Section 03 - Participation in the settlement facility

Section 03 - Participation in the settlement facility

3.1 ASX Participation Concepts

The ASX structures its market-related activities in three tiers, along operational or functional lines:

  • trading;

  • clearing; and

  • settlement.

Each tier of the market is operated by a separate legal entity and is separately licensed by the Australian Securities and Investment Commission (ASIC) under the Corporations Act. Each also has its own rulebook (refer to section 2.1.2).

Approved Market Operators also provide trading services to the Australian market.

The following diagram shows how these tiers act for a typical market trade.

Note that the registration and holding of financial products is administered by ASXS under the ASX Settlement Operating Rules.

In order to participate in the market, an organisation becomes a member of one or more of these operational tiers, depending on what sort of activities that organisation wishes to engage in. Participation and activities for each tier are governed by the relevant rulebook. 

Participants must have agreements in place with their key business partners. The following diagram shows the relationships between various business roles and the agreements between the entities acting in those roles.

Access to CHESS is required to participate in clearing and settlement activities. CHESS provides the environment which allows participants to:

  • clear market transactions;

  • transfer title of financial products using batch settlement and in the case of a bilateral demand settlement instruction; on matching and confirmation of cash movement via real time gross settlement (RTGS); and

  • sponsor holders and register approved financial products.

This framework gives each participant flexibility to determine which market functions they wish to perform in house and which they prefer to have performed on their behalf by a third party. It also allows a participant to perform certain functions for other participants.

3.2 Trading Participants 

Trading participants of Approved Market Operators have direct access to markets via a direct connection to the trading platform of the relevant Approved Market Operator. Trading participants provide execution services to their own organisation and their clients as permitted under their Australian Financial Services Licence (AFSL).

Trading participants that do not clear or settle their own transactions appoint a general clearing participant and settlement participant to clear and settle on their behalf.

3.2.1 Trade Acceptance Service 

The Trade Acceptance Service (TAS) provided by ASXS and ASXCL provides connectivity to CHESS for Approved Market Operators (AMOs), enabling transactions by trading participants in CHESS-eligible securities to be accepted by ASXCL and ASXS facilities for clearing and settlement within CHESS.

The Trade Acceptance Service is to be distinguished from the post-trade processing services which ASXS and ASXCL provide to participants of those facilities in respect of transactions accepted by them for clearing and settlement (Clearing and Settlement Services) and is illustrated below.

3.3 Clearing Participants

Clearing participants become the counterparty to a market trade through the process of novation and take over the market participant’s obligation to settle the trade and manage the resultant risk. All clearing participants are subject to Cash Market Margining.

Refer to section 13 for further details on Cash Market Margining (CMM).

The ASX Clear Operating Rules allow for two types of participation in the ASXCL clearing facility:

  • direct clearing participants; or

  • general clearing participants.

The main distinction between the two types is for whom they are clearing transactions. 

3.3.1 Direct Clearing Participants

Direct clearing participants are able to clear transactions for:

  • themselves (if they are a market participant);

  • their own clients; and

  • market participants that are wholly owned group entities and their clients.

Direct clearing participants cannot clear for other market participants. 

3.3.2 General Clearing Participants

A general clearing participant is able to clear transactions for:

  • themselves (if they are also a market participant);

  • their own clients, and

  • other market and/or clearing participants and their clients.

General clearing participants must have a valid clearing agreement with the market participant on whose behalf they are performing clearing functions.

3.4 Settlement and Sponsoring Participants

Settlement participants carry out the operational aspects of a clearer’s settlement obligations by transferring legal title to the financial products traded and the associated funds.

Settlement participants achieve settlement by participating in batch settlement to deliver financial products and pay funds and in the case of a bilateral demand settlement instruction; on matching and confirmation of cash movement and delivery of financial products using RTGS.

Sponsoring participants register and sponsor holders of financial products on the CHESS subregister.

