Removal of Registered Holder Collateral Cover Authorisation forms for Client Accounts (RHCCA forms)
ASX has obtained regulatory clearance to implement the amendments to the ASX Settlement Operating Rules and ASX Clear Operating Rules and Procedures outlined in the Response to Consultation available here on the removal of RHCCA forms released on 7 September 2018.
The amendments, which are effective from Friday 1 March 2019, remove the RHCCA form for Client Accounts and also enable a third party to take a security interest over collateral and excess cash where prescribed conditions are met. The rule and procedure amendments are available here.
Amongst other things the amendments ensure that where a Client Account is transferred to a new Clearing Participant a registered holder will no longer need to execute and provide an RHCCA form ahead of the transfer and collateral which is linked to that Client Account will automatically secure the obligations of the new Clearing Participant. ASX will, however, notify the registered holder when such a transfer occurs.
RHCCA form replaced by ‘linking information’ and registered holder authorisation
From 1 March 2019, Clearing Participants will no longer lodge, and ASX will no longer accept, RHCCA forms. Instead:
· Controlling Participants will obtain appropriate authorisation from registered holders to lodge Financial Products as non-cash collateral on Client Accounts; and
· Clearing Participants will provide ASX Clear with ‘linking information’ that identifies a registered holder’s Holder Identification Number (HIN) and the Client Account numbers that are to be linked to that HIN
With the removal of the RHCCA form, ASX expects Controlling Participants to disclose to registered holders the risks associated with providing Financial Products as collateral for Client Accounts (particularly in circumstances where the Client Account belongs to an unrelated third party).
From 1 March 2019
Clearing Participants that seek to link HINs to Client Accounts for the first time for the purpose of lodging Financial Products as non cash collateral, will be required to send an email to firstname.lastname@example.org using the template prescribed by ASX (sample attached). Upon processing the linking information, a new CHESS notification will be mailed to the registered holder of the Financial Products advising them that their CHESS HIN has been linked to a specified Client Account to provide security for Options Market Contracts (draft sample attached).
Existing Client Accounts with collateral on a HIN
There are a number of steps that Controlling Participants and Clearing Participants should take prior to 1 March 2019 in respect of existing non-cash collateral provided as security for options market contracts.
1. All Controlling Participants that lodge Financial Products as collateral on behalf of registered holders must ensure that prior to the commencement of the new rules framework on 1 March 2019 they are appropriately authorised by their registered holders in relation to both new and existing reservations of collateral, to reserve Financial Products in a subposition in CHESS in favour of ASX Clear to secure the performance by the relevant Clearing Participant of its obligations to ASX Clear in respect of the applicable Client Account(s). Such authorisation must be Clearing Participant agnostic. Controlling Participants should consider their current processes and customer documentation to confirm that they will be appropriately authorised.
2. It would be prudent for a Clearing Participant to conduct its own due diligence to ensure that any Controlling Participant it is currently relying on for the lodgement of non-cash collateral is appropriately authorised by the relevant registered holders and it has a process for conducting due diligence for future lodgements.
3. A Controlling Participant’s Sponsorship Agreements will need to contain a provision to the effect that the right of the registered holder to deal with financial products that are reserved in a subposition in accordance with the ASX Settlement Operating Rules is restricted in accordance with the rules relating to subpositions. (The Sponsorship Agreements of the vast majority of Controlling Participants already include a clause to this effect because they are modelled on the pro forma Participant Sponsorship Agreement included in Appendix 3 of the ASX Settlement Operating Rules (refer clause 3.2.3)). Notwithstanding the above, this clause, by itself, will not be a sufficient basis on which a Controlling Participant could establish that it is appropriately authorised by a registered holder.
An overview of the new operational framework is attached.
Third Party Security Interests
No changes are required to existing third party security interests already approved by ASX Clear. However, from 1 March 2019 ASX Clear will no longer approve the grant of third party securities.
Clearing Participants should continue to maintain adequate arrangements in place to confirm whether collateral and excess cash lodged to satisfy obligations of the Clearing Participant to ASX Clear in respect of options market contracts are subject to any other security interests and to ensure that if they are, either (i) agreement has been reached that ASX Clear has priority; or (ii) the collateral and excess cash are not lodged with ASX Clear.
A reminder notice will be issued closer to the effective date, if you have any questions or would like more information please contact
Christina D’Amico, Senior Adviser – Post Trade Operations
(02) 9227 0684
Suzy Munro, General Manager – Post Trade Operations
Post Trade Operations
1800 814 051