Netting and Settlement Workflow Changes

Change Overview

To deliver processing efficiencies and reduce subsequent messaging volumes as part of the overnight end-of-day process and daily Batch Settlement, ASX has confirmed the design of the netting and settlement workflow in the CHESS Replacement system. While the efficiency of netting will remain in the Batch Settlement process, the creation of the Net Broker Obligation (NBO) and associated messaging in the overnight process will be removed. The system will instead provide an enhanced projection of the Novated Net Delivery Position (NNDP) which aggregates the unit quantities and settlement amounts of the Novated Gross Market Trades (NGMTs) notified by the Trade Confirmation Notifications (sett_101s). The system will continue to perform batch settlement on a DvP Model 3 basis and provide an enhanced confirmation of the net movement to include the related value of the net movement and a breakdown of the instructions within the net movement. Individual settlement confirmation messages for instructions that fully settle will be discontinued. Participants will continue to be notified of instructions that have failed (in full or in part). Refer to the CHESS Replacement: Confirmed changes to netting and settlement workflow - response to consultation feedback for further details.

This section provides an overview of these changes, including the new functionality and impacts to existing functionality. In summary:

Market Trade

  • Participants can no longer cancel an NGMT (bilaterally). Cancellations can only be performed by AMOs on trade date.

Netting

  • There will no longer be an end of day netting process. The CSP will no longer create and materialise NBOs and will no longer be generating the associated Netted Obligation Report (sett_102).

  • The un-netting process will no longer be supported.

  • All Novated Gross Market Trades are eligible for netting.

Reporting

  • Two new reports will be introduced, the Netted Obligation Report and Obligation Status Report.

    • The Netted Obligation Report, will be generated and sent to Participants to inform them of their projected NNDP(s) for all accounts which have NGMTs scheduled to settle in a future Batch Settlement cycle. The reported NNDP values will take into consideration all NGMTs which are registered for each Settlement Entrepot Account (HIN), Security, Settlement Date and BOM combination following any applicable corporate action adjustments that may occur on the NGMTs during overnight processing.

      • Additionally, the Netted Obligation Report will take into consideration the following:

        • Trade cancellations by AMO;

        • As at trades; and

        • Other actions which can be performed by ASX Operations / ASX Clear (i.e. reschedules, suspensions, transfers and cancellations).

      • Refer to the Changes to NNDP on Settlement Date section below for a list of functionality / events which amend the NNDP communicated in the last Netted Obligation Report.

    • The Obligation Status Report provides the underlying settlement instructions for the requested parameters to assist participants with their investigation of any potential discrepancies or breaks when reconciling the scheduled or settled settlement instructions from the netted obligation report or net settlement movement confirmation message. This report can be requested on demand for a specific Account (HIN), Security, Settlement Date and Movement Type (i.e. either all type of instructions or a specific type of instruction) combination.

Batch Settlement

  • Individual settlement confirmation messages for instructions that fully settle will be discontinued. Participants will continue to be notified of instructions that have failed (in full or in part).

  • Where a Security has a Sub-Register Status of Suspended or Closed the CSP will calculate the applicable NNDP for the NGMTs. The CSP will then create an Novated Settlement Failure (NSF) to replace each NNDP for the current Batch Settlement cycle, and an Novated Rescheduled Instruction (NRI) to reschedule each NNDP for settlement on the next business date.

  • Fully failed Unilateral Settlement Instructions (USSIs) and Bilateral Settlement Instructions (BSSIs) will continue to be notified via a Settlement Transaction Generation Notification (sett_130) as per existing functionality in CDE (refer to CDE 10 - Non-Novated Settlement Obligations Process).

  • Partially failed USSIs and BSSIs will be notified via two messages:

    • a Settlement Transaction Generation Notification (sett_130), for the portion that is settled; and

    • an Adjusted Settlement Instruction (sett_139), for the failed portion that is rescheduled.

