidity and the terms of investment, including whether the instruments are eligible for repurchase transactions with the RBA and the Reserve Bank of New Zealand. ‘Liquid’ products in other currencies (EUR, GBP, JPY and USD) are defined as those that can be sold for settlement the following business day and which are judged to have an active repo market providing same day liquidity ASXCC Investment PolicyIn addition to the above, the ASXCC Investment Policy states that:the approved investment products currently comprise Australian Commonwealth Government securities, Australian State Government securities, bank bills, negotiable certificates of deposits, senior debt securities, bank fixed term deposits and overnight cash accounts and reverse repurchases in Australian Commonwealth and State Government securities;all securities are required to be on the RBA’s eligible securities list for re-purchase purposes; andexposures within the investment portfolio are managed using several different limits, including limits on portfolio average maturity, maximum investment tenor, concentration limits, maximum exposure to a single investment counterparty and market risk limits including VAR (value-at-risk) and PVBP (present value of a basis point) measures. Hide noteRBA 2018/19 Assessment Appendix C1, Standard 7.4 and 15.4 |
| 158.3 Is the policy publicly available? | The ASXCC Investment Policy is publicly available from the CCP’s website, at: https://www.asx.com.au/documents/clearing/asxcc-investment-policy.pdf.The more detailed ASXCC investment mandate is not publicly available.The broad approach to investment and investment holdings is disclosed publicly in the ASX annual report.Hide noteRBA 2018/19 Assessment Appendix C1, Standard 15ASXCC Investment Policy |
| 158.4 Are exceptions to the investment policy permissible? | Not addressed in the Rules. |
| 158.5 If they are, describe the approval process for granting exceptions to specific investments or policy more generally. | Not addressed in the Rules. |
| 158.6 Are there any concentration limits, minimum criteria or diversification requirements applied to counterparties with whom the CCP might enter into repos? | Yes.Hide noteRBA 2018/19 Assessment Appendix C1, Standard 15ASXCC Investment Policy |
| 158.7 If so, what are they? | The various limits, criteria and requirements applicable to counterparties with whom the CCP might enter into repos are set in the ASXCC Investment Policy and the ASXCC investment mandate.For further details, see items 158.1 and 158.2.Hide noteRBA 2018/19 Assessment Appendix C1, Standard 15ASXCC Investment Policy |
| 159. Settlement banks and custodians | |
| 159.1 What entity holds cash (i.e., name of settlement bank) and securities (i.e., name of sub-custodian) collateral belonging to Client accounts and house accounts? | The AUD-denominated assets of the CCP and its CMs are administered and held within the ASX group.NZD-denominated assets are held in NZClear. Assets denominated in G4 currencies are held in Clearstream.Cash collateral and cash contributed to the default funds are held directly by ASXCC and non-cash collateral is held in the CCP’s account in Austraclear.Hide noteRBA 2018/19 Assessment Appendix C1, Standards 15.1 and 15.2 |
| 160. Settlement bank/custodian segregation of assets | |
| 160.1 Is collateral (cash and securities) provided to the CCP segregated from the assets of the entity (settlement bank) holding the collateral? | Yes.Hide noteCCP responses of 6 February 2015 |
| 161. CCP cash collateral accounts | |
| 161.1 In what type of account is the CCP required to hold cash collateral? | The Rules do not restrict the CCP from holding the cash collateral in any particular type of account. However, the CCP remains subject to its investment policy (see item 158). |
| 162. Liability in respect of cash collateral held at a settlement bank | |
| 162.1 Who bears the risk associated with cash collateral held at a settlement bank (i.e., if the bank holding cash collateral fails, who is responsible)? | Risks associated with of cash collateral held at a settlement bank are borne in the same way as risks associated with investment of any cash or non-cash collateral. Please see items 166.1 and 166.2 for how the risks and losses are allocated between the CCP and the CMs. |
| 163. CCP disclosure of risk allocation arrangements with custodians and banks | |
