RESERVE BANK OF AUSTRALIA

Corporations Act 2001

EXPLANATORY STATEMENT:  VARIATION OF FINANCIAL STABILITY STANDARD FOR SECURITIES SETTLEMENT FACILITIES

1.             Background

In May 2003 the Reserve Bank determined the Financial Stability Standard for Central Counterparties (FSS 2003.1) and the Financial Stability Standard for Securities Settlement Facilities (FSS 2003.2).  These standards were determined under Part 7.3 of the Corporations Act 2001 (“the Act”), which grants the Reserve Bank formal responsibility for ensuring that clearing and settlement (CS) facility licensees conduct their affairs in a way that is consistent with financial system stability.  The Reserve Bank may also vary standards it has determined in writing under section 827D(6).

2.             Purpose and Operation

The objective of the standards is to ensure that licensees of clearing and settlement facilities identify and properly control the risks associated with their operations.  Each standard is supplemented by a series of measures that the Reserve Bank considers are relevant for meeting the standard.  The Reserve Bank has also issued guidance notes, which provide further information on each measure.  An explanatory statement dated 2 June 2005 has been published pertaining to this determination.

The Reserve Bank has varied the Financial Stability Standard for Securities Settlement Facilities.  The Standard, as varied, is the Financial Stability Standard for Securities Settlement Facilities (2005.1).  The effect of the variation is that the licensee of any facility which clears and settles transactions with a total value of $100 million or less per financial year will no longer have to comply with the Standard.  The purpose of this variation is to ensure that small securities settlement facilities which are unlikely to affect the overall stability of the Australian financial system are not subject to unnecessary regulation.  The Financial Stability Standard for Central Counterparties has not been varied as the risks taken on by central counterparties are substantially different to those faced by securities settlement facilities.

3.             Consultation

On 28 February 2005 the Reserve Bank wrote to the Australian Securities and Investments Commission (ASIC) and the CS facility licensees required to comply with the standard seeking comment.  The Reserve Bank received three submissions.  A number of the issues raised in these submissions were addressed in the final variation.  All submissions were broadly supportive of the intent of the variation.  The final variation was also circulated to ASIC and the CS facility licensees on 11 May 2005 for comment.  No additional issues were raised in response.

4.             Documents

The standards, measures and associated guidance notes are available:

• on the Reserve Bank’s website at www.rba.gov.au/PaymentsSystem/PaymentsPolicy; or
• by telephoning 02 9551 9720; or
• at the office of the Reserve Bank at 65 Martin Place, Sydney NSW 2000 (reference: Senior Manager, Payments System Stability, Payments Policy Department).