Default Management Enhancements to Operating Rules of ASX CS facility licensees

What's this about:
  • ASX 24 Market
  • Clearing
  • Settlement
  • Compliance
  • Operations
  • Risk
  • Rules
  • Default Management
  • Financial Stability Standards
  • Match-Out
  • Rule Amendments
  • Events Of Default
  • Counterparty Risk Assessment
  • settlement finality
Notice reference number: 0716.20.07
Date published: 06/07/20
Effective as of: 06/07/20
Last updated: 03/07/20

Participants are advised that the four ASX CS facility licensees (ASX Clear, ASX Settlement, ASX Clear (Futures) and Austraclear) have implemented changes to their operating rules to enhance the legal certainty of default management actions.

The amendments may be summarised as follows:

1.       Suspension – All rulebooks: Removed need to roll suspension every 30 days to minimise administrative burden on ASX.  A participant should remain suspended until the suspension is lifted or termination takes effect.

2.       Match-out - ASX Clear and ASX Clear (Futures): Included express power to “match-out” open exchange traded derivatives contracts across client and house accounts of multiple defaulting clearing participants. Matching out this way (and then closing out the net-position on market) is more efficient than trying to close-out the gross positions (buy and sell) on-market particularly in a time of market stress.

3.       IM definition - ASX Clear: Expanded definition of Initial Margin to include Exchange Traded Options.

4.       Insolvency events of default - All rulebooks other than ASX Clear (Futures): Updated the events of default listed in the rulebooks to include references to a participant becoming a “Chapter 5 body corporate” to align with amended definitions in the Corporations Act 2001 (Cth) and Payment Systems and Netting Act 1998 (Cth).  

5.       Other events of default - ASX Clear, ASX Clear (Futures) and Austraclear: Expanded the events of clearing participant default in the ASX CCP rulebooks to include: (i) failure to submit a solvency declaration when requested; and (ii) suspension or default declaration by the other clearing house (to establish a clear basis for a cross-default). Expanded the events of suspension/termination for a Participant in Austraclear to ensure that there is a cross-default basis for suspension/termination.

6.       Disclosures - ASX Clear and ASX Clear (Futures): Expanded permitted disclosure by ASX of information regarding its participants to any other clearing house, clearing and settlement facility or payments system (in Australia or overseas) for the purpose of the ASX CCPs or the other clearing house, clearing and settlement facility or payments system monitoring for and managing a default by the Participant.

7.       Settlement finality – All rulebooks: Added a rule making it clear that participant cut-off times in the operating rules and procedures are final other than in exceptional circumstances. This was added to comply with RBA Financial Stability Standards CCP 8.3.1 and SSF 7.3.1.

8.       Counterparty risk assessment – Austraclear: Added a rule disclosing that one or more Austraclear participants may undertake state banking or state insurance business in the course of their activities on Austraclear and may therefore have the benefit of sovereign immunity under the Payment Systems and Netting Act 1998 (Cth). Austraclear participants should consider this in their counterparty risk assessment. This was added to comply with a recommendation from RBA arising in the course of the 2019 Assessment of the CS facility licensees.

A copy of the amendments for each of the ASX CS facility licensees is available here.

What do I need to do by when?

The rule amendments take effect on 6 July 2020.

Participants should review the amendments to the operating rules of the ASX CS facility licensees in which they participate.

No other action is required.

Need more information?

Issued by

Sally Palmer
Deputy General Counsel

Contact information

Bailie Yan, Senior Manager, Default Management & Recovery
+61 (02)  9227 0368

Catherine Eakin, Senior Manager & Senior Legal Counsel
+61 (02)  9227 0472