| 163.1 Does the CCP disclose what risk allocation arrangements it has with third parties holding cash or non-cash collateral on behalf of the CCP? | No.Hide noteCCP responses of 6 February 2015 |
| 163.2 If so, how is that disclosed? | N/A. |
| 164. Claims on CM collateral held by custodians | |
| 164.1 Are custodians holding a CM’s collateral required to acknowledge to the CCP that the collateral in custody is not subject to any right, charge, security interest, lien or claim of any kind in favour of the custodian or any person claiming through the custodian (other than in respect of custodial fees relating to the relevant securities and cash account held by the CCP on behalf of the CMs)? | Not addressed in the Rulesor the RBA Annual Assessments.Hide noteRBA 2016/2017 Assessment, Appendix C1, Standard 13.2 |
| 165. Name under which collateral and investments are held | |
| 165.1 In whose name are the collateral and investments held (i.e., the name of the CCP or the name of the CM)? | CashThe RBA 2018/19 Assessment Appendix C1 states that:cash collateral and cash contributed to the default funds are held directly by ASXCC (a wholly-owned ASX group company, of which the CCP is a subsidiary); andcash collateral and cash contributed to the default funds are “controlled” by ASXCC.The RBA 2022/23 Assessment states that an amended RITS membership agreement (and associated deed poll executed by the CCP) recognise that ASXCC is acting as trustee when holding collateral and other assets for the CCP.However, neither the Rules or the RBA 2018/19 Assessment Appendix C1 specify whether cash collateral that has not been invested is held in the name of the CCP or ASXCC. Given cash collateral is transferred by title transfer to the CCP, we would expect cash collateral (at least initially) to be held in the name of the CCP. Non-cash collateralAUD-denominated non-cash collateral is held in the CCP’s account in Austraclear. It is not held by a sub-custodian.Non-AUD-denominated securities held as investments or posted as non-cash collateral are held outside the ASX group.See also 156.3.Hide noteThe RBA 2022/23 Assessment, table 4, page 35 |
| 165.2 If investments are through an omnibus structure in the name of the CCP, does the CCP maintain records that indicate the underlying CM and/or Client whose collateral has been invested/pledged? | See item 14.2 of the Client Clearing Module. |
| 166. Allocation of investment profits/losses in respect of collateral | |
| 166.1 Are investment profits/losses in respect of collateral borne by the CCP or are they distributed back to CMs? | Investment lossesThe Rules provide that certain “investment defaults” (described below) giving rise to losses exceeding A$75 million will be apportioned between the CMs in accordance with the Rules. CMs are entitled to reimbursement in certain circumstances. The apportionment mechanism and reimbursements are described in item 166.2.For the purposes of the above, “investment defaults” means either of the following:the insolvency or default of the issuer of an investment or the counterparty relating to an investment (which, in the case of an investment that is a deposit, includes the deposit-taking institution); ora loss which has been recognised with respect to, or other recognised diminution in value of, an investment (including such loss or diminution which arises in connection with a restructuring or similar event which occurs in respect of the investment),except to the extent that is a direct result of:the fraud of the CCP, ASX Clear Pty Ltd or ASXCC; ora material non-compliance by the CCP with its investment policy (the occurrence of such material non-compliance does not preclude the occurrence of an investment default).If one of the abovementioned events has occurred, then ASXCC may declare that an investment default has occurred and determine, in its reasonable discretion that an investment loss has been caused by or arises out of that investment default.For purposes of determining the amount of an investment loss, if the CCP has materially exceeded investment limits that it has approved in accordance with its investment policy, then ASXCC must disregard losses to the extent that they exceed those approved limits.If ASXCC determines that the aggregate amount of losses following one or more related investment defaults (other than those resulting from