The ASX Settlement Operating Rules allow for five types of participation in the ASXS settlement and sponsorship facilities:

  • general settlement participants; 

  • specialist settlement participants;

  • account participants; and

  • product issuer settlement participants (PISPs).

A general settlement participant can seek accreditation as an RTGS Participant.

3.4.1 General Settlement Participant

General settlement participants have the broadest access to batch settlement and sponsorship facilities and the strictest qualifications for participation.

General settlement participants can settle transactions for:

  • themselves (if they are also a market participant);

  • their own clients; and

  • other market and/or clearing participants and their clients. 

General settlement participants may also act as a settlement agent on behalf of a clearing participant, and can sponsor holders on the CHESS subregister.

3.4.2 Specialist Settlement Participant

Specialist settlement participants are admitted as participants for specific purposes, such as the acceptances of bids made under a takeover bid.

3.4.3 Account Participants

Account participants can sponsor holders on the CHESS subregister. They do not have access to batch settlement and appoint a third party to act in batch settlement on their behalf. Refer to section 3.8 for related participant relationships.

Account participants perform actions such as:

  • creating and maintaining accounts (HINs) in CHESS;

  • transfers and conversion to/from issuer sponsored sub-registers;

  • unilateral and bilateral demand transfers;

  • mFund application and redemption processing;

  • corporate actions processing;

  • lodging and recalling of non-cash collateral; and

  • stock movement relating to settlement between related participants through unilateral demand transfers..

3.4.4 Product Issuer Settlement Participants

The Product Issuer Settlement Participant (PISP) has direct access to CHESS and batch settlement. Product Issuer Settlement Participants are admitted for limited purposes including facilitating the settlement in batch settlement of transactions relating to requests for issue and redemption of mFunds. A Product Issuer Settlement Participant may not establish or maintain Participant Sponsored Holdings. Refer to Section 23 - mFund settlement service for further details.

3.5 Becoming a Participant

Applications to become a participant are handled by ASX Customer Readiness. The Participant Application Kit is available on ASX Online (ASX Online - Participant Application Kit). Applicants should also refer to the relevant Guidance Note 1 ‘Admission as a Participant’ link on that page.

The application process can be summarised as follows:

  • The applicant discusses their application with ASX Customer Readiness;

  • The applicant completes and submits the relevant sections of the application form and any supporting documentation;

  • The ASX reviews the application;

  • The ASX provides links to the relevant operating rules.

The new participant establishes their operations for trading, clearing, and settlement.
This includes:

  • setting up appropriate ASX connectivity and system access;

  • establishing risk management frameworks;

  • meeting capital liquidity requirements; and

  • establishing financial services and administration.

All of this and more is described in detail in the Participant Application Kit.

3.6 Changing Participant Details

CHESS holds a range of “static” data about a participant, including their name, address, and phone numbers for CHESS holding statements. Participants cannot directly update this information.

For information such as participant name or head office, a participant sends a written, signed, request on letterhead to Customer Readiness. Once they have validated the request, the Customer Readiness Team updates the participant’s details in CHESS. 

To change all other details, a participant sends a written, signed, request on letterhead to ASX Operations. Once they have validated the request, ASX Operations updates the participant’s details in CHESS. 

3.7 Withdrawal from Participation

Withdrawal from participation is covered in the ASX Clear Operating Rules and the ASXS Settlement Operating Rules. Participants who are withdrawing from CHESS participation should contact the Customer Readiness Team.

Holders sponsored by a withdrawing participant may be transferred to another participant (refer to Change of Controlling Participant Overview) or have their holdings transferred to the issuer sponsored subregister (refer to Participant to Issuer Sponsored Conversion Process).

3.8 Participant Group Structures

CHESS provides considerable flexibility in how a participant organisation is internally structured. It allows participants to operate separate processing centres, analogous to branches, and easily transfer holdings to a central processing centre for batch settlement. 

