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).
Reserve Bank of Australia
SYDNEY
24 February 2009
Overview
The Reserve Bank of Australia has enacted the Financial Stability Standard for Securities Settlement Facilities (2009.2) as a variation to the existing Financial Stability Standard for Securities Settlement Facilities (FSS 2003.2). This was done under the authority granted by the Corporations Act 2001, specifically section 827D(6), which empowers the Reserve Bank to ensure that clearing and settlement facility licensees operate in a manner that maintains financial system stability. The original FSS 2003.2 was designed to ensure that licensees identify and manage the risks associated with their operations, and this variation aims to enhance transparency in the securities lending market by requiring the Australian Securities Exchange (ASX) to publish information on equities securities lending. This change seeks to provide participants with better visibility into the risks they may face, thereby assisting them in assessing their vulnerability to settlement risks and allowing the system operator to manage these risks more effectively. The policy objective is to improve market transparency and risk management in securities lending activities.
Scope and Application
The Corporations Act 2001, under which the Reserve Bank of Australia (RBA) determines financial stability standards, applies to entities involved in clearing and settlement facilities for financial transactions, particularly focusing on the securities settlement market. This Act mandates that such entities must adhere to specific standards designed to ensure financial system stability by effectively managing and controlling associated risks. The Financial Stability Standard for Securities Settlement Facilities (FSS), as varied in 2009, specifically requires the Australian Securities Exchange (ASX) to publish information regarding equities securities lending. This variation aims to enhance transparency and risk assessment capabilities for market participants by making information on securities lending activities more readily available. The RBA's standards and measures, along with associated guidance notes, are available on the RBA's website and can be accessed via phone or in person, ensuring that all relevant entities have access to the necessary information to comply with the Act.
Key Provisions
The main operative sections of the legislation pertain to the Financial Stability Standard for Securities Settlement Facilities, as varied in 2009. Section 827D(6) of the Corporations Act 2001 grants the Reserve Bank the authority to determine and vary these standards. The variation introduced in 2009 (FSS 2009.2) specifically mandates the Australian Securities Exchange (ASX) to publish information on equities securities lending. This was designed to enhance transparency and assist market participants in assessing the risks associated with their involvement in securities settlement activities. The Reserve Bank supplemented this Standard with a series of measures and guidance notes to provide clarity on the implementation and compliance requirements.
The obligations imposed by the Act on the parties it governs include ensuring that clearing and settlement facility licensees, such as ASX, identify and manage the risks associated with their operations effectively. The licensees are required to collect and publish relevant information on securities lending to promote transparency. This obligation is aimed at enabling participants to gauge the risks they may face and to assist the system operator in managing settlement risks. The Reserve Bank's measures and guidance notes serve as a framework to help these entities comply with the Financial Stability Standard.
Breach of the requirements outlined in the Financial Stability Standard can lead to various consequences. While the specific offences and penalties are not detailed in the explanatory statement, non-compliance with Reserve Bank standards can generally result in regulatory action. This may include formal warnings, enforcement actions, or other measures taken to ensure adherence to the standards. The severity of the consequences will depend on the nature and extent of the breach, but they are intended to maintain financial system stability and protect market participants.