Separate to its open market operations the Reserve Bank also operates in the domestic market via certain standing facilities. Through these facilities, eligible counterparties transact with the Reserve Bank on pre-specified terms, with liquidity made available via repurchase agreements. In the context of the RITS Regulations, all repurchase agreements executed under the Reserve Bank's standing facilities are known as Standing Facility (SF) Repos, and are distinguished from repurchase agreements executed by the Reserve Bank in its open market operations (OMOs), known as OMO Repos.
1. Intraday, Overnight and Open SF Repos
Eligible RITS members (see Section 3 below) are able to access intraday funding from the Reserve Bank via intraday SF Repos. These intraday repos carry no interest charge. However, depending upon the method of settlement (see Section 5 below), the repurchase price may be adjusted for certain settlement fees.
Where the Reserve Bank agrees to extend the maturity of an intraday SF Repo to the next business day, the repurchase price is adjusted at a rate of interest set 25 basis points above the Reserve Bank Board's prevailing target for the cash rate. Again, depending upon the method of settlement, the repurchase price may also be adjusted for certain settlement fees incurred by the Reserve Bank. The Reserve Bank does not expect RITS members to make frequent use of SF Repos contracted at a rate of interest that is 25 basis points above the cash rate target.
Eligible counterparties are also able to contract SF Repos without a maturity date; that is, the term of the repo may be ‘open’.
For those Authorised Deposit-taking Institutions (ADIs) that are Tier 1 participants in the Bulk Electronic Clearing System (BECS), the Reserve Bank, in consultation with the ADI, determines a minimum open position in SF Repos that the ADI should maintain. These open SF Repos accrue interest at the cash rate target. The cash received from these repos is used to create a buffer against payment obligations arising from the late exchanges of direct entry (DE) files; hence, the minimum positions are set with regard to the potential size of these payments. For those ES account holders that are not Tier 1 BECS participants, the minimum required open position in SF Repos is zero. The size of these minimum positions is reviewed at least annually by the Reserve Bank, with the outcome of that review communicated in writing to the ADI. ADIs are welcome to contact the Reserve Bank's Domestic Markets Desk in the interim if a change in their payments activity warrants an earlier review.
To reduce the need for ES account holders to contract intraday SF Repos on a regular basis, the Reserve Bank may agree to contract an amount of open SF Repos (at the cash rate target) over and above the stipulated minimum position for an account holder. This includes account holders that are not Tier 1 BECS participants. Maximum permitted positions in SF Repos at the cash rate target are reviewed at least annually.
For all other SF Repos that extend beyond an intraday term, the repurchase price is adjusted at a rate that is 25 basis points above the cash rate target. As noted above, it is not expected that ES account holders have frequent recourse to SF Repos contracted at a rate of interest that is 25 basis points above the cash rate target.
Eligible counterparties are able to contract SF Repos until the close of the SWIFT End Session within RITS (6.30 pm AEST, 8.30 pm AEDT, unless otherwise advised; see details of the RITS Settlement Sessions). Similarly, either party to an open SF Repo is able to terminate the repo for same-day value until the close of the SWIFT End Session. (However, unless otherwise agreed by the Reserve Bank, an open SF Repo may not be terminated on its purchase date; that is, on the day it was initiated.) In the normal course of events, the Reserve Bank will terminate pre-existing open SF Repos on the first business day of the month. This allows for the collection of interest on outstanding positions. Upon termination, ES account holders may contract new SF Repos.
Those RITS members that are not ‘Evening-Agreed’ banks should contact the Reserve Bank's Domestic Markets Desk if they intend to unwind an SF Repo after the close of the RITS Settlement Close Session (5.15 pm AEST/AEDT). RITS members that believe they will be unable to unwind an SF Repo on its agreed maturity date must contact the Domestic Markets Desk.
2. Interest on Exchange Settlement Balances
An ES account holder's position in SF Repos contracted at the cash rate target will influence the remuneration of balances held in their ES account. To the extent that an account holder holds ES funds equal to their position in SF Repos contracted at the cash rate target, those funds will be compensated at the cash rate target. Balances in excess of this amount will earn 25 basis points less than the cash rate target. (Hence, for those account holders without any SF Repos contracted at the cash rate target, the balance of their ES account will accrue interest at a rate 25 basis points below the cash rate target.) Similarly, a 25 basis point charge will be imposed on any shortfall between closing balances and an account holder's position in SF Repos contracted at the cash rate target.
