Section 13 - Cash Market Margining (CMM)

Section 13 - Cash Market Margining (CMM)

13.1 - Cash market margining overview

ASX Clear (ASXCL) undertook to introduce routine daily margining of clearing participants with respect to unsettled cash market transactions. The margining approach used is based primarily on a Historic Simulation Value at Risk (HSVaR). This simulates potential losses to ASX Clear in the event that the CCP has to close out a defaulting clearing participant’s unsettled novated transactions in normal market conditions.

This section describes CHESS procedures (and related CHESS messaging) required for clearing participants to meet their daily cash market margining obligations with ASX Clear.

13.2 - Cash market margining concepts

Cash market margins are calculated based on the clearing participant’s total unsettled novated cash market transactions. These transactions cover all cash market products: equities, warrants and interest rate securities.

All unsettled novated settlement instructions will be considered for cash market margining, including:

  • unsettled obligations resulting from trades executed on approved trading platforms that utilise ASX Clear’s Trade Acceptance Service (TAS);

  • deferred basis settlement obligations;

  • accrual settlement obligations (as a result of corporate event diary adjustments); and

  • unsettled obligations for securities subjected to a trading halt.

All unsettled non-novated settlement instructions will not be considered for cash market margining, including:

  • crossed trades executed on ASX Trade and other Approved Market Operator platforms which are not novated;

  • matched non-novated Delivery verses Payment (DvP) settlement obligations (this includes IPO/placements of securities which are yet to commence official quotation on the official list); and

  • unilateral non-novated DvP settlement obligations.

Under rule 14.6.1 of the ASX Clear Operating Rules, all clearing participants are required to meet their daily cash market margin obligation, failure to do so may result in penalties being applied refer section 9.1.13. Clearing participants’ daily margins can be covered with cash and/or approved financial products as non-cash collateral. The margin calculation is managed by ASX Clearing Risk Management. Any calculation queries should be directed to the Exposure Risk Management Team via email: ermteam@asx.com.au.

Clearing participants can manage their daily margin settlement amount via the use of:

Under rule 14.8 of the ASX Clear Operating Rules, clearing participants cannot use client' monies or securities to satisfy the clearing participant’s margin obligations.

Cash market margins are calculated and cover/payment is required on all Business days.

13.3 - Margin settlement processing

13.3.1 - Daily margin settlement confirmation 

ASX Clear generates clearing participant’s daily margin obligations and notifies CHESS during CHESS end of day processing. A Margin Settlement Advice message is sent to the clearing participant from CHESS through the Daily Margin Settlement Advice Process, indicated by a Notification Type of End of Day (EDAY). The Margin Settlement Advice enables the clearing participant to determine their required margin settlement cash flow for that business day, as the advice will include all cash balances, collateral and margin details. refer Cash Market Margin Overview. Should the end of day calculation be changed CHESS will send an update to end of day (UEDA) notification to the clearing participant.

Where a clearing participant has multiple clearing UICs under the one legal entity name only, only one of their nominated UIC’s under their control will:

  • receive messages related to CMM; and

  • have the ability to lodge cash and non cash collateral on the entity's behalf.

Clearing participants can nominate the CMM UIC by liaising with ASX Clearing Risk Management via email: ermteam@asx.com.au.

ASX Clear may make intra-day margin calls. Intra-day margin call obligations may be advised to participants via email or other means, with payment being executed via Austraclear, by the time advised on the intra-day call notification.

A clearing participant's resultant cash balance must always be in credit (credit includes an amount of zero).

Where a clearing participant has no Excess Cash Standing Instruction set (section 13.4), and does not change their daily settlement amount (by submitting a margin settlement amount change request), i.e. no action taken to amend settlement amount the following will occur:

  • a resultant shortage means the clearing participant will be required to pay ASX Clear; and

  • a resultant excess and no further instruction is sent by the clearing participant the cash balance will be carried forward to the next business day and interest will be earned on the excess cash.

13.3.2 - Change margin settlement amount

A clearing participant may request to change the margin settlement amount for the following reasons:

  • to facilitate the lodgement of a lump sum of funds (excess cash) whereby a daily margin with a resultant cash shortage will be covered; or

  • to have excess funds returned providing the funds are not required for any CMM already calculated.

If the clearing participant sends a change margin settlement amount request to receive payment from ASX Clear the amount must be entered as a negative value and the funds must be available with ASX Clear. ASX Clear may reject a margin settlement amount change request where:

  • the settlement amount results in a settlement amount shortage;

  • the settlement amount exceeds the maximum allowed excess cash. The maximum allowed excess cash rejection is to notify the clearing participant when they have entered an erroneous amount; or

  • the message is received after margin settlement cut off (approximately 9.15am (Sydney Time)).

The cash settlement for cash market margins will be completed in the Austraclear System. All margin payment obligations to ASX Clear must be settled by 10.30am as stipulated under the ASX Clear Operating rules. Clearing participants can enter their cash trade from Austraclear Start of Day (approximately 7.15am). Please refer to the ASX Clear Operating Rules and Procedures for Austraclear information.

