ASX Equity Market Infrastructure

1
ASX Equity Market Infrastructure
Richard Murphy General Manager, Equity Markets ASX
2
Presentation Topics

• Regulatory Framework
• T,CS in Australia
• CHESS Participation
• Clearing Risk Management
• CHESS Sub-register Settlement
• Clearing Settlement Flow

3
Australian Regulatory Framework
4
Trading, Clearing Settlement in Australia
5
Equity Clearing Settlement at ASX

• CHESS ASX equity CS infrastructure
• Trades are novated to Australian Clearing House
  (ACH) - central counterparty (CCP)
• Manages risk by guaranteeing the clearing of
  market trades
• Settlement occurs via CHESS - ASTC manages
  novated and non-novated DvP settlement

6
Participation Categories

• Flexible categories based on business model
• Market Participants T,CS
• Trading Participants Trade only need 3rd
  party CS
• Clearing Participants Clear only 3rd Party
  Clearers, usually also Settlement Participants
• Settlement Participants Sponsor investors
  and/or act as settlement agents, e.g. Custodians,
  Margin Lenders

7
CHESS - Key Concepts

• All holdings fully de-materialised
• Market transactions are novated and cleared
  through ACH as the CCP on T3 DvP Settlement on a
  net basis
• RTGS line-by-line settlement functionality
  available

8
CHESS - Key Concepts

• Name-on-register model - transfer of securities
  constitutes transfer of legal title
• Contrast to depository model - transfer
  constitutes a transfer of beneficial interest
• So promotes direct retail interest and
  participation through ownership, supported by ASX
  investor education

9
Clearing Risk Management

• Clearing participants (CPs) contractually bound
  by ACH Clearing Rules
• Capital Adequacy Requirements reported and
  monitored
• Clearing Guarantee Fund of A150m for default
  management
• Additional default insurance of A100m
• Additional contributions and cover calls on CPs
  where ACH Capital Stress Testing indicates
  exposure in excess of A150m

10
CHESS Subregister

• CHESS Subregister Issuer Sponsored Subregister
  Company Register
• Flexible - enable various share ownership models
• Retail Participants sponsor investors on CHESS
  single HIN across all holdings for simple
  portfolio reporting
• Institutional Custodians nominee their clients
  holdings under single CHESS HIN
• Issuer Sponsored Register for less active retail
  holdings e.g. demutualisations - multiple SRNs
  across holdings
• CHESS holds approx 83 of market cap in over 10.1
  m holdings (Sep 2008)

11
CHESS Settlement

• Settlement Participants contractually bound by
  the ASTC Settlement Rules
• Settlement occurs daily, starts at 10.30am,
  finishes at noon
• Selling Brokers transfer securities from client
  HIN (or convert from Issuer Sponsored) to
  designated Settlement CHESS account (HIN) prior
  to settlement
• Buying Brokers transfer securities from
  Settlement HIN to client HIN (or convert to
  Issuer Sponsored) after settlement
• CHESS instructs Participants banks to move RTGS
  funds between banks and the CHESS Exchange
  Settlement Account through RITS (RBA payments
  system)
• Upon confirmation of payment transfers from RBA,
  CHESS finalises movement of securities

12
Equity Market Clearing Settlement Flow
ASX
1. Trade
1. Trade
Trading or Market Participant
Trading or Market Participant
Reporting
1. Trade
2. Notified trade
Clearing or Market Participant
2. Notified trade
Clearing or Market Participant

• ACH
• Trade novation
• Central counterparty guarantee
• Clearing Risk Management

3. Pre-settlement matching
3. Pre-settlement matching
CHESS
Settlement or Market Participant
Settlement or Market Participant
4. CCP net batch instruction
4. CCP net batch instruction

• ASTC
• - DvP (BIS Model) 3
• Settlement - novated
• - non novated
• - Multi-lateral netting
• Sub-register (name on register)

6. Confirmation of DvP transfer
6. Confirmation of DvP transfer
RBA RITS/RTGS
6. End of day reporting of CHESS Holdings
5. Communication to effect the transfer of
funds in ESAs at the Reserve Bank.

• Key Stats FY07
• 48.9 million trades
• Apprx 70 settlements novated to CCP
• 5.3 billion in settlement per day (average)
• Daily fail average rate for Jan 07 Jan 08 is
  1.23

13
Any Questions?