fraud of, or material non-compliance with investment policy of the CCP) is in excess of A$75 million then the amount of that excess will be allocated in accordance with the process set out in item 166.2.The CCPs’ approach establishes arrangements that non-default losses arising from a range of general business risks would be absorbed by ASX through application of operational and business risk capital held for the CCP at the ASX group level.Investment profits2In respect of investment profits, on the basis that investments are controlled and held directly by ASXCC, any investment profit would be retained by ASXCC. The Rules are silent on investment profit.The Rules permit the CCP to invest funds deposited with it as it sees fit. The Board may prescribe from time to time:the interest rate payable by the CCP with respect to monies on deposit with the CCP;the interest rate payable by CMs with respect to monies which remain owing to the CCP after the due time for payment.Subject to the above, any interest obtained by the CCP from the investment of monies on deposit with the CCP will be monies to which the CCP is absolutely entitled. See item 153.1.Apart from such interest, the Rules are silent as to how the investment profits in respect of cash collateral are allocated between the CCP and the CMs.Hide note1 RBA 2018/19 Assessment Appendix C1, Standards 14.3, 14.5, 15.1 and 15.2 ASX Recovery Rulebook, Rule 6.2 (Allocation of Investment Losses)2 Futures Rule 3.2.3 (Monies deposited with ASX Clear (Futures)) |
| 166.2 If distributed to CMs, what is the basis of distributing profits/losses? | Each CCP’s investment loss and CM investment loss After an investment loss exceeding the A$75 million threshold has been identified in accordance with the Rules (see item 166.1), the investment losses will be allocated as follows:Allocation between two CCPs: firstly, ASXCC will allocate an amount of the investment loss to the CCP (and the CCP operated by ASX Clear Pty Ltd). This is to be determined on the basis of ASXCC’s calculation of the interest which the CCP and ASX Clear Pty Ltd respectively hold in the total amount of investments made by ASXCC; andAllocation among CMs of each CCP: secondly, the CCP will allocate its investment loss to each CM, as at the time the investment default is declared (see item 166.1). This allocation is to be determined on the basis of the CCP’s calculation of the amount representing funds which the CM has paid to the CCP in accordance with the Rules (including CM’s default fund contributions, collateral and excess cash) and which has been invested as at the time of the investment default declaration. The amount so allocated to a CM in this manner is the CM’s investment loss,provided that any investment loss on Overnight Margin Monies (“OM investment loss”), is to be allocated to each non-defaulting CM at the time of the allocation, as follows:firstly, ASXCC will allocate the OM investment loss to the CCP (the “ASXCLF OM investment loss”);secondly, the CCP will allocate the ASXCLF OM investment loss to each non-defaulting CM at the time of allocation (the “CM OM investment loss”), as follows:40 per cent. of the ASXCLF OM investment loss will be allocated in proportion to the CM’s Adjusted Default Fund Contribution;30 per cent. of the ASXCLF OM investment loss will be allocated only to those CMs that the CCP has notified prior to the investment default are in scope to pay the Overnight Margin Monies to the CCP in proportion to the CM’s Adjusted Default Fund Contribution; and30 per cent. of the ASXCLF OM investment loss will be allocated based on the CM’s percentage share of the Overnight Margin Monies held by all US Settlement Banks at the time the investment default occurred.Where:“Adjusted Default Fund Contribution” means for a CM in the Futures Service, the CM’s default fund contribution as last notified to the CM by the CCP and for a CM in the Service, CM’s default fund contribution as last notified to the CM by the CCP adjusted by reference to the OTC/Futures margin ratio for the calculation period (as defined in Schedule 10 the to the Futures Rules).The determination of these amounts is final and binding on the CM, absent manifest error.Allocation of investment loss allocated to a CM between accounts of the CMThe CCP will allocate each CM’s investment loss (including investment loss allocated to the