Publications: Discussion Documents Austraclear NZ

Austraclear Ownership, Membership and Governance

Ownership
The Austraclear NZ system is operated by the RBNZ (System Operator) under licence from Austraclear Limited, an operating subsidiary of SFE Corporation Limited⁶. The Reserve Bank licence enables it to operate the system until 2015.

Governance and Oversight
The Reserve Bank has both an oversight and operational role in the NZ payment system. The operational activities include the operation of ESAS (including the ESAS/SWIFT interface), and Austraclear NZ, where it acts as the System Operator. For the Austraclear NZ system, the rights and obligations of members to each other and the rights and obligations of the Reserve Bank of New Zealand are governed by a mutual contract entered into by all members - this contract is known as the Austraclear Rules⁷.

In addition, the Austraclear New Zealand Operating Guidelines are published by the System Operator from time to time and set out the day-to-day administration, operating times, system functions and processes for the System Operator and

Members.
To promote good governance of Austraclear, as well as ensuring Members can contribute to the effectiveness, viability and strategic direction of the system there is an Austraclear User' Advisory Committee⁸ elected by the membership. In addition, Members are consulted on and advised of any decisions affecting the operation of the systems, and Austraclear NZ User Group meetings are held six monthly.

In both its oversight and operational roles, the Bank utilises internationally recognised standards for payment and security settlement systems, in particular:
- Core Principles for Systemically Important Payment Systems - issued by the Committee on Payment and Settlement Systems (CPSS), and
- Recommendations for securities settlement systems - issued jointly by CPSS and the International Organisation of Securities Commissions (IOSCO).
The Bank's payment system oversight role is closely related to its role of promoting the maintenance of a sound and efficient financial system⁹. These overlap significantly with the CPSS Core Principles, and these are used by the Bank to guide its thinking and policy stance on new initiatives and enhancements in payment systems. Compliance with the Core Principles is fully discussed in the RBNZ Bulletin¹⁰ article "Recent developments in the payment system", as well as "Outcomes of the Financial Sector Assessment Programme for New Zealand".¹¹

For both ESAS and Austraclear NZ, there are clear structures and accountabilities in place, reporting to the Assistant Governor of the Bank. System performance is closely monitored and regular external audits conducted.

Membership
Any institution (domestic or foreign) can apply to the Reserve Bank for membership of the Austraclear NZ system. The membership application process and requirements, as well as the rights and obligations of Members, are detailed in the Austraclear Rules (in particular rule 3). Membership application forms and fee structures (membership, transactions, set charges) are detailed on the RBNZ web site.

The Austraclear NZ system has three types of membership:
1. Full Member - access to full system functionality.
2. Associate Member - has limited access to system functionality.
  - Only one branch is allowed.
  - Are unable to transact directly with another Associate Member.
  - Are not allowed any security sub-accounts.
3. Nominated Trust.
  - A Nominated Trust member operates as a branch of a full member.
  - The setup on Austraclear gives legal protection to the assets of the Nominated Trust Member.
  - The membership is only available to entities established under the New Zealand Trustees Act 1956.
As at December 2007, there were 64 full members, 48 associate and 96 nominated trust members, with the membership list being published on the Bank's website¹².
The Austraclear New Zealand System Operation
The Austraclear NZ system is a real-time service for clearing and settlement of high-value (wholesale) transactions involving debt securities and equities, and also for cash transfers.

Each Austraclear Member has a security account(s) on the system which records the securities held by the Member and available to the Member for settlement transactions. Members are first required to "lodge" securities into their security account on the Austraclear system, which requires the transfer of ownership of the security into the name of New Zealand Central Securities Depository Limited (NZCSD) on the respective registry. NZCSD then becomes the legal owner of the securities on the register and holds the securities on behalf of the member, the beneficial owner. The securities are therefore "immobilized" in NZCSD (the depository) which acts as a bare trustee.

The RBNZ as system operator is the managing trustee and has appointed NZCSD as the custodian trustee under Section 50 of the Trustee Act 1956, in respect of the securities lodged in the system.

The rights and obligations relating to lodgement and holding of securities into NZCSD and the uplifting of securities from NZCSD are covered in the Austraclear Rules (in particular rule 9 and rule 14), with the procedures for lodgement and uplifting advised in the Operating Guidelines.

The inventory of securities held in the depository is approximately NZ$92 billion, with a settlement volume of 800-1200 transactions per day representing a turnover of approximately NZ$8 billion.

The Austraclear system offers Delivery versus Payment (DVP) RTGS for the following securities:
- Registered Certificates of Deposit.
- Bonds and Treasury Bills.
- Registered Notes.
- Equities.
It also provides transfer of securities between Members, as well as cash transfers.

Austraclear Members are able to settle securities transactions either by entering the settlement instruction into the system directly (on-line), or submitting the settlement instruction via SWIFT. Both sides (parties) must enter and authorise the settlement. The system will then match the transaction (if possible) and then on the settlement date, it will attempt to settle the transaction providing:
1. The seller has beneficial ownership of the security within NZCSD,
2. The buyer has sufficient funds or unutilised limits in their commercial bank account record on the Austraclear system.
If both these requirements are met then a payment request is sent to ESAS. Once completed, ESAS confirms payment to Austraclear NZ and Austraclear settles the transaction irrevocably - with the security and cash records being updated simultaneously.

ESAS Austraclear NZ Electronic Registry Interface

ESAS Austraclear NZ
Electronic Registry Interface