  • Fully failed Novated Rescheduled Instructions (NRIs) will be notified via two messages:

    • a Settlement Transaction Generation Notification (sett_130), for the Standard Settlement Price (SSP) Amount that is settled; and

    • an Adjusted Settlement Instruction (sett_139) to reschedule the Unit Quantity and notify of the change in the Settlement Amount as a result of the SSP adjustment.

  • Partially failed NRIs will be notified via two messages:

    • a Settlement Transaction Generation Notification (sett_130), for the portion that is settled which includes the SSP Amount; and

    • an Adjusted Settlement Instruction (sett_139) to reschedule the remaining Unit Quantity and notify of the change in the Settlement Amount as a result of the SSP adjustment.

  • NNDPs that fully or partially fail will be rescheduled using the NSF and NRI construct as per existing functionality in CDE (refer to CDE 10 - Novated Settlement Obligations Process).

  • CHESS will continue to settle on a DvP model 3 basis and the net movement will be notified (per Account, Security, and Basis of Movement) via an enhanced Settlement Movement Confirmation (sett_136) that now contains:

    • the identifier of the Batch Settlement cycle;

    • the funds component which is associated to the settlement obligations contributing to the movement; and

    • a breakdown per settlement instruction type representing a count of instructions, net settled unit quantity and net settlement amounts relating to each instruction type.

  • Where Batch Settlement is cancelled, the CSP will reschedule NNDPs using the NSF and NRI construct, and a Settlement Movement Confirmation (sett_136) will be sent incorporating each NNDP (from eligible NGMTs) and the NSF generated as a result of the cancellation of Batch Settlement. Rescheduled USSIs, BSSIs and NRIs due to Batch Settlement cancellation will continue to be notified via a Settlement Transaction Generation Notification (sett_130) as per existing functionality in CDE (refer to CDE 10 - Cancellation of Batch Settlement Process).

  • There are no changes to mFund settlement.

Messaging

Key ISO 20022 messaging changes are detailed in the table below

Message Name

Message Id

EIS

Change

Message Name

Message Id

EIS

Change

Netted Obligation Report

sett_102

134

138

Message removed.

Un-netted Obligation Report

sett_103

136

140

Message removed.

Settlement Confirmation

sett_119

156

192

Message no longer generated and sent during the Batch Settlement process.

Settlement Transaction Generation Notification

sett_130

124

Schema upgrade:

  • Removed a “Settlement Transaction Condition” attribute value: “NBOB”.

Settlement Movement Confirmation

sett_136

146

Schema upgrades:

  • Added a “Settlement Amount” attribute will allow the total amount settled for the Movement Type to be populated.

  • Added a “Settlement Batch Id” attribute which will allow a unique identifier for the current Batch Settlement cycle to be populated.

  • Added a “Movement Type” attribute which will allow the Movement Type to be populated, either:

    • Overall Net Movement (NETT);

    • Novated Gross Market Trade (NGMT);

    • Novated Settlement Failure Instruction (NSFI);

    • Novated Rescheduled Instruction (NRIN);

    • Non-Novated Gross market Trade (NNGM);

    • Unilateral Settlement Instruction (USSI); or

    • Bilateral Settlement Instruction (BSSI).

  • Updated to include a Net Settlement Movement Attributes Repeating Block. This includes attributes that will be repeated under the Balance for Account / Net Settlement Movement Attributes <BalForAcct/NetSttlmMvmntAttrbts> block for the net holding movement and each type of Settlement Instruction that contributes to the net holding movement.

Adjusted Settlement Instruction

sett_139

128

Schema upgrades:

  • Removed a “Settlement Transaction Condition” attribute value: “NBOB”; and

  • Added a “Receiving Account Identifier” attribute which will allow the Receiving Account Identifier (HIN) of an adjusted settlement instruction to be populated where the Settlement Instruction Condition is “USSI”.