Clients of a CM) amongst the amounts representing funds which that CM has paid to the CCP in accordance with the Rules (including default fund contributions, collateral and excess cash) and which has been invested as at the time of the investment loss is declared. Such allocation will be made on a pro rata basis across the CM’s relevant accounts (including any Client Accounts). The CCP will allocate the CM OM investment loss across the CM’s relevant accounts (including any Client Accounts) on a pro rata basis, provided that such loss is first allocated to the Overnight Margin Monies (if any) paid by the CM to the CCP in respect of those accounts and then to the amounts representing all other funds which the CM has paid to the CCP (including its default fund contribution, collateral other than Overnight Margin Monies and excess cash) in accordance with the Rules and which has been invested in ASX Investments as at the time of the investment default declaration. The CCP will use the exchange rate of the foreign currency transaction it has entered into, or the average rate of such transactions if there are more than one, when determining the CM OM investment loss. Each such amount is immediately reduced by the amount so allocated to it, provided that no amount can be reduced to less than zero. If the amount of a CM OM investment loss is greater than the funds (including Overnight Margin Monies) the CM has paid to the CCP and which have been invested in ASX Investments as at the time of the investment default declaration, then the residual portion of the CM’s CM OM investment loss will be reallocated among the other CMs with available funds.In relation to the investment loss or a CM OM investment loss, the CM must reinstate the amount of such a reduction (other than a reduction in Overnight Margin Monies) on or before the next Business Day via a cash payment transaction in Austraclear. Such cash payment transaction must be at the “Settled” state at the same time as applies in respect of payments of margin payable on that day or as otherwise required by the CCP. CMs must provide each new Client with, or direct the new Client to, a copy of the investment loss fact sheet, before the CM holds an open position for such Client. The CCP must provide existing Clients, or direct the existing Client to, a copy of the investment loss fact sheet, within 3 months of the commencement of an ASXCLF OM investment loss allocation. The CCP may require CMs to attest annually that it has provided the investment loss fact sheet to its Clients. The investment loss fact sheet (as amended by the CCP from time to time) can be located on the CCP’s website and is titled “ASX Investment Loss Allocation – Fact Sheet for clients”.The CCP will notify each CM of its investment loss or CM OM investment loss and the allocation of such investment loss or CM OM investment loss across each of its relevant accounts. Failure to provide such a notification does not affect the allocation of the CM’s investment loss or CM OM investment loss.Use of a defaulting CM’s remaining collateral to reimburse a CM OM investment lossNotwithstanding the CM OM investment loss allocation above, a defaulting CM will be allocated an OM investment loss, if defaulting CM’s assets remain after the CCP has applied these assets to satisfy the CCP Loss (or a related body corporate of the CCP has applied those assets to satisfy losses incurred in connection with the CM’s default) and closed-out and/or ported all of the defaulting CM’s cleared positions (“Remaining defaulting CM Assets”). The loss allocation amount for such defaulting CM will be the lower of:the Remaining defaulting CM Assets (if any); andthe loss allocation amount the defaulting CM would have been allocated had it not been in default.The loss allocation amount for such defaulting CM will be applied to reimburse non-defaulting CMs on a pro rata basis for the original loss allocated to such non-defaulting CMs.ReimbursementIf the CCP exercises the powers described above and subsequently recovers an amount in respect of any investment which was the subject of the investment default, then the amount recovered (less any costs and expenses incurred by either the CCP or ASXCC in connection with the recovery) must be reimbursed to CMs. More specifically, the CCP must reimburse the CMs which suffered a reduction in the amount