The Reserve Bank Information and Transfer System (RITS) is Australia's high-value payments system, which is used by banks and other approved institutions to settle their payment obligations on a real-time gross settlement (RTGS) basis. Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank of Australia. Transactions are entered into RITS directly, or delivered via the external feeder systems – SWIFT and Austraclear. These include payments that settle through CLS, a multi-currency settlement system designed to reduce foreign exchange settlement risk. Some settlement obligations are also settled in RITS periodically on a multilaterally netted basis. This includes obligations arising from payments exchanged through low-value clearing systems for cheques, direct entry and retail card transactions.
Direct entry payments are settled on a same-day basis, while cheque and retail card obligations are settled on a deferred basis the following day by around 9.00 am. These obligations are sent to RITS via the Low Value Settlement Service (LVSS), which enables clearing system participants to send their settlement instructions directly to RITS at the same time as clearing activity takes place between institutions. The LVSS uses some of the infrastructure developed for the Low Value Clearing Service (LVCS), established in June 2010, which provides network connectivity between SWIFT and the Community of Interest Network (COIN), administered by the Australian Payments Clearing Association (APCA), to facilitate the exchange (or clearing) of cheque and direct entry payment files between payment system participants.
RITS is the means by which ESAs are accessed. Membership of RITS is compulsory for all ESA holders, which mainly comprise Australian-licensed banks. Membership is also required for participation in the Reserve Bank's domestic market operations, and for Batch Administrators approved to submit batches to RITS for settlement. RITS facilitates banks' credit and liquidity management by providing tools to control the settlement of payments. RITS has queuing and gridlock-avoidance mechanisms that minimise the extent of system liquidity required to settle payments.
RITS is owned and operated by the Reserve Bank. It falls under the governance structure of the Reserve Bank Board and is subject to its general oversight, decision-making and audit processes.
The Bank's objective in developing and operating RITS is to provide the infrastructure through which settlement obligations arising from the exchange of high-value payments and debt securities settlements can be extinguished in a safe and efficient manner. This ensures that there is no build up of settlement obligations associated with high-value transactions which in turn promotes the stability of Australia's financial system. Reflecting the critical importance of RITS to the Australian financial system, the Bank aims to operate RITS at an extremely high standard of availability and resilience, and to ensure that its settlement services continue to evolve to meet the changing needs of the payments system.
Real-time Gross Settlement (RTGS)
In RTGS, the settlement of transactions takes place irrevocably, in real time, out of credit funds in ESAs. RTGS was introduced in Australia on 22 June 1998 to reduce the settlement risk associated with deferred high-value interbank payments, and to improve the overall efficiency of Australia's financial system. RTGS payments statistics are published by the Reserve Bank.
Exchange Settlement Accounts (ESAs)
Final settlement of payment system obligations (in Australian dollars) occurs across ESAs held at the Reserve Bank. ESAs, which are accessed via RITS, must be maintained in credit at all times, and the Reserve Bank pays ESA interest on overnight balances kept in these accounts. ESAs are mandatory for all Australian-licensed banks and for other ADIs with RTGS transactions that are 0.25 per cent or more of the total value of RTGS transactions; and for any licensed central counterparty (CCP) that the Reserve Bank deems to be systemically important. Other ADIs and CCPs, and licensed security settlement facilities, may also be eligible to apply for an ESA. Further information on ESA eligibility, management and use of an ESA (including where an ESA holder makes its RTGS transactions through an agent rather than directly across its own ESA) and the application process is provided in the Bank's Exchange Settlement Account Policy. An information paper on operational and legal arrangements is provided for the benefit of existing and prospective banks that are eligible for, and wish to avail themselves of, an agency arrangement for RTGS payments.
RITS facilitates liquidity management for banks by enabling them to exercise control over the settlement of payments. Banks may control the priority for settlement given to payments and manage access to liquidity by setting a sub-limit on their ESAs to quarantine funds for priority payments. Payments may be managed via RITS or via the RITS Automated Information Facility (AIF), which automates credit and liquidity messaging instructions between RITS and banks' internal payments systems via the SWIFT network.
Banks must have sufficient funds in their ESAs to ensure that their own payments and those of their customers are able to proceed throughout the day.
There are two main sources of liquidity: overnight ESA balances and reciprocal purchase agreements (repos) with the Reserve Bank, called RBA Repos. Banks can obtain ESA funds by selling eligible securities, held in Austraclear, to the Reserve Bank under an RBA Repo.
In addition, RITS has been designed to use available liquidity efficiently through the use of a centralised ‘System Queue’, an ‘Auto-offset’ facility and a ‘Targeted Bilateral Offset’ facility.
