ASIC today released regulatory guidance on its approach to the licensing and regulation of clearing and settlement (CS) facilities.

ASIC’s Regulatory Guide 211 Clearing and settlement facilities: Australian and overseas operators (RG 211) has been released in anticipation of more CS facilities seeking to operate in Australia. It responds to international regulatory developments promoting the use of central counterparty (CCP) clearing and settlement of over-the-counter (OTC) derivative transactions.

RG 211 provides guidance on:

• when an Australian CS facility licence will be required;
• how to apply for a CS facility licence; and
• ASIC's approach to exemptions.

ASIC believes that more specific guidance on the approach we will take to the regulation of CS facilities will assist entities who provide, or who may want to provide, CS facilities in Australia.

A consistent and clear policy is appropriate to give prospective CS facility licence applicants guidance on what we are looking for in considering their applications, providing advice to the Minister and helping entities comply with their obligations after they obtain a licence.

RG 211 takes into account feedback from a variety of sources following a public consultation late last year (see Consultation Paper 120 Operators of clearing and settlement facilities). A feedback report on this consultation process, Report 194 Response to submissions on CP 120 Operators of clearing and settlement facilities (REP 194), has also been released today.

Background

A CCP interposes itself between counterparties in financial transactions, becoming the buyer to the seller and the seller to the buyer. A well designed CCP, with appropriate risk management arrangements, reduces the risk of settlement failure faced by participants and contributes to the goal of financial stability.

A number of international supervisory bodies such as the Financial Stability Board, the International Organization of Securities Commissions and the Basel Committee on Banking Supervision have made recommendations for addressing the weaknesses that have produced the recent crisis and for strengthening the financial system going forward. One theme of those recommendations was to promote wider use of CCP clearing for OTC derivatives.

RG 211 responds to these international developments and consolidates ASIC's policy guidance on licensing and regulation of CS facilities in Australia. Some selective guidance about clearing and settlement was previously included in:

• Regulatory Guide 54 Principles for cross border financial services regulation (RG 54);
• Regulatory Guide 172 Australian market licences: Australian operators (RG 172)
• Regulatory Guide 176 Licensing: Discretionary powers—wholesale foreign financial services providers (RG 176); and
• Regulatory Guide 177 Australian market licences: Overseas operators s (RG 177); .

Under s820A of the Corporations Act, a CS facility, including a CCP clearing OTC derivatives, which operates in Australia must hold an Australian CS facility licence unless the CS facility is exempted from the requirement to do so by the Minister.

Currently, five licensed CS facilities are authorised to operate in Australia in accordance with Chapter 7 of the Corporations Act. They are the two clearing houses and the two settlement facilities of the ASX Group, and IMB Limited, which provides a CS facility to settle transactions in its own shares. No CSF licence exemptions have ever been granted.

Download:

• Regulatory Guide 211 Clearing and settlement facilities: Australian and overseas operators (RG 211)
• Report 194 Response to submissions on CP 120 Operators of clearing and settlement facilities (REP 194)