Open Market Operations
The Reserve Bank conducts various types of open market transactions, with the terms of each subject to prevailing market conditions. These operations are normally distinguished from the Reserve Bank's standing facilities, through which eligible counterparties transact with the Reserve Bank on pre-specified terms.
1 Daily Open Market Operations
Open market operations are conducted almost every business day at 9.30 am and occasionally at 5.10 pm (AEST/AEDT). From time to time, the Reserve Bank may decide not to conduct open market operations on a given day if it judges that the banking system has the appropriate amount of liquidity. The following outlines the key elements and timing of these operations.
1.1 Announcement of Open Market Operations
1.1.1 First Round
The Reserve Bank announces its intentions for its first round of open market operations at 9.30 am each business day. This information is published on the Reserve Bank's pages on the electronic news services (Reuters – RBA31; Bloomberg – RBAO08). The release notes:
- Total ES Balances: the previous day's aggregate end-of-day Exchange Settlement (ES) balances.
- Surplus ES Balances: the previous day's aggregate end-of-day ES balances, adjusted for: ES account holders' net direct entry (DE) receipts from the last two (‘late’) DE exchanges on the previous day; and any repurchase agreements contracted at the cash rate target under the Reserve Bank's standing facilities (‘SF Repos’) that were outstanding as at the close of the previous day.
- Estimated Cash Position: the forecast change in surplus ES balances over the day as a result of transactions other than RBA open market operations.
- Reserve Bank Proposing: refers to the method through which the Reserve Bank is proposing to sterilise the forecast change in surplus ES balances; for example, whether the Reserve Bank is looking to buy securities under reverse repo and outright (add to the supply of ES balances), sell securities under repo (withdraw ES balances) or is not proposing to deal at all. Settlement of any transactions is for same-day value.
- Intended Size of Operation: the intended size (in aggregate) of any transactions that the Reserve Bank is looking to undertake.
- Preferred RP Term(s): the preferred maturities of any repurchase agreements (repos) the Reserve Bank may undertake. On most days, the Reserve Bank nominates between one and three such terms.
- Approach deadline: the deadline for RITS members to contact the Reserve Bank with any proposed transactions (usually 9.45 am (AEST/AEDT)).
1.1.2 Additional Rounds
The Reserve Bank announces whether it intends undertaking an additional round of open market operations for same-day value every business day at 5.10 pm (AEST/AEDT). This information is published on the Reserve Bank's pages on the electronic news services (Reuters – RBA35; Bloomberg – RBAO08). The release notes:
- Reserve Bank Proposing: whether the Reserve Bank is looking to buy securities under reverse repo, sell securities under repo, or is not proposing to deal at all. If there are technical or operational issues, the Reserve Bank might announce that there is a ‘short delay to publication of dealing intentions’.
- Intended Size of Operation: the size (in aggregate) of any transactions that the Reserve Bank is willing to undertake.
- RP Terms(s): the preferred maturities of any repurchase agreements (repos) the Reserve Bank may undertake. These preferred maturities will be at terms chosen so as not to interfere with the functioning of the inter-bank, overnight cash market, and are typically less than 1 week.
- Collateral: The collateral type, which will be Reserve Bank Repo Eligible securities where the Reserve Bank is purchasing under reverse repos and either AFMA GC1 or a specifically nominated security when the Reserve Bank is selling securities under repos.
- Approach Deadline: The deadline for RITS members to contact the Reserve Bank with any proposed transactions (usually 5.15 pm (AEST/AEDT) or five minutes after the announcement).
Very occasionally, the Reserve Bank might announce further additional rounds of open market operations later in the evening. This information would be published on the Reserve Bank's pages on the electronic news services (Reuters – RBA35; Bloomberg – RBAO08), and the further additional round would be conducted prior to the close of the SWIFT End Session.
1.2 Eligible Counterparties
Unless otherwise advised, all RITS members deemed eligible to participate in the Reserve Bank's domestic market operations may participate in the first round of the Reserve Bank's daily open market operations (see Eligible Counterparties). As subsequent open market operations are conducted after the close of the Daily Settlement session within RITS (normally, 4.30 pm (AEST/AEDT)), participation is restricted to those eligible counterparties that are banks, regardless of whether they are evening or non-evening agreed within RITS.