For example, consider an organisation with two branch offices that transfer financial products for settlement to a centralised host system. In CHESS, the centralised host system is set up as a “parent participant”. The branch offices are called “related participants”.  The relationship is called a “participant group structure”.

CHESS allows related participants to transfer holdings (e.g. to meet their batch settlement obligations) to the parent participants with Unilateral Demand Transfer (refer to section 7.2.1). For example:

ASX Operations maintains participant group structures: participants cannot do this directly for themselves. Participants wishing to establish a new, or change an existing, group structure should contact ASX Customer Readiness.

3.9 Payment Facilities

Prior to setting up a payment facility in CHESS, all participants are required to establish a payment relationship with a payment provider. Payment providers will have differing requirements for establishing a payment facility, it is the participants responsibility to enter into this arrangement with their payment provider. Participants who settle approved securities (traded with an Approved Market Operator) must establish at least one payment facility type, being account specific or nominated. For the settlement of funds in CHESS, payment facility sub-types are used according to the participants operational requirements, i.e. for batch settlement, mFund applications and redemptions and/or bilateral demand settlement.

As part of batch settlement, funds are either debited from the bank account linked to the batch settlement payment facility to meet a participant’s funds obligation or credited for funds to be received via RTGS.

To enable the settlement of bilateral demand settlement instructions outside of batch settlement, participants may opt to use the real time payment service. Participants will need to establish at least one payment facility to facilitate the settlement of these transactions on a real time basis.

For payment facilities linked to batch settlement, CHESS holds a unique payment facility identifier that a payment provider can use to identify the specific participant bank account associated with any payment instruction. The actual bank accounts used remain the purview of the participant and their payment provider. Participants may establish more than one payment facility, according to their business requirements.

For bilateral demand settlement payment facility sub-types, CHESS records the bank account against the Payment Facility.

A participant has considerable flexibility and may choose to associate a payment facility with:

  • all accounts (HINs) using the Nominated payment facility type;

  • a specific account (HIN) using the Account specific payment facility type; or

  • a group of accounts (HINs) using the Account specific payment facility type.

Refer to Payment Facilities Overview for further details and examples of possible Payment Facility set-ups.

3.9.1 Payment Facilities for Batch Settlement

During batch settlement; incorporating mFund transactions and approved securities (traded through Approved Market Operators), CHESS nets together all payments associated with each payment facility and notifies the participant and payment provider accordingly. CHESS requests funds authorisation, effects security transfer during settlement, and reports effected funds movement per payment facility.

Each account (HIN), accumulation entrepot account (HIN) or settlement entrepot account (HIN) used in settlement must have one (and only one) payment facility associated with it. CHESS rejects any value settlement instructions targeting an account (HIN) that does not have a payment facility associated with it.

Refer to Payment Facilities Overview for further details on payment facility sub-types.

3.9.2 Payment Facilities for RTGS - Bilateral Demand Settlement Instructions

Bilateral Demand Settlement Instructions are processed outside of the batch settlement process on a line by line gross basis. Participants will need to establish at least one payment facility to conduct the paying and receipt of payments on a real time basis.

Participants must have a bank account referable to the payment facility used to settle Bilateral Demand Settlement Instructions and must provide ASX Settlement with the name of the Payments Provider, BSB and Account Number.

Bilateral Demand Settlement Instructions may be effected between all accounts (HINs); direct, sponsored, accumulation and Settlement entrepots account types are permitted.

Refer to Payment Facilities Overview for further details on payment facility sub-types.

3.9.3 Establishing a Payment Facility

As part of their application for ASXS participation, a participant must provide ASXS with details of their payment facilities and a list of the HINs under their control that they intend to use for DvP settlement and, if applicable, the settlement of bilateral demand settlement instructions. The participant must specify the payment facility type:

  • nominated; or

  • account specific; and

  • relevant payment facility sub-type, either:

    • Batch;

    • Bilateral Demand Payer;

    • Bilateral Demand Payee;

    • mFund Application; or

    • mFund Redemption.