Failure to meet the margin obligation may result in a participant default. For further details refer to section 9.5.

Cash market margins must be paid on all business days.

Procedure

Step

Description

Step

Description

1

ASX Clear initiates the Daily Margin Settlement Advice Process.

2

Clearing participants receive the daily margin settlement advice from CHESS.

3

Where the clearing participant agrees with the margin obligation to be paid to ASX Clear, they must input a cash trade to Austraclear. The clearing participant should ensure the cash trade settles prior to 10.30am. Payments to clearing participants will be released at approximately 12:30 pm Sydney time each day (subject to all of ASX Clear’s receipts having settled).

ASX Clear may make intra-day margin calls. Intra-day margin call obligations may be advised to participants via email or other means, with payment being executed via Austraclear, by the time advised on the intra-day call notification.

4

If the clearing participant submits a change request to the margin settlement amount, the clearing participant must calculate a new settlement amount and communicate this to ASX Clear by sending a Margin Settlement Amount Change Request to CHESS by margin settlement cut off (at 9.15am Sydney Time). Refer to Change Margin Settlement Amount Process for further details.

13.4 - Excess cash standing instruction processing

The excess cash standing instruction process allows clearing participants the option to pay or receive funds to a set resultant value each day. This value can be set to zero. Set values greater than zero will earn interest on excess funds. 

13.4.1 - Lodgement of excess cash standing instruction

The clearing participant sends an Excess Cash Standing Instruction Request with the nominated Excess Cash Standing Instruction amount to ASX Operations for action. This request can be sent at any time on a valid business day, but will not take effect until the next ASX Clear Settlement Notification calculation (usually as part of the end of day process).

A clearing participant can manage the Excess Cash Standing Instruction by setting it to a predetermined amount. It is up to the clearing participant to determine if they wish to use this function and how much excess they wish to nominate, the process is managed manually by ASX Operations.

A clearing participant may decide to set their Excess Cash Standing Instruction to zero. This will mean that the clearing participant will either pay or receive each day depending on their margin obligation, and hold zero excess cash. Note: where no (null) excess cash standing instruction exists a resultant excess settlement amount will be carried forward to the next ASX Clear Settlement Notification Calculation and interest will be earned on this amount.

A clearing participant must always pay to zero or be in credit with ASX Clear.

ASX Clear may reject an Excess Cash Standing Instruction where a clearing participant enters an amount greater than ASX Clear predetermined maximum amount for excess cash.

13.4.2 - Change or removal of excess cash standing instruction

A clearing participant has the option to change or remove the Excess Cash Standing Instruction by requesting ASX Operations to effect the change. The change to the Excess Cash Standing Instruction becomes valid when actioned by ASX Operations, post calculation of the next Settlement Notification Advice by ASX Clear (usually as part of the end of day process).

Changing the excess cash amount will not result in the reissue of the Daily Settlement Notification.

ASX Clear may reject a Change or Removal Excess Cash Standing Instruction if the clearing participant has attempted to remove or change a non-existent Excess Cash Standing Instruction where:

  • the request was received after margin settlement cut-off; or

  • the clearing participant has attempted to change an amount greater than ASX Clear predetermined maximum amount for Excess Cash.

Procedure

Step

Description

Step

Description

1

The clearing participant sends Excess Cash Standing Instruction Request to ASX Operations.

2

ASX Operations validates the request. If the request is valid ASX Operations will update the Excess Cash Standing Instruction Request and confirm action to the Clearing Participant.

13.4.3 - Summary of excess cash standing instruction

Option

Excess Cash Standing Instruction

Action required for CMM cash Shortage

Action required for CMM cash excess

Option

Excess Cash Standing Instruction

Action required for CMM cash Shortage

Action required for CMM cash excess

A

Null

CP to pay *

CP no action – cash excess held by ASX Clear

B

Set to zero

CP to pay settlement amount – resultant excess cash value is zero

CP to receive settlement amount - resultant excess cash value is zero

C

Greater than zero (e.g. $1,000,000.00)

CP to pay settlement amount – resultant excess cash value is $150,000.00

CP to receive settlement amount - resultant excess cash value is $1,000,000.00

*if lump sum of excess cash previously lodged via Change Margin Settlement Amount Instruction and excess cash covers CMM, no action will be required by CP i.e. CMM shortage will be covered.

 

13.5 - Non-cash collateral processing

To meet ASX Clear margin obligations, a controlling participant, of the applicable type, may elect to lodge non-cash collateral using securities listed on the Acceptable Collateral List. Refer to Collateral Management Overview - Creation for ETO and CMMfor further details.