representing funds which the CMs have paid to the CCP in accordance with the Rules (including default fund contributions, collateral including Overnight Margin Monies or excess cash) because of their investment loss or CM OM investment loss with respect to that investment default.Such reimbursement will be made (by whatever means which the CCP decides is appropriate) pro-rata to those CMs up to the amount of the relevant reduction and by also taking into account any CM OM investment loss reimbursement made to the same CMs from Remaining defaulting CM Assets. CMs will be reimbursed up to the amount of the relevant reductions prior to the CCP being reimbursed for any losses incurred in connection with the relevant investment defaults (excluding any costs and expenses incurred by the CCP in connection with the applicable investment defaults).Hide noteASX Recovery Rulebook, Rule 6 (Allocation of Investment Losses)ASX Recovery Handbook, Rule 6 (Allocation of Investment Losses)RBA 2018/19 Assessment Appendix C1, Standards 14.3, 15.1 and 15.2 |
| Global Glossary of Terms and CCP Specific Glossary of Terms | ASX Clear (Futures) Pty Ltd (OTC) _ Glossary (07.24.25) |
| Monthly updates spreadsheet | ASX Clear (Futures) Pty Ltd Rule Updates Spreadsheet (as of 02.28.26) |
| Archive – yearly blacklines | ASX Clear (Futures) Pty Ltd – OTC – Base – (01.23.26 against 01.23.25)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.23.25 against 01.26.24)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.26.24 against 01.16.23)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.16.23 against 01.16.22)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.16.22 against 01.25.21)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.25.21 against 01.27.20)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.27.20 against 01.22.19)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.22.19 against 03.21.18)ASX Clear (Futures) Pty Ltd – OTC – Base – (03.21.18 against 02.26.17) |
| Archive spreadsheet | ASX Clear (Futures) Pty Ltd – OTC – Base (01.23.26 against 10.24.25)ASX Clear (Futures) Pty Ltd – OTC – Base (10.24.25 against 07.24.25)ASX Clear (Futures) Pty Ltd – OTC – Base (07.24.25 against 04.23.25)ASX Clear (Futures) Pty Ltd – OTC – Base (04.23.25 against 01.23.25)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.23.25 against 07.26.24)ASX Clear (Futures) Pty Ltd – OTC – Base – (07.26.24 against 04.26.24)ASX Clear (Futures) Pty Ltd – OTC – Base – (04.26.24 against 01.26.24)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.26.24 against 10.26.23)ASX Clear (Futures) Pty Ltd – OTC – Base – (10.26.23 against 07.26.23)ASX Clear (Futures) Pty Ltd – OTC – Base – (07.26.23 against 04.26.23)ASX Clear (Futures) Pty Ltd – OTC – Base – (04.26.23 against 01.16.23)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.16.23 against 01.16.22)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.25.21 against 10.23.20)ASX Clear (Futures) Pty Ltd – OTC – Base – (10.23.20 against 07.24.20)ASX Clear (Futures) Pty Ltd – OTC – Base – (07.24.20 against 04.27.20)ASX Clear (Futures) Pty Ltd – OTC – Base – (04.27.20 against 01.27.20)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.27.20 against 10.23.19)ASX Clear (Futures) Pty Ltd – OTC – Base – (10.23.19 against 07.23.19)ASX Clear (Futures) Pty Ltd – OTC – Base – (07.23.19 against 04.23.19)ASX Clear (Futures) Pty Ltd – OTC – Base – (04.23.19 against 01.22.19)ASX Clear (Futures) Pty Ltd – OTC – Base – (01.22.19 against 11.20.18)ASX Clear (Futures) Pty Ltd – OTC – Base – (11.20.18 against 07.19.18)ASX Clear (Futures) Pty Ltd – OTC – Base – (10.15.18 against 07.19.18)ASX Clear (Futures) Pty Ltd – OTC – Base – (07.19.18 against 03.21.18)ASX Clear (Futures) Pty Ltd – OTC – Base – (03.21.18 against 06.22.17)ASX Clear (Futures) Pty Ltd – OTC – Base – (06.22.17 against 04.22.16)ASX Clear (Futures) Pty Ltd – OTC – Base – (06.22.17 against 02.26.17)ASX Clear (Futures) Pty Ltd – OTC – Base – (02.26.17 against 10.25.16)ASX Clear (Futures) Pty Ltd – OTC – Base – (10.25.16 against 07.22.16) ASX Clear (Futures) Pty Ltd – OTC – Base – (07.22.16 against 04.22.16) ASX Clear (Futures) Pty Ltd Rule Updates Spreadsheet (as of 02.28.26) |
| Diagrams | Hide noteASX Clear (Futures) (OTC) – Waterfall StructureASX Clear (Futures) (OTC) – Liability of a Withdrawing CM |
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