Conduct in Operating Cash Equity Clearing and Settlement Services in Australia: Policy Statements
The Council of Financial Regulators is today releasing two policy statements setting out Regulatory Expectations for Conduct in Operating Cash Equity Clearing and Settlement Services in Australia and Minimum Conditions for Safe and Effective Competition in Cash Equity Clearing in Australia.
On 30 March 2016, the Government endorsed the recommendations of a review of competition in clearing Australian cash equities carried out during the first half of 2015 by the Council of Financial Regulators in collaboration with the Australian Competition and Consumer Commission (ACCC). These recommendations are set out in the report, Review of Competition in Clearing Australian Cash Equities: Conclusions, published at the time of the Government's announcement.
Among these recommendations, the Council of Financial Regulators undertook to publicly set out:
- its expectations for ASX's conduct in operating its cash equity clearing and settlement services until such time as a committed competitor emerged (Regulatory Expectations)
- a set of minimum conditions to ensure safe and effective competition should a competing provider of clearing services emerge (Minimum Conditions (Clearing)).
The policy statements released today fulfil these commitments.
The Council of Financial Regulators also recommended that the relevant regulators be granted rule-making powers to impose requirements on ASX's cash equity clearing and settlement (CS) facilities consistent with the Regulatory Expectations and the Minimum Conditions (Clearing). The relevant regulators would be empowered to make such rules if the expectations were either not being met or were not delivering the intended outcomes; and/ or if specific obligations on CS facilities were needed to support the minimum conditions for safe and effective competition in clearing. Further, the Council of Financial Regulators recommended that the ACCC be granted the power to arbitrate disputes about price and/or non-price terms and conditions of access to ASX's facilities. The Government has committed to develop and consult on legislative changes in line with these recommendations.
The Regulatory Expectations cover a range of matters relevant to governance, pricing and access, and apply to ASX's engagement with, and provision of services to, users of its monopoly cash equity clearing and settlement services for both ASX-listed and non-ASX-listed securities. The Regulatory Expectations have been prepared in accordance with a set of core elements outlined in the report, with some amendments and clarifications primarily to ensure their auditability.
ASX is expected to immediately publicly commit to acting in accordance with the Regulatory Expectations. ASX is also expected to commit to submitting an annual external audit of its governance, pricing and access arrangements to the relevant regulators and members of the relevant user governance arrangements, benchmarked against the Regulatory Expectations. The findings of such audits may be one input to any decision by the relevant regulators to employ rule-making powers or in an arbitration determination once the supporting legislative framework is in place. Consistent with the recommendations of the review, the Minimum Conditions (Clearing) cover the following: (i) adequate regulatory arrangements; (ii) appropriate safeguards in the settlement process; (iii) access to settlement infrastructure on non-discriminatory, transparent, fair and reasonable terms; and (iv) appropriate interoperability arrangements between competing cash equity central counterparties. The Minimum Conditions (Clearing) clarify that the Australian Securities and Investments Commission and the Reserve Bank of Australia would not be in a position to recommend the approval of a licence application from a competing clearing provider until the legislative framework underpinning the Minimum Conditions (Clearing) was in place and detailed specific requirements under Minimum Conditions (Clearing) had been developed. The Council of Financial Regulators and the ACCC expect to review the Minimum Conditions periodically, including in the event of material changes to the operating environment or market structure for these services, such as the emergence of a competing settlement facility.
The Minimum Conditions (Clearing) have been developed with reference to the prevailing market structure in settlement – in which there is a sole provider of settlement services. Recent rapid advances in technological developments may increase the prospect of competition emerging in this market. The Council of Financial Regulators and the ACCC will consider the need for specific policy guidance to be issued in respect of settlement facilities.
For further details, please see the Council of Financial Regulators policy statements: