Media Release Domestic Market Dealing Arrangements

New Intra-day Repo Facility

The Reserve Bank is introducing a new facility for intra-day repurchase agreements, to help banks meet liquidity needs under Continuous Linked Settlement (CLS) arrangements. CLS is a foreign exchange settlement system due to start live operations in late August 2002.

The new intra-day repo facility will be based on eligible bank bills and CDs. It will complement the existing intra-day repo facility based on government and supranational securities.

As with the current facility, the new facility will be available to all banks, and able to be used at any time that RTGS is open.

Any repos entered into under this facility will need to be reversed by the close of RTGS the same day. Failure to do so will be subject to the same penalties as an overdrawing of an Exchange Settlement Account.

Bank bills and CDs eligible for this facility will be those issued by a bank which:

• is rated by both Moody's and Standard & Poor's, and has a short-term rating of P-1 and A1+, respectively, and a long-term rating of at least Aa3 and AA- respectively; and
• maintained a significant amount of relevant securities on issue over the past year. For 2001/02, this has been taken as $1 billion. (Where a bank operates more than one banking entity in Australia, the Reserve Bank, when calculating the amount of securities on issue, will aggregate the securities on issue of all entities in the group that meet the above credit criteria.)

Based on current credit ratings and Austraclear data on securities on issue over 2001/02, the following banks' securities will be eligible:

• Australia and New Zealand Banking Group Limited
• BNP Paribas
• Citibank N.A.
• Commonwealth Bank of Australia
• Deutsche Bank AG
• National Australia Bank Limited
• Primary Industry Bank of Australia Limited (including Rabobank Nederland)
• Westpac Banking Corporation

The list of eligible securities will normally be reviewed at the start of each financial year, based on issuance data for the previous year. Any change in credit rating will result in an immediate review of the list. An up-to-date list of eligible bank securities will be maintained on the Reserve Bank's website, under “Financial Services”.

Under the new facility, banks will not be able to offer their own securities directly to the Reserve Bank – ie, to use the facility they will need to hold securities issued by other eligible banks.

A fee of 5 basis points per annum will be charged on any repos under the facility. The new facility will be made available two weeks before the start of CLS. On present indications, this will be mid August. The Reserve Bank will confirm the date once the start date for CLS is known with certainty.

Arrangements for the existing intra-day repo facility based on securities issued by governments and supranational organisations will remain unchanged.

At this stage, the impact of CLS on Australia's domestic markets and banks' liquidity needs cannot be known with any certainty. As such, the above arrangements may need to be reviewed in the light of experience.

Changes to Reserve Bank Dealing Announcements

At present, when announcing its intentions to buy or sell repos as part of its normal market operations, the Reserve Bank does not specify the maturities for which it is prepared to deal.

In order to better signal its dealing intentions to the market, the Reserve Bank will in future announce its preferred maturities. Mostly these will be for short terms, although longer-term repos will also be included on a regular basis (usually weekly). These longer-term repos will typically be for 90 and 180 days. This change will be effective from 22 July 2002.