RITS uses a centralised queue design where transactions are tested for settlement as they are received to ensure the paying Member has sufficient funds in its ESA to cover the payment. Transactions that pass all tests are settled, while those unable to be settled at that time remain on the queue. The queue proceeds to test the next transaction on the queue for settlement in a ‘next down looping’ process. The ‘settle or leave’ process allows transactions to be settled in any order and provides for very efficient use of liquidity.
Redistribution of liquidity is also facilitated by a gridlock-preventing feature known as ‘Auto-offset’. When a payment from a Member has been unsettled on the queue for one minute or more, RITS automatically searches the System Queue for offsetting payments from the receiving Member. If these offsetting payments can be settled simultaneously, leaving both parties in credit, RITS will do so automatically (the gross amounts of all payments are posted to the relevant ESAs at the same time).
Targeted Bilateral Offset facility
This functionality allows two RITS Members to select transactions for offset against each other, thus assisting in client credit management at the same time as enhancing the efficient use of system liquidity.
Continuous Linked Settlement (CLS)
CLS is a global initiative designed to reduce foreign exchange settlement risk. The process is facilitated by a simultaneous entry of the bought and sold currencies of each transaction across the books of CLS Bank International (CLS Bank). CLS Bank connects to each of the national RTGS systems and holds a central bank account for each participating currency. Each of these RTGS systems operates simultaneously during a ‘funding period’ each settlement day. CLS members with short positions in a currency make payments via the RTGS system in that country to CLS Bank during this period. CLS Bank uses these funds to settle transactions on a payment-versus-payment basis across its books and pays out the proceeds to members with long positions in each currency. CLS commenced operations in September 2002.
The operational arrangements for CLS in RITS are described in CLS: RITS Session Times and Operational Arrangements.
External Feeder Systems to RITS
Austraclear and the SWIFT Payment Delivery System (PDS) have been admitted as feeder systems to RITS for settlement of interbank obligations arising in those systems. Transactions from these external feeder systems are settled on a real-time gross basis.
The Austraclear System is an electronic depository and settlement system for Commonwealth Government Securities (since February 2002; RITS had provided depository and settlement services for CGS from August 1991), semi-government and private-sector debt securities. After the Austraclear System has matched a transaction and on the settlement date after securities and cash checks (where relevant) have been performed, an interbank settlement request is sent to RITS for settlement testing. Once the payment is settled across ESAs, RITS notifies the Austraclear System, which then settles the transaction in that system. The Austraclear System is operated by Austraclear Limited, a wholly owned subsidiary of ASX Limited. The Austraclear System has over 500 financial market participants as members.
SWIFT Payment Delivery System
APCA manages the SWIFT PDS, which is a closed user group of banks exchanging payments via RITS using the SWIFT FIN Copy service. In value terms, SWIFT payments are predominantly related to the Australian dollar leg of foreign exchange settlements and for interbank customer payments.
A batch is a group of interbank obligations that have been multilaterally netted external to RITS and may be submitted in any eligible RITS session. Batches are submitted for settlement using the batch feeder facility. An approved Batch Administrator sends batches to the RITS System Queue, which tests all payments in each batch for simultaneous settlement. More information is available in the Information Papers on Enhanced Batch Processing in RITS and Eligibility Criteria for the Batch Administrator.
The Batch Administrator, ASX Settlement Pty Limited, manages and submits to RITS a batch of multilaterally netted interbank obligations arising from equity transactions. A single batch is submitted each business day.
Property Settlement Batch
The Batch Administrator, Property Exchange Australia Limited (PEXA Ltd), manages and submits to RITS batches of multilaterally netted interbank obligations arising from property transactions. Many such batches may be submitted to RITS in a given day. Funds are initially reserved in the ESAs of paying participants in the batch while title changes are lodged with the relevant land titles office. After acceptance of the title lodgement, PEXA Ltd will request settlement of the batch.
The Batch Administrator, MasterCard International, manages and submits to RITS a batch of multilaterally netted interbank obligations arising from AUD domestic obligations. MasterCard submits one batch per business day.
Low Value Settlement Service
Interbank obligations arising from clearings for cheques, direct entry and retail card transactions are sent to RITS via the LVSS. Most direct entry obligations settle on a same-day basis in five multilaterally netted settlements during the course of each RITS business day. Some other direct entry obligations settle in RITS during the Morning Settlement Session. Other obligations arising from low-value clearing settle in a multilateral net settlement at around 9:00 am on the following business day.