CHESS enables the Controlling Participant to perform this through the Collateral Management Process - Creation for ETO and CMM, which includes:

  • the creation, increase or decrease of a collateral sub-position for Exchange Traded Option (ETO) positions including Low Exercise Price Options (LEPO); and

  • the creation, increase or decrease of a collateral sub-position for cash market margin (CMM) obligations with ASX Clear.

13.5.1 - Non-cash collateral concepts

ASX Clear maintains the non-cash collateral list; clearing participants may choose to lodge securities from this list with ASX Clear to cover all or part of their margin obligation for the day.

Clearing participants may remove non-cash collateral from their account (HIN), refer to the Collateral Management Process - Removal for ETO or Collateral Removal for CMM Process .

ASX Clear may decide to remove non-cash collateral from a clearing participants account (HIN), refer Collateral Removal by ASX Clear Process.

The following criteria will be validated prior to accepting a lodgement on an account (HIN):

  • the holder type of the HIN is Direct;

  • the account (HIN)/s are registered with ASX Clear as a nominated account (HIN)/s for cash market margining;

  • the security lodged is on the list of acceptable collateral for cash market margining (published via ASXOnline); and

  • there is sufficient unit quantity available for use on the account (HIN).

To nominate account (HIN)/s a clearing participant must submit a cash market account (HIN) form. The form is located in Annexure 2 of the ASX Clear Operating Procedures. A clearing participant can elect to have more than one direct account (HIN) in use for their non-cash collateral margin obligation. Multiple accounts (HINs) can be entered on the one form. Once the lodgement is accepted by CHESS the non-cash collateral units will be held in a subposition and the value of the securities will be calculated against the cash market margin obligation in the following margin run. A clearing participant can identify the CMM subposition type on an account (HIN) as Cash Market Margin Cover (CMMC). Approved lodgements of non-cash collateral will be included in the EOD margin calculation. The clearing participant may elect to remove the non-cash collateral lodged against their cash market margin obligation. The non-cash collateral removal request will be released by ASX Clear after cash settlement the following business day and only once other cash or non cash collateral has been lodged to ensure the clearing participant is not exposed to a shortage.

ASX Clear will remove eligible collateral from time to time as a result of the security being removed from the acceptable collateral list, or due to an ASX Clear directive. ASX Clear retains the authority to claim securities reserved as collateral in certain scenarios such as default.

Nominated direct accounts (HINs) will not be transferred as part of a bulk change of sponsor to the new controlling participant if it holds lodged CMM subpositions. CHESS will send a rejection message to the relinquishing participant.

13.5.2 - Non-cash collateral transfer and release

As part of the close out process when a participant default occurs, ASX Clear may transfer collateral from the defaulting clearer to ASX Clear or may also transfer collateral between controlling participants. Default events are outlined under rule 15.1 of the ASX Clear Operating Rules.

Procedure

Step

Description

Step

Description

1

ASX Clear initiates the Collateral Transfer and Release by ASX Clear Process.

13.5.3 - Collateral removal warning due to expiry of securities

CHESS identifies securities that are due to expire and notifies the Controlling Participant. The controlling participant should remove the collateral sub-position. Should the securities expire while they are lodged as collateral, they will become ineligible for use and will be removed by ASX Clear.

Procedure

Step

Description

Step

Description

1

CHESS identifies all securities that have an Expiry Date that takes effect within the next six days, and initiates the Collateral removal warning due to expiry process, refer Collateral Removal Warning due to Expiry Process.

 

13.6 - Daily collateral statement processing

The daily collateral statement is provided via the sFTP and allows a clearing participant to identify all cash and non-cash collateral lodged with ASX Clear for their daily cash market margin.

The statement is sent for each business day only when the clearing participant has cash or non-cash collateral for cash market margining lodged with ASX Clear.

The daily collateral statement is produced as part of the CHESS end of day processing and is available to clearing participants prior to the commencement of CHESS start of day. The information contained in the Daily Collateral Statement CHESS message includes information such as collateral types, values and haircuts.

A collateral statement will be sent for the following reasons:

  • lodged acceptable security and will be defined on the statement as EQY. A statement will be sent for each account (HIN) per security; or

  • lodged cash collateral and will be defined on the statement as CSH.

This will occur each business day until the collateral lodgement is removed.

 

13.7 - Daily interest earned processing

The ASX Clear Operating Rules stipulate that ASX Clear will pay interest to the clearing participant on excess cash. The interest rate will be calculated in line with the RBA Overnight Cash Rate.

Interest is calculated on a daily basis (this includes non-business days) and credited to the clearing participant at the end of each month. The interest amount will be included in an interest settlement batch in Austraclear on the second business day of the following month.

The interest credited will be notified daily to the clearing participant through CHESS during End of Day processing and is available to clearing participants via sFTP prior to the commencement of start of day for all business days including non-settlement days. The interest amounts, rates, types and related principle values will be included in the clearing participants daily interest earned statement. Any interest earned on non-business days will appear as one total for each interest type in the Interest Earned Statement received start of day the next business day.

 

 

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