In determining the interest to be paid on ES funds, the closing account balance will be adjusted for the net receipts from those DE payments arriving on the RITS queue after 4.45 pm (AEST/AEDT). Consequently, no interest charges need arise from late DE payments or receipts settling across an ADI's ES account.
The formula for ES interest is:
Daily interest = (ES x cash rate + (ES −
OR − late DE) x p) / 365,
p = −0.0025, if (ES − OR − late DE) ≥ 0,
p = +0.0025, if (ES − OR − late DE) < 0,
OR represents the starting cash value of all SF Repos contracted at the cash rate target by the account holder,
late DE is the net receipts of the account holder from those DE payments arriving on the RITS queue after 4.45 pm (AEST/AEDT). (For those account holders that are not Tier 1 BECS participants, late DE will always be zero.)
ES represents the end-of-day balance of the account holder,
cash rate is the target for the cash rate as set by the Reserve Bank Board.
Interest is paid in arrears on the first business day of each month.
In managing their liquidity, it is expected that ES account holders maintain a closing balance (net of any late DE receipts) that is at least equal to their outstanding position in SF Repos. ES account holders that meet this expectation are not considered to have received liquidity support from the Reserve Bank through their SF Repo position. Any shortfall is considered equivalent to borrowing from the Reserve Bank at a 25 basis point margin.
3. Access to SF Repos
Access to SF Repos is only available to counterparties eligible to participate in the Reserve Bank's domestic market operations that settle payments across their own Exchange Settlement (ES) account (except where the member is restricted by special terms and conditions relating to its ES account). However, each specific repo is subject to the agreement of the Reserve Bank.
4. Securities for SF Repos
For SF Repos, ADIs may request an exemption from certain aspects of the Reserve Bank's related-party guidelines as applied to eligible securities for the Reserve Bank's domestic market operations. For more information, refer to Section 2.1 of Margin Ratios.
For SF Repos, certain restrictions may apply to the use of securities otherwise eligible for the Bank's domestic market operations:
- For SF Repos contracted at the cash rate target, ADIs are only able to use securities that could be held in fulfilment of APRA's liquidity policy for the institution. In particular, ADIs subject to the Liquidity Coverage Ratio are typically not able to contract SF Repos at the cash rate target using eligible securities other than AGS or semis without first establishing a Committed Liquidity Facility (CLF) with the RBA and paying the CLF Fee. For more details on the Committed Liquidity Facility, see the CLF Operational Notes.
- For other SF Repos, ADIs are typically expected to use securities that could be held in fulfilment of APRA's liquidity policy for the institution.
5. Settlement Procedures
Within the Austraclear system, eligible counterparties for SF Repos are able to unilaterally execute such repos against Australian Government Securities and semi-government securities. For advice on using this functionality, contact the Austraclear Help Desk (+61 1300 362 257).
SF Repos contracted via the unilateral facility should only be used for intraday purposes. Where the term of an SF Repo contracted via the unilateral facility extends overnight, the repurchase price is automatically adjusted at a rate of interest that is 25 basis points above the Reserve Bank Board's prevailing target for the cash rate. Consequently, RITS members seeking to establish an open position in SF Repos (against any eligible security) should arrange the transaction with the Reserve Bank's Domestic Markets Desk. Likewise, any SF Repo against a security not accepted by Austraclear's unilateral facility must be arranged with the Domestic Markets Desk.
Where an SF Repo is settled via means other than the unilateral facility within Austraclear, the Reserve Bank may incur Austraclear settlement fees. For those SF Repos contracted for intraday maturities, the Reserve Bank recovers the cost of its settlement activity through an adjustment to the repurchase price.
When an open position in an SF Repo has matured and the Reserve Bank has agreed to contract a new SF Repo against the same security for settlement on the same day, the Reserve Bank may permit the cash and security movements in the two transactions to be netted for the purposes of settlement. Settlement details need to be confirmed with the Domestic Markets Desk.