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 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). The Financial Stability Standard for Securities Settlement Facilities was varied in June 2005 (FSS 2005.1) to introduce a threshold exemption.

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. 

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 (2009.2).  The effect of the variation is to require the Australian Securities Exchange (ASX) to publish information on equities securities lending.  The purpose is to ensure that a securities settlement facility makes sufficient information available to participants to enable them to gauge the risks they may face through their participation in the facility. Greater transparency of equities securities lending activity will assist participants to assess their vulnerability to settlement risks arising from activity in this market. Greater visibility of securities lending transactions will also assist the system operator itself in its day-to-day management of risks arising in the batch settlement process.

3.             Consultation

On 24 October 2008 the Reserve Bank released a consultation document setting out a proposed variation to the Standard that would have the effect of requiring ASX to collect and publish relevant information. The seven submissions received were generally supportive of the principle of disclosure and raised no objections to the proposal to enforce this via variation of the Financial Stability Standard. The submissions and subsequent consultations were useful in deciding how the disclosure regime should be implemented.

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).