ASX Clear (Futures)
ASX Clear (Futures) is the Clearing House for all Futures and Options products traded on ASX Trade24 and all eligible OTC products submitted via an approved Affirmation Platform.
Trades executed on ASX Trade24, or OTC trades affirmed on an ASX approved Affirmation Platform, are submitted to ASX Clear (Futures) for registration.
Once accepted and novated by ASX Clear (Futures), the Full Participant will receive notification of a Market Contract between the Participant and ASX Clear (Futures). The Full Participant will advise the allocation instructions and the Open Contract will be registered in the Clearing Participant’s name.
Where the Full Participant and Clearing Participant are separate entities, the trade will be given up and only registered to the Clearing Participant on their acceptance.
At the end of each clearing day, ASX Clear (Futures) will margin the Clearing Participant a daily variation margin based on the movement in the value of the positions, and an initial margin calculated on the open positions held across the House and Client account for settlement the following business day. The Clearing Participant will arrange settlement via ASX Austraclear and/or ASX Collateral.
This diagram illustrates the trade through to the daily settlement process.
Facilitated Membership is an ASX service model option available for firms who are seeking membership of ASX Clear (Futures). It provides these firms with the option to use a third party service model to provide the technology and operational support to connect to the clearing house.
Further details regarding Facilitated Membership can be found here.
ASX Clear (Futures) - Client Clearing
Under regulation from ASIC and the RBA, and after working in consultation with the Australian market place, ASX introduced the OTC Client Clearing service in April 2014, and the Futures Client Clearing service in July 2014. The two services combine to provide a world class central clearing service for OTC Interest Rate Derivatives and ASX24 ETD contracts, under the existing ASX Clear (Futures) Clearing and Settlement facility licence.
The website for the ASX OTC Clearing service can be found here.
The ASX Client Clearing Service established an account structure, and set of governing rules, that enables its Participants to offer to their futures and OTC Derivative customers the choice of clearing through an Individual Client Account or a traditional Client Omnibus account.
The Individual Client Account (ICA) is opened in the name of the individual client at ASX, under the Client clearing account of the Clearing Participant (who continues to clear transactions as agent of the Client). The segregated account allows for the separate identification and protection of individual customers’ gross positions and Collateral Value. Collateral Value is the higher of the initial margin value of positions in the ICA, or the total collateral (cash and non-cash) which has been attributed (via the CP) to the ICA account, including excess collateral.
The ICA significantly increases the likelihood of ASX being able to port an individual client’s positions and Collateral Value, to a nominated Alternate Clearer, in the event of Clearing Participant default. Where porting is not available, ASX will close-out the positions in the ICA, with margin value and/or actual attributed assets being returned directly to the client (less the costs of close-out).
The ASX Client Protection Model governs the contractual relationship between ASX, the Clearing Participant and the CPM Client (in an ICA), and also governs the procedures undertaken in the event of Clearing Participant default.
Further details regarding the ASX Client Clearing Service (including links to the Client Fact Sheets) can be found here.
ASX Clear (Futures) services are provided to clearing participants who are typically brokers or clearing and custody service providers. The two key benefits to clearing participants are netting efficiencies and counterparty credit protection.
ASX Clear is approved as a ‘netting market’ for the purposes of the Payment Systems and Netting Act. This enables the netting of settlement obligations in each individual equity providing greater market efficiency at the time of settlement and reducing participant transaction and funding costs.
The left-hand diagram below depicts participant A’s trading activity in a single product. At a gross level, participant A has sold 100 contracts to, and bought 50 contracts from, participant B. Participant A has also sold 30 contracts to, and bought 50 contracts from, participant C. Post novation, participant A’s trades with participants B and C are replaced with trades between participant A and ASX Clear (Futures). Post netting this becomes a net sale of 30 contracts from participant A to ASX Clear (Futures) (right-hand diagram).
Counterparty Credit Protection
Through novation, ASX Clear (Futures) provides protection to non-defaulting clearing participants (and, indirectly, their clients) from a defaulting clearing participant which does not meet its obligations. Different arrangements apply for different categories of financial product transactions.
Clients, typically investors, must be fully informed and satisfied with the creditworthiness and performance risk of their clearing participant. ASX Clear (Futures) does not interpose itself between a clearing participant and its clients.
Novation does not change the exposure that clients have if their own clearing participant defaults and cannot meet its obligations to them.