The Australian Securities Exchange (ASX’s) will need to place a 'high priority' on addressing recommendations related to operational risk and margin standards, affirm regulators at the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC), after their review of the exchange’s clearing and settlement facilities.
The regulators say the ASX have conducted their clearing and settlement affairs in a way that promotes overall stability in the Australian financial system. However, they added that the ASX needs to address some elements of its trading platform upgrade project.
RBA’s and ASIC’s decision to run a review came after ASX suffered a power outage on 16 November 2020, following a major upgrade to its Nasdaq equity trading platform, ASX’s Trade. The Australian regulators viewed these operational incidents with significant concern.
To examine the issues, the RBA informed ASX that an independent review of the ASX Trade Refresh project would be conducted in the first half of 2021.
Now published, the review, entitled 2021 Assessment of the ASX Clearing and Settlement Facilities, outlines that ASX needs to ensure the clearing and settlement facilities' business and their regulatory and stakeholder obligations receive appropriate attention and focus within the broader ASX group.
The RBA indicated that ASX must ensure that its board has access to the skills, experience and understanding needed to supervise ASX's programme of technology upgrades, and this should also apply to its modernisation of its clearing house electronic sub register system, more commonly known as CHESS.
The CHESS replacement programme will also be subject to an independent external review, cites the RBA.
Commenting on the 2021 review, Michele Bullock, RBA assistant governor, says: “The ASX clearing and settlement facilities underpin well-functioning financial markets and a stable financial system. While these facilities have contributed to overall financial stability during the past year, [the RBA’s] 2021 assessment recommends a number of important steps for ASX to further strengthen their resilience.”
RBA also indicates that ASX needs to clarify the lines of responsibility and accountability for the operation of the clearing and settlement facilities and broaden its ‘customer’ focus to include all stakeholders.
Last month, Dominic Stevens, CEO of ASX, apologised for the disruption caused by the November power outage and took responsibility for strengthening ASX’s operational resilience.
He commented: “Last November’s market outage fell short of ASX’s high standards. We believed that the software was ready for go-live, as did our technology provider Nasdaq. Clearly there were issues, which was particularly disappointing given the significant progress we have made on resilience in recent years.”