1.3 Contacting the Reserve Bank
Approaches by eligible counterparties must be made to the Reserve Bank's Domestic Markets Desk between the announcement of open market operations and the deadline set for those operations by telephone. All telephone lines are recorded.
An approach submitted to the Reserve Bank may not be modified or withdrawn after the nominated deadline. It may be modified or withdrawn prior to this time.
1.4 Structure of Approaches for Outright Transactions
See Eligible Securities (Section 4) for the criteria establishing which securities the Reserve Bank is willing to purchase on an outright basis in its domestic market operations. Unless otherwise advised, for the purposes of its daily open market operations, the Reserve Bank will only consider purchasing eligible securities on an outright basis in its first round of operations and where the security has a term to maturity less than 18 months. The minimum size of outright bids and offers is $10 million.
Bid and offers for securities should be expressed as a yield to maturity and stated to two decimal places.
1.5 Structure of Approaches for Repurchase Agreements
Approaches should be made on a cash value basis; that is, with reference to the aggregate purchase prices of the securities to be sold under repo. Note that when purchasing securities under reverse repo, the Reserve Bank will adjust the market value of the securities by a margin ratio in order to obtain the purchase price: see Margin Ratios. The minimum size for repo approaches is $20 million, with approaches to be made in increments of $1 million. Smaller amounts will be considered at the Reserve Bank's discretion.
Participants bidding to sell securities under repurchase agreement do not need to detail the specific securities at the time of the approach.
There is no limit on the size or number of approaches that each participant can make. A participant making multiple approaches can set an aggregate limit.
Approaches for repurchase agreements should be quoted on an actual/365 day basis, using a simple interest calculation, payable at maturity. Quotes should be expressed to two decimal places.
When making approaches for repurchase agreements, the desired term in days must also be specified. Participants may nominate terms other than the Reserve Bank's preferred terms and may nominate a range of terms.
Unless otherwise advised by the Reserve Bank, participants offering to buy securities under reverse repurchase agreement should do so on the assumption that the securities provided by the Reserve Bank will be deliverable as ‘General Collateral – Tier 1’ as defined in AFMA's market conventions.
For a given term, the Reserve Bank selects what it deems to be the best approach.
Subject to the Reserve Bank's preferences for its own liquidity management, allocations are made on the basis of the relative value of approaches, as compared with prevailing market rates for comparable terms.
Approaches may be partially filled. Multiple successful approaches at a given term and rate within each class of repurchase agreement are filled on a pro-rata basis if the total of the approaches exceeds the amount the Reserve Bank wishes to deal at that term.
For calculating pro-rata shares, an approach exceeding the total amount the Reserve Bank intends to deal on that day in its operations is regarded as equal to the Reserve Bank's aggregate dealing intention.
In the normal course, a minimum allocation of $20 million will apply, with allocations made in increments of $1 million.
The Reserve Bank electronically notifies each eligible counterparty via Bloomberg and/or Reuters, if such counterparties have access to either or both of these services, of the outcome of their participation in each round of the Reserve Bank’s open market operations. Where counterparties do not have access to such services, or have elected not to use such services, the Reserve Bank notifies both successful and unsuccessful participants by telephone.
Counterparties that wish to receive electronic notifications should contact the Reserve Bank as follows:
- by telephone to Market Operations +61 2 9551 8321, or
- by email to firstname.lastname@example.org
The Reserve Bank endeavours to provide notification by 10.15 am (AEST/AEDT) for its first round operations and within five minutes of the deadline set for any additional operations, but does not guarantee to do so.
A summary of each round of the Reserve Bank's daily open market operations is published over the Reserve Bank's pages on the market data services shortly after participants have been notified regarding their approaches (First round: Reuters – RBA32–RBA34, Bloomberg – RBAO08; Additional rounds: Reuters – RBA36, Bloomberg – RBAO08). These include the value, weighted average and cut-off rates of repurchase agreements dealt, by term, as well as the details of any outright transactions and same-day value foreign exchange swaps. Subsequently, the same information is published in Statistical Table A3 on the Reserve Bank's website. No information regarding the identities of the Reserve Bank's counterparties is made public. The Reserve Bank reserves the right to republish the summary of each dealing round on the market data services and on the Reserve Bank’s website.
1.8 Legal Disclaimer
The Reserve Bank electronically notifies each eligible counterparty, via Bloomberg and/or Reuters (if they have access to either or both of those services), of the outcome of their participation in each round of the Reserve Bank’s open market operations.
