Media Release Domestic Market Dealing Arrangements

In response to the ongoing consolidation in the market for Commonwealth Government securities, the Reserve Bank has reviewed arrangements for its domestic market operations and has decided to make the following changes, effective Monday, 15 March:

1. Securities Eligible for Repurchase Agreements with the Reserve Bank

At present, the range of securities that the Reserve Bank accepts under repurchase agreement (repos) in its daily market operations includes securities issued by the Commonwealth Government, State and Territory central borrowing authorities and certain supranational organisations. In future, the range will also include bank bills and certificates of deposit (CDs) issued by banks licensed in Australia, and securities issued by foreign governments and government agencies that have an explicit government guarantee.

Bank bills and CDs will be eligible where the issuer has a short-term rating of P-1 or equivalent, and a long-term rating equivalent to A3 or above, by all major credit rating agencies that rate it, and in any event by at least two major credit rating agencies. Banks will not be able to offer their own bank bills or CDs to the Reserve Bank.

Securities of supranational organisations, foreign governments and government agencies will be eligible where they are denominated in Australian dollars and both the securities and the issuer have a AAA rating.

A list of eligible securities that will be effective 15 March is posted on the Reserve Bank website.

As at present, the Reserve Bank will only deal in securities lodged in Austraclear.

The Reserve Bank will consider approaches for repos in bank bills and CDs separately from those in other eligible securities. Therefore, market participants will need to indicate to the Reserve Bank the type of securities they propose to offer under the repo when making their approach.

All repo transactions will continue to attract a collateral margin equal to 2 per cent of the market value of the transaction.

2. Intra-day Repurchase Agreement Facility for Bank Instruments

The arrangements for the intra-day facility based on bank bills and certificates of deposit will be changed to reflect the new arrangements for overnight and term repurchase agreements based on the same instruments as follows:

• eligible banks will be the same as for overnight and term repurchase agreements;
• the current fee of 5 basis points per annum will be dropped; and
• the interest charge for failing to unwind an intra-day repurchase agreement underpinned by bank instruments will be reduced to 25 basis points, the same as that applying to the failure to unwind intra-day repurchase agreements underpinned by government debt.

3. Securities issued by State and Territory Central Borrowing Authorities

The Reserve Bank has decided to widen its outright holdings of domestic securities, which are currently limited to Commonwealth Government securities, to include securities issued by State and Territory central borrowing authorities. The Reserve Bank will consider outright offers of short-term debt instruments in its daily open market operations (i.e. debt with a remaining maturity of around 18 months or less). It will approach the market in a separate round of dealing when it wishes to add to its outright holdings of longer-term debt.