The settlement of equities performs a critical role in the operation of Australia's financial markets. ASX's settlement services help reduce counterparty and systemic risk, and provide transaction efficiency and certainty for end investors.
The settlement process is largely invisible, but the benefits are shared by all financial market users.
Backed by significant investment and overseen by Australian regulators, ASX's settlement infrastructure supports the world-class reputation of Australia's financial markets.
ASX's model for settlement maximises efficiency through the netting of settlement obligations in each individual equity and the netting of all payment obligations, while minimising the risk of settlement failure.
ASX Settlement and CHESS
The settlement system and electronic securities depository for all cash equities traded in Australia is ASX Settlement.
As at the end April 2017, $1.87 trillion of securities were held in CHESS across 2,050,140 account holders and 13,101,873 equity holdings.
Settlement is conducted through the Clearing House Electronic Sub-register System (CHESS), which operates a Model 3 Delivery versus Payment (DvP) multilateral net batch settlement mechanism, exchanging cash for securities irrevocably.
CHESS also registers the title (ownership) of shares on its sub-register. Both this sub-registry service and the fact that it is included within standard settlement fees are unique to Australia.
The sub-registry service provides key benefits to brokers, investors and issuers:
- For brokers, it reduces risk in facilitating settlement through expediting both the movement of securities in preparation for settlement and the timely allocation of shares to client accounts post settlement. It also enables them to provide a value-add service to investors by managing all of an investor's shareholdings in a single account. Because registration is held within the CHESS system, brokers can also do this without any additional system development.
- For investors, it has the advantage of simplifying the administration of a portfolio by consolidating all shareholdings into a single account. It also provides investors with comfort and confidence that their holdings are secure and can only be affected through receipt of proper instruction from them. The CHESS system also produces holding statements which independently confirm their share purchases, sales, transfers and holdings. Finally, the CHESS system retains investor details for use in subsequent transactions.
- For issuers, in addition to providing a cost effective manner to maintain a register of shareholders, the sub-register also provides an efficient and accurate mechanism to process corporate actions.
ASX Settlement is a licensed clearing and settlement facility under the Corporations Act, and must comply with the Financial Stability Standard (FSS) for Securities Settlement Facilities published by the Reserve Bank of Australia. In addition, as a clearing and settlement facility licensee, it must:
- do all other things necessary to reduce systemic risk
- to the extent that it is reasonably practicable to do so, do all things necessary to ensure that the facility's services are provided in a fair and effective way
- have adequate arrangements for supervising the facility.
The ASX Settlement Operating Rules form the contract between ASX Settlement and its settlement participants.
ASX Settlement provides unaffiliated Approved Market Operators and unaffiliated Approved Listing Market Operators access to settlement arrangements through standard legal terms and conditions. Further information on these access arrangements is available in here.