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Clearing and settlement arrangements for Approved Market Operators in respect of CHESS eligible non ASX listed financial products

Background

ASX Settlement Pty Limited (ASX Settlement) provides clearing and settlement arrangements for approved listing venues other than ASX (Approved Market Operators or AMOs) in respect of CHESS eligible financial products listed on the markets of those AMOs (AMO-listed financial products).

Currently, these arrangements consist of a Transfer Service where CHESS-eligible AMO listed financial products can be transferred in real time by ASX Settlement Participants through CHESS. Payment is handled bi-laterally by participants outside of CHESS.

As a commercial matter the ASX Group (“ASX”) is seeking to expand the clearing and settlement arrangements that it currently provides to approved listing venues to include arrangements which provide delivery versus payment (DvP) settlement service functionality. Historically there has only been demand for these arrangements in respect of ASX-listed securities.

ASX Settlement is putting in place the arrangements, and obtaining regulatory clearances, to expand the range of services it can provide to approved listing market operators as they grow their businesses.

Overview: Transfer Service

The Transfer Service enables transactions in CHESS-eligible financial products listed on AMOs to be transferred in real time between ASX Settlement Participants. This occurs through the submission of demand-transfer settlement instructions by ASX Settlement Participants in CHESS. Once these instructions are submitted, the financial products are transferred in real-time. These are not DvP settlements, but rather, Free-of-Payment transfers of title to financial products. The payment component of transactions is managed by participants outside of CHESS. ASX does not capture trade information from AMOs as the transactions are not cleared. AMO listed securities are set up in CHESS by ASX Clearing and Settlement Operations. The set up process includes the creation of Issuer records and CHESS subregisters and establishing the link in CHESS with the Issuer’s share registry.

Transfer Service provided by ASX Settlement to approved listing venues (AMOs) in respect of CHESS eligible AMO listed financial products

Transfer Service provided by ASX Settlement to approved listing venues (AMOs) in respect of CHESS eligible AMO listed financial products

Transfer Service: contractual framework

ASX Settlement makes the Transfer Service available to AMOs under contractual terms of service (Transfer Service Agreement). An initial application fee and annual service fees apply to the Transfer Service. The Transfer Service Agreement has a term of two years and may be extended by agreement.

Fees are also payable by Issuers for the set-up and maintenance of securities and subregisters in CHESS along with other current CHESS Issuer fees (PDF 72KB). The fees payable by Settlement Participants for effecting demand-transfers of financial products in CHESS are the same irrespective of whether the financial products are ASX listed or AMO listed.

The Legal Terms of Service contain the general contractual terms of the Transfer Service and incorporate:

an application to be completed by an Australian financial market licensee that seeks approval under the ASX Settlement Rules as an Approved Market Operator to acquire the Transfer Service; and
the fees for the Transfer Service.

A listing market operator that seeks approval under the ASX Settlement operating rules to acquire the Transfer Service must meet minimum technical and operational standards. Those standards are set out in the ASX Settlement Operating Rules.

Users of the Transfer Service

ASX Settlement has approved each of the following listing market operators as an “Approved Market Operator” under the ASX Settlement Operating Rules to acquire the Transfer Service:

Asia Pacific Exchange Limited (APX);
National Stock Exchange of Australia Limited (NSX); and
SIM Venture Securities Exchange Limited (SIM)

Expanded clearing and settlement arrangements

ASX has established a project to investigate and implement expanded clearing and settlement arrangements for listing market operators that include delivery versus payment (DvP) settlement functionality for trades executed on those markets. ASX is seeking to ensure that the expanded clearing and settlement arrangements are implemented in a manner that is consistent with ASX’s regulatory obligations, supported by robust technical, operational and risk management systems and takes into account the views of relevant stakeholders (including listing market operators, settlement participants and their back-office technology providers). ASX is considering the business requirements in respect of DvP settlement arrangements of listing market operators which currently utilise the Transfer Service. ASX is also assessing the changes to technical systems and operational processes that may be necessitated by DvP service functionality for non ASX listed financial products. Historically there has only been demand for, and ASX has only provided these arrangements in respect of, ASX-listed securities.

ASX will directly engage with regulators, settlement participants and their back-office technology providers on the implementation of expanded clearing and settlement arrangements for listing market operators. In the period from late August to early September 2011, ASX intends to share with approved listing market operators a project plan for the delivery of DvP settlement arrangements for normal trading on those markets, including project milestones and an indicative delivery date.

DvP Settlement of capital raisings by AMO-listed issuers

ASX has put in place arrangements for AMO-listed Issuers to use the ASX Primary Market Facility (PMF). The PMF enables AMO-listed Issuers to use DvP settlement for certain capital raisings. AMO-listed Issuers must apply to ASX Settlement to use the PMF for capital raisings. The application process, procedures and fees that apply to use of the PMF by AMO-listed Issuers is available (PDF 313KB). The fees payable by Issuers for using the PMF are the same irrespective of whether they are ASX-listed or AMO-listed.

Registration of Interest

ASX seeks to engage, in a fair and equitable way and on a non-discriminatory basis, with all Australian listing market operators which have an interest in new clearing and settlement arrangements so that ASX can extend the suite of services that can be made available to those market operators. If you wish to register an interest in being provided with clearing and settlement arrangements for non ASX-listed financial products, please contact Chan Arambewela, Manager, Post-Trade Services on 02 9227 0627 or Chan.Arambewela@asx.com.au.