A standalone payment facility must be used for each mFund sub-type. A single payment facility cannot be for used for both mFund applications and mFund redemptions.

Payment facilities used for mFund Applications or mFund Redemptions must also be separate from payment facilities created for batch settlement and/or bilateral demand settlement instructions.

Refer to Payment Facilities Overview for further details.

Procedure

Payment Facility Forms will be supplied in a subsequent release. A separate form is required for each payment facility

Step

Description

Step

Description

1

The participant makes arrangements with a payment provider.

2

The payment provider signs as the payment provider on the payment facility form.

3

The participant provides the form to ASX Operations, initiating the Create Payment Facility Process.

3.9.4 Changing Payment Providers

A participant may change payment providers.  

When changing payment providers for a payment facility, the payment facility ID will remain the same (refer to Update Payment Provider Process). To change these, refer to section 3.9.4 for further details

This procedure may be used for any type of CHESS payment facility type i.e. account specific or nominated.

Procedure

Payment Facility Forms will be supplied in a subsequent release. A separate form is required for each payment facility.

Step

Description

Step

Description

1

The participant makes arrangements with a new payment provider.

2

The new payment provider signs the Change Payment Provider Payment Facility form. 

3

The participant provides the form to ASX Operations, initiating the Update Payment Provider Process.

3.9.5 Updating a Payment Facility

A participant may update the details on a payment facility to:

  • change the accounts (HINs) associated with an existing payment facility;

  • update the payment facility sub-types and bank account number (if required); or

  • move an account (HIN) from one existing payment facility to another.

This procedure can be done for any of the payment facility sub-types.

Procedure

Payment Facility Forms will be supplied in a subsequent release. A separate form is required for each payment facility.

Step

Description

Step

Description

1

The participant provides the Update Payment Facility form to ASX Operations, initiating the Update Payment Facility Process.

3.9.6 Cancelling a Payment Facility

A participant may cancel a payment facility.

CHESS will reject any value settlement or RTGS instructions targeting an account (HIN) that does not have a payment facility associated with it. 

This procedure may be used for any type of CHESS payment facility type i.e. account specific or nominated.

Procedure

Payment Facility Forms will be supplied in a subsequent release. A separate form is required for each payment facility.

Step

Description

Step

Description

1

The participant provides the Cancel Payment Facility form to ASX Operations, initiating the Cancel Payment Facility Process.

3.10 Participant Systems

Participants require a host system in order to communicate with CHESS. Although participants can build these systems themselves, CHESS compatible systems are available from a number of third party vendors who specialise in building and supporting these systems.

3.10.1 Host System Concepts

Participants must use a host system that supports the defined electronic interface to CHESS via one of the approved networks. Refer to Connectivity for further details.

Functions can be processed by a host system or application either by interacting with CHESS using XML messaging or an API into the Ledger.

Responsibility for development of computer software to support the CHESS interface rests with the participant or the participant's system provider.

The participant’s host system must support CHESS data security measures and must have been accredited by ASXS for use with CHESS. Refer to Technical Accreditation for further details.

As part of Technical Accreditation, additional details regarding participant systems will be made available in a subsequent release.

3.11 Communications

ASX provides operational information to participants in the form of Notices. All Notices are posted in the participants’ library of the ASXOnline website (http://www.asxonline.com).

ASXOnline includes an optional facility allowing participants to receive a notification of Notices via email. The ASXOnline system sends an email to subscribers when any new documents are posted on the website.

The service is free and available to all ASX participants.

All documents posted on ASXOnline are in the Adobe portable document format (PDF).

3.11.1 Urgent Communications 

Urgent operational matters are also communicated to participants by email e.g. extension to the commencement of batch settlement. Notification of system outage can be accessed on the ASX System Status website (https://www.asx.com.au/about/system-status.htm).

Participants must provide ASX Operations with a single point of contact (e.g. a group email address). They can do this by emailing the address to ASX Operations (CSPSupport@asx.com.au).

 

 

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