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"The new body, to be called Australian Clearing House (ACH), will serve as a more capable and more flexible counterparty - one better able to manage risks across markets. We intend to implement the new structure in stages, subject to regulatory approval from a number of authorities, so that it is fully in place by March 2004.
"Clearing and settlement of exchange transactions are increasingly recognised as vital components of the infrastructure of Australia's financial system. These reforms are designed to further enhance the reliability and integrity of ASX's markets, and as such will contribute to Australia's continued systemic stability and international economic competitiveness.
"They are designed to be consistent with the regulatory requirements of the Australian Securities and Investment Commission and the Reserve Bank of Australia under the new Financial Services Reform (FSR) legislation.
"Under the proposed new structure:
- "ACH will consolidate ASX's current licences for clearing of equities, warrants and fixed interest products (in place of the current licensee, ASX Settlement and Transfer Corporation (ASTC), and options and futures (in place of the current licensee, Options Clearing House (OCH)).
- "At the same time, the responsibility of the ASTC, which currently provides settlement services for equities, warrants and fixed interest products, will be expanded to embrace payment and delivery services across all ASX markets.
"One of the major advantages of the new structure is that, as the central counterparty, ACH will have direct and immediate access to sufficient capital to manage its counterparty risk in the event of a clearing participant default.
"Currently this capital backing is provided by the National Guarantee Fund (NGF). The NGF is administered by the Securities and Exchanges Guarantee Corporation (SEGC), an independent subsidiary of ASX, providing both a clearing guarantee and investor protection funding. This arrangement will continue until the new structure is in place.
"The NGF has served the industry well to date. The FSR legislation now provides for a more appropriate and enduring means of performing those twin functions.
"ASX intends that ACH will take on the clearing guarantee function and capital backing currently provided by the NGF. Next year ASX will seek, in line with Section 891A of the Corporations Act, the Parliamentary Secretary to the Treasurer's approval for this transfer commensurate with the clearing guarantee liabilities being taken on by ACH. ASX understands there will be a period of public consultation before any final decision by the Government.
"Additionally, the Government is considering the issue of investors' compensation arrangements in the financial services sector and has released a discussion paper that ASX will respond to shortly.
"Today's announcement follows an extensive review within ASX by Chris Hamilton, Executive General Manager, Clearing and Settlement. ASX also commissioned external advice from CapCo, a recognised specialist consultant in market infrastructure.
"ASX has been consulting relevant regulators - including the RBA, ASIC and the Commonwealth Treasury - since June. These consultations continue. I would like to acknowledge the constructive atmosphere with which all parties are approaching what is a technically complex and, ultimately, very important project."
As an interim step in this restructuring, ASX is giving effect to the following three initiatives, all effective around 2 December 2002:
- The replacement of TNS Clearing Pty Ltd (TNSC), the current CCP for CHESS approved securities, primarily equities, with OCH, thus ensuring OCH is the sole CCP for all assets traded on the ASX; in this role OCH will over time transition to the new ACH;
- The approval and receipt of a C&S facility license variation covering both options and futures under FSR, and
- The introduction of the OCH Derivatives Clearing rules which replace the existing OCH and ASX business rules relating to options and futures.
