Amendments to the ASX Clear (Futures) Operating Rules and Procedures – Introduction of a framework for default management auctions of exchange traded derivatives (“ETDs”) and extension of existing default indemnity
Further to ASX’s response to consultation [AC1] published on 21 April 2021, ASX Clear (Futures) advises that a number of changes have been made to the ASX Clear (Futures) Operating Rules (the “Rules”) and the ASX Clear (Futures) Operating Rules Procedures, Determinations and Practice Notes (the “Procedures”), and are to become effective from 1 February 2022.
Framework for default management auctions of ETDs
ASX Clear (Futures) has amended the Rules and Procedures to introduce a clear and transparent framework for the auctioning of ETDs by ASX Clear (Futures) (“ASXCLF”) in the event that a futures clearing participant defaults.
The key features of this default management auction framework are summarised as follows:
· participation in default management auctions of ETDs is to be optional only;
· default management auctions are to be open to participation by ASXCLF Participants and by eligible clients of ASXCLF Participants;
· for certain specialised product groups, ASXCLF will establish a “panel” of pre-approved bidders including ASXCLF Participants or eligible end-user clients of ASXCLF Participants, to ensure expedition of auction process where necessary;
· ASXCLF may split the defaulter’s portfolio into any number of auction pools at its discretion;
· bids are to be expressed as a percentage of discount or premium to the last “daily settlement price” of all positions contained in the auction pool;
· ASXCLF Participants are to approve any bids made by clients prior to submission; and
· a “highest bidder wins” auction format is to be applied in respect of each auction pool.
Default management auctions may be held in respect of the defaulter’s portfolio and in respect of any associated hedging contracts, where relevant.
Extension of existing default indemnity
ASXCLF has amended the Rules to facilitate consistency of default management powers available to both ASX Clear (“ASXCL”) and ASXCLF through the extension of the existing ASXCLF indemnity.
The amendments to the Rules seek to replicate the indemnification extension provisions found in the ASXCL Operating Rules, to allow available collateral of a defaulting ASXCLF Participant to be used to meet losses of ASXCL, or other ASX Group entities.
On a practical level, this will mean that ASXCL can utilise the excess cover, assets or contributions as a result of the default of an ASXCLF Participant. ASX considers this change to be beneficial to clearing participants as it will allow surplus resources of the defaulting clearing participant lodged with ASXCLF to be available for use before recovery assessments are called from non‐ defaulting clearing participants of ASXCL.
The changes to the Rules and Procedures are attached to this notice for reference:
No action required.
Senior Manager, Clearing Risk