Subject to the paragraphs below, the electronic notification constitutes the entry by the Reserve Bank and the eligible counterparty into one or more of the following transactions (as applicable):
- a repurchase transaction (a ‘repo’);
- a transaction for the outright sale of a security or other financial instrument (an ‘outright transaction’); or
- a term deposit,
on the terms specified in the electronic notification and (to the extent applicable) on the master terms and conditions for that transaction which are contained in the RITS Regulations.
Following their receipt of an electronic notification in respect of the entry into a repo, an eligible counterparty must contact the Reserve Bank to confirm the details of the securities or financial instruments (the ‘Purchased Securities’) which will be the subject of the repo and the haircut that will be applied to those Purchased Securities.
Following their receipt of an electronic notification (and following, in the case of a repo, the call described immediately above), the eligible counterparty must:
- in the case of a repo, enter the relevant details of the repo (including the details of the Purchased Securities) into the Approved Securities Settlement System (currently Austraclear) in accordance with the requirements set out in the RITS Regulations. The matching of the eligible counterparty’s entries with the Reserve Bank’s entries within Austraclear constitutes the ‘Confirmation’ of the repo. For the avoidance of doubt, the electronic notification does not constitute the ‘Confirmation’ of the repo;
- in the case of an outright transaction, enter the relevant details of the outright transaction into Austraclear; and
- in the case of a term deposit, enter into RITS a RITS cash transfer to the Reserve Bank for the principal amount of the term deposit in accordance with the requirements set out in the RITS Regulations.
If an eligible counterparty considers that the electronic notification from the Reserve Bank contains an error, the eligible counterparty must promptly notify the Reserve Bank of the purported error by contacting the Reserve Bank as follows:
- by telephone to Market Operations +61 2 9551 8321, or
- by email to email@example.com
If the Reserve Bank becomes aware that there was an error in an electronic notification, the Reserve Bank may alter the terms of a transaction in whatever manner is necessary to correct the error and the Reserve Bank will promptly notify the eligible counterparty of any such alteration.
Each electronic notification is confidential and is only intended for the eligible counterparty specified in the electronic notification. Certain staff at Bloomberg and/or Reuters (as applicable) may also have access to the contents of an electronic notification for the purposes of technical support. If you receive an electronic notification and you are not the intended recipient, you must notify the Reserve Bank immediately by contacting the Reserve Bank by telephone or by email as specified above. You must also delete the notification and any copies of it from your system and you must not copy or disclose its contents to any person (including any other person within your institution).
1.9 Settlement Procedures
Securities transactions entered into as part of the Reserve Bank's first round of open market operations (including margin maintenance and substitutions on repurchase agreements) should be settled prior to the close of the RITS Daily Settlement Session (4.30 pm AEST/AEDT) on their value date. (See details of RITS Settlement Sessions.)
For repurchase agreements contracted in the Reserve Bank's open market operations, the Reserve Bank seeks reimbursement of the settlement fees it incurs from using Austraclear's repurchase agreements functionality. Specifically, the Reserve Bank recovers from its counterpart:
- settlement fees of any first and second leg securities transactions;
- renegotiation fees related to the substitution of securities; and
- coupon transfer fees associated with securities held under reverse repo.
The billing cycle is monthly in arrears. The payment due date for each month is on the 21st day of the following month. (If the due date is on a weekend or public holiday, payment is due the next business day.) The Reserve Bank sends invoices to relevant counterparties by email. For any month, the Reserve Bank does not seek reimbursement where the counterparty invoice would have been less than $200. Invoice amounts of less than $200 do not accrue to the following period.
Counterparties are able to pay by the following methods: Electronic Funds Transfer (EFT), SWIFT payment and Austraclear cash transfer. Detail of payment instructions are included on invoices.
2 Long-dated Open Market Operations
In its long-dated open market operations, the Reserve Bank purchases (or sells) securities with terms to maturity greater than 18 months. These transactions are executed on an outright basis, not under repurchase agreement. See Eligible Securities (Section 4) for the criteria establishing which securities the Reserve Bank is willing to purchase on an outright basis in its domestic market operations.
Long-dated open market operations are conducted over Yieldbroker DEBTS. Consistent with AFMA's market conventions for outright transactions in long-term debt securities, the Reserve Bank's long-dated open market operations are usually settled two business days after they are contracted.