Accrual Settlement Instruction

sett_140

142

Schema upgrade:

  • Removed a “Settlement Transaction Condition” attribute value: “NBOB”.

Reporting Request

rptg_601

503

Schema upgrade:

  • Report type element updated from a schema list to an external list.

  • Added a “Report Type” attribute value: “OBLG”.

  • Added a “Movement Type” attribute which will allow the report to be requested for the following types of Settlement Instructions or groups of instructions:

    • All Obligation Types (ALLT);

    • Unilateral Settlement Instruction (USSI);

    • Bilateral Settlement Instruction (BSSI);

    • Novated Rescheduled Instruction (NRIN);

    • Market Trades and NSFs (MTNF); or

    • Non Novated Gross Market Trades (NNGM).

End Of Report

rptg_607

538

Schema upgrade:

  • Added “Report Type” attribute values:

    • OBLG”; and

    • NNDP”.

Obligation Status Report

rptg_608

N/A

New message.

Netted Obligation Report

rptg_609

N/A

New message.

Netting and Settlement Workflow Examples

As a follow up to the focus group sessions, ASX has provided three worked examples here [Updated 10/09] to highlight how the changes impact netting and settlement workflows. Each example is preceded with a high level description of the change (see separate worksheet) which compares current CHESS versus how it will work in the CHESS replacement system.

Change to NNDP on Settlement Date

The following table outlines the functionality/events which can occur on the morning of settlement date which amends the Novated Net Delivery Position (NNDP) communicated in the last Netted Obligation Report (rptg_609) scheduled for settlement for the current business date. The CSP will not generate an updated Netted Obligation Report on the morning of the scheduled settlement date to reflect the updated NNDP.

Functionality / Event

Communicated to Participants

Functionality / Event

Communicated to Participants

ASX Operations initiated reschedules to manage a default or by the request of a regulator or enforcement agency.

Each rescheduled instruction will be communicated to Participants using the Settlement Transaction Generation Notification (sett_130).

ASX Operations initiated cancellation to manage a default or by the request of a regulator or enforcement agency. 

Each cancellation will be communicated to Participants using the Settlement Instruction Cancellation Advice (sett_122).

ASX Operations initiated suspension to manage a default or by the request of a regulator or enforcement agency.

Each suspension will be communicated to Participants using the Settlement Instruction Notification (sett_129). 

ASX Operations initiated transfer to manage a default or by the request of a regulator or enforcement agency.

Each transfer will be communicated to Participants using:

  • For Novated Rescheduled Instructions and Market Trades (Novated and Non-Novated), Settlement Instruction Cancellation Advice (sett_122) to the original Settlement Participant

  • For BSSIs, Settlement Instruction Status Advice (sett_109) to the original Settlement Participant

  • Settlement Transaction Generation Notification (sett_130) to the new Settlement Participant

  • Adjusted Settlement Instruction (sett_139) to the counterparty of the transferred settlement instruction

Change to the first settlement date of a security. 

Each rescheduled instruction will be communicated to Participants using the Settlement Instruction Transaction Generation Notification (sett_130).

Cancellation of a corporate action

Basis of movements (BOMs) related to the corporate action are removed from settlement instructions. The NNDP for each BOM combination will be consolidated to a single NNDP for the Account (HIN), Security and Settlement Date combination. 

The CSP will not notify Settlement Participants when the BOM is removed from the settlement instruction. 

Update to the ex-period of a corporate action

Basis of movements (BOMs) are updated to reflect the new ex-period of the corporate action. This includes:

  • Removal of the BOM where the settlement date is not within the ex-period

  • Enrichment of the settlement instruction to include BOM where the settlement date is within the ex-period. 

The NNDP will have to be re-calculated for each Account (HIN), Security, BOM and Settlement Date combination.

It is unlikely that a corporate action will be updated where the current business date is within the ex-period.

The CSP will not notify Settlement Participants when the BOM is removed from or added to the settlement instruction.