On Wednesday, the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) detailed their expectations of ASX Clear and ASX Settlement.
Earlier this month, the Cash Equities Clearing and Settlement Advisory Group was established to advise the two ASX subsidiaries on strategic clearing and settlement issues.
This followed what ASIC and the RBA described as “longstanding industry concerns” over ASX’s CHESS replacement program, including the adequacy of ASX’s stakeholder engagement and governance process and its management of intragroup conflicts of interest.
In a joint letter, ASIC and the RBA said that they expect ASX Clear and ASX Settlement to provide the resources and support necessary for the group and its independent chair to execute their advisory functions, and to consult and engage “in good faith”.
“The advisory group’s role in assisting ASX Clear and ASX Settlement on the CHESS replacement program is vital to this process,” commented ASIC chairman Joe Longo.
“Genuine collaboration between ASX, the advisory group, and industry will be necessary to achieve the best outcome for the market, for listed companies, and investors.”
ASIC and the RBA noted that they expect ASX Clear and ASX Settlement to seek advice and input from the advisory group on key strategic issues in the provision of cash equity clearing and settlement services and associated infrastructure.
Additionally, the regulators said the ASX subsidiaries must not make any final decisions about key strategic issues, particularly regarding the CHESS replacement, until the advisory group has had a reasonable opportunity to consider the issues and provide recommendations.
ASX Clear and ASX Settlement must consider and respond to these recommendations and provide a “comprehensive response” to the group if the recommendations are not accepted, with a copy of the correspondence also sent to the two regulators.
Additionally, ASIC and the RBA must be briefed by ASX Clear and ASX Settlement, and separately by the independent chair of the advisory group, before any decisions are made.
“It is important that the market’s trust and confidence in the CHESS replacement program is restored,” said RBA deputy governor Michele Bullock.
“To do this, the program requires a fresh and collaborative approach that draws on the advice and perspectives of a range of experienced professionals. It is important that ASX and the advisory group work collaboratively to a solution that is in the public interest.”
ASX Clear and ASX Settlement are expected to formally respond to ASIC and the RBA’s joint letter by 31 August acknowledging the regulatory expectations and providing a public undertaking that they will comply with these expectations.
ASIC noted that it was prepared to use its existing powers under the current regulatory framework to ensure ASX Clear and ASX Settlement’s compliance with the expectations.
Furthermore, the corporate regulator said it was also prepared to use any new powers it receives under the government’s proposed competition in clearing and settlement reforms as well as the proposed financial market infrastructure regulatory reforms.
“As the operator of critical national infrastructure, ASX must be held to the highest standards,” said Mr Longo.
“We are prepared to use all available regulatory measures to ensure ASX Clear and ASX Settlement comply with our expectations and obligations under the Corporations Act.”
ASX responds
In a statement on Wednesday, ASX managing director and chief executive officer Helen Lofthouse said the letter of expectations provided further clarity on how the new advisory group will function.
“ASX is committed to ensuring that the group will have the necessary time and resources to properly consider all important matters on CHESS replacement,” she said.
Additionally, the chair of ASX Clear and ASX Settlement, Stephen Knight, said the directors of the subsidiaries were committed to supporting the establishment and functioning of the group committed to providing necessary resources.
“I have confirmed this today in a letter to ASIC and RBA on behalf of the boards of ASX Clear and ASX Settlement,” he said.
“In accordance with the expectations of the regulatory agencies, ASX Clear and ASX Settlement will not make any final decisions on key strategic clearing and settlement issues (including CHESS replacement) until the advisory group has had a reasonable opportunity to consider these key issues.
“We welcome the appointment of Alan Cameron AO as independent chair of the Advisory Group and we look forward to this opportunity to enhance industry consultation in the lead up to the next key milestone for the CHESS replacement project.”
ASX also confirmed that it will host the first meeting of the Cash Equities Clearing and Settlement Advisory Group on Thursday, 31 August.