2.1 Eligible Counterparties
Of those RITS members deemed eligible to participate in the Reserve Bank's domestic market operations, only those that have the status of ‘Dealer’ within Yieldbroker DEBTS may participate in the Reserve Bank's long-dated open market operations.
The Reserve Bank announces its intention to conduct a long-dated open market operation via Yieldbroker DEBTS. These announcements are usually made at 2.30 pm (AEST/AEDT) on the day of the operation, although the Reserve Bank may vary the timing of the announcement as it sees fit. The announcement indicates:
- the specific securities the Reserve Bank is willing to buy or sell;
- the time within which approaches are to be submitted; and
- the settlement date.
The announcement also indicates the total value the Reserve Bank expects to transact in the operation (though it does not guarantee to transact this amount).
A less detailed notification of the operation is also provided via the electronic news services (Reuters – RBA27; Bloomberg – RBAO8) at the same time.
Approaches are made over Yieldbroker DEBTS. Participants who encounter difficulties in submitting their approaches over that system should directly contact Yieldbroker DEBTS and also inform the Reserve Bank's Domestic Markets Desk by telephone. All calls are recorded.
Offers cannot be submitted, changed or withdrawn after the cut-off time for submissions has passed.
There is no limit on the number of approaches that a participant can make.
Allocation of the operation is made on a relative value basis, subject to the Reserve Bank's portfolio considerations.
Approaches may be partially filled. Multiple successful approaches for a given security are filled on a pro-rata basis.
An approach exceeding the total transaction amount indicated by the Reserve Bank for the operation is regarded as equal to the total transaction amount for determining pro-rata allocations.
Approaches that are partially filled are rounded up to the nearest million dollars.
All participants will be notified of the success or otherwise of their approach via Yieldbroker DEBTS.
Aggregated results are published on electronic news services (Reuters – RBA28; Bloomberg – RBAO8) shortly after the operation. These include the face value and the weighted average and cut-off yields for each security purchased. No information regarding the identities of the Reserve Bank's counterparties is made public.
3 Purchases of Government Securities Ahead of Maturity
An important influence on the composition of the Reserve Bank's holdings of government securities is management of the impact of large maturities of Australian Government securities (AGS) on system liquidity. This reflects the Reserve Bank's need to reduce or offset the large volume of funds that are paid out of the Australian Government's account at the Reserve Bank into Exchange Settlement accounts (for the credit of the security holder) on the maturity date. In addition to using reverse repos and foreign exchange swaps to withdraw liquidity on the maturity date, the Reserve Bank makes purchases of securities that mature on the same day as the AGS maturity. These purchases are undertaken to manage near term liquidity flows and have no implications for the Reserve Bank's monetary policy stance.
Ahead of a large AGS bond maturity, the Reserve Bank may seek to purchase AGS or securities issued by the state and territory central borrowing authorities (semis) that mature on the relevant maturity date for liquidity management purposes. The Reserve Bank conducts purchases of AGS on Yieldbroker DEBTS. Interested parties can also approach the Reserve Bank's Domestic Markets Desk at any time with their offers, volume and rate. These offers can also be submitted as part of open market operations (see Section 1.4).
Outright transactions in AGS and semis conducted in open market operations, bilaterally or on Yieldbroker DEBTS must be settled within the Austraclear system. Security movements must be on a delivery-versus-payment basis. All such settlements should occur in the Austraclear Sub Participant Account of the eligible counterparty that has entered into the transaction with the Reserve Bank. The Reserve Bank may at its discretion allow counterparties to instruct for settlement in the Austraclear Sub Participant account of their designated agent; the Reserve Bank does not expect eligible counterparties to make frequent use of such settlement arrangements.
Eligible counterparties may approach the Reserve Bank’s Domestic Markets Desk to enquire about borrowing specific AGS or semis under a repurchase agreement. The Reserve Bank will lend such AGS and semis from its outright portfolio and will negotiate such repos at its discretion.
4 Test Repurchase Agreements
Eligible counterparties may approach the Reserve Bank to undertake test repos outside of open market operations. These test repos are entered into at the discretion of the Reserve Bank and are:
- for small amounts (generally no more than $1 million)
- against eligible securities (at the Reserve Bank's sole discretion, these securities may include securities which the Reserve Bank considers to be materially related to the counterparty)
- for an overnight term
- contracted at the cut-off rate of the Reserve Bank's daily open market operations on the day of settlement of the repo.