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CCP recovery and resolution

Recovery

Australian regulatory standards now in force require ASX’s central counterparties (CCPs), ASX Clear and ASX Clear (Futures), to establish powers (‘recovery tools’) under their operating rules to address fully any credit losses or liquidity shortfalls they may face as a result of clearing participant default, and to replenish their default funds following such events. The Reserve Bank of Australia, which is responsible for setting and monitoring ASX’s compliance with the domestic standards, requires these recovery tools to address very extreme scenarios under which the CCP’s financial resources are insufficient to cover credit losses or payment obligations following a clearing participant default. The Reserve Bank also expects these recovery tools to be consistent with international guidance on recovery of financial market infrastructure (FMI). In addition, the CCPs must have comprehensive arrangements to allocate losses from the custody and investment risks it incurs as a result of its clearing activities.

ASX has consulted with customers and other stakeholders on the enhancement of the CCPs’ operating rules to comply with domestic and international standards.  Final operating rules, consultation and reference material can be found below.

Resolution

Separately, the Australian Treasury is developing legislative proposals for an Australian FMI resolution regime consistent with international standards. ‘Resolution’ refers to a public authority taking control of a distressed FMI to either return it to viability or facilitate its orderly wind-down. ASX’s recovery plans will need to be consistent with the resolution regime.

Recovery Rules

The operating rules relating to recovery became effective on 1 October 2015 and were updated on 1 June 2016. Copies of the operating rules are available at:

Consultation Material

Response to Consultation – 1 April 2016 Central Counterparty Recovery – Response to Consultation Feedback on Exposure Draft Rules for Interim Replenishment of Default Funds. 

Non-confidential submissions:

Operating Rules:

A copy of the proposed amended ASX Recovery Rules is available at: ASX Recovery Rulebook

A mark-up of the proposed amendments to the ASX Recovery Rules from those contained in the December 2015 Consultation Paper is available at: ASX Recovery Rulebook

Consultation Paper 4 – 4 December 2015

Central Counterparty Recovery – Consultation on Exposure Draft Rules for Interim Replenishment of Default Funds

Exposure Draft Rules: ASX Recovery Rulebook

Response to Consultation – 17 August 2015

Central Counterparty Recovery – Response to Consultation feedback on exposure draft rules to implement loss allocation and replenishment tools for clearing participant default and non-default loss

Non confidential submission:

Operating Rules:

A consolidation of the proposed new and amended operating rules for ASX Clear and ASX Clear (Futures) outlined in the April Consultation Paper and this Response to Consultation are available at:

A mark-up of the amendments to the proposed new and amended operating rules from those contained in the April Consultation Paper are available at:

Consultation Paper 2 – 21 April 2015
Central Counterparty Recovery – Consultation on Exposure Draft Rules to Implement loss allocation and replenishment tools for Clearing Participant default and non-default loss

International Comparison of CCP non-default loss allocation rules

Exposure Draft Rules:

Consultation Paper 1 – 2 October 2014
ASX Consultation Paper 1 Central Counterparty Recovery: uncovered loss allocation and replenishment tools for clearing participant default
Consultation Questions (Schedule 7 to ASX Consultation Paper 1). 
International Comparison of CCP Recovery-Related Operating Rules.
 

Non-confidential submissions:

Reference Material