Eligibility Criteria for the Batch Administrator

Batch Settlement in RITS

Criteria to be met by the Batch Administrator

RITS provides for Real Time Gross Settlement (RTGS) and batch settlement across Exchange Settlement Accounts. Low value net inter-bank positions[1] may be settled using the batch settlement facility in RITS[2] if it is desired that these positions be settled simultaneously. Batches may be submitted in any eligible RITS session by an approved Batch Administrator.

For certain batch streams, the Batch Administrator will request that funds are reserved in the ESAs of paying participants in the batch. The Batch Administrator will subsequently request settlement of the batch.

When ready for settlement, batches are sent to the RITS queue, where all payments in each batch are tested for simultaneous settlement. If one payment cannot settle, the entire batch will not settle, and will remain on the queue for further settlement testing, in the same manner as RTGS payments.

This document sets out eligibility and application requirements that must be met before a Batch Administrator is approved by the Reserve Bank to use the RITS batch settlement facility. Applicants should be aware that additional criteria may be relevant for different uses of the batch facility. Where an organisation is the Batch Administrator for more than one upstream business activity, the organisation must satisfy the eligibility criteria and application requirements described in this document for each business stream.

Key Terms Used in this Document

Upstream business operator
The upstream business operator is an entity that will extract data on financial transactions, arising from an ‘upstream’ real or financial business, for transmission to a Batch Administrator that will administer batch settlement across RITS of the resulting net inter-bank positions. This entity may run the underlying business or act as an agent of that business.
Batch Administrator
The Batch Administrator is the operator of an arrangement for one or more upstream business activities, where it has been agreed by the upstream business operator/s and participant banks that the resultant net inter-bank positions should be settled simultaneously. The Batch Administrator has the authority of these parties to enter into RITS the net inter-bank positions of participant banks that are to be settled simultaneously in a batch, and would provide confirmation to each participant bank of its position in each batch. The Batch Administrator may provide payment details to each participant bank or other financial institution to enable posting to individual customer accounts. The Batch Administrator may also potentially be the upstream business operator.
Participant bank
Participant bank means either an institution holding a banking authority [3] issued by the Australian Prudential Regulation Authority (APRA), or other institution approved by the Reserve Bank to hold an Exchange Settlement Account, that will have a net inter-bank position to be settled using the batch facility.
Types of batches
A batch may be configured as either a ‘central party’ or ‘against the system’ batch. In a central party batch each participant bank either pays or receives its net position against a central party also holding an Exchange Settlement Account with the Reserve Bank. In an against the system batch there is no central party; each participant bank has a single multilateral position to be settled against the ‘system’ comprising all other participant banks.
Settlement of batches
A batch may be either a ‘Reservation Batch’ or a ‘Settlement-only batch’. In a Reservation Batch the Batch Administrator first requests that funds are reserved in ESAs of paying participants in the batch. These funds cannot be used to settle any other transactions. The Batch Administrator subsequently requests settlement of the batch (once the batch is sent to the RITS queue, it should settle almost immediately due to the prior reservation of funds). In a Settlement-only batch no funds are reserved. Upon entry into RITS (or when a nominated time is reached) the batch is sent to the RITS queue, where all payments in each batch are tested for simultaneous settlement. If one payment cannot settle, the entire batch will not settle and will remain on the queue for further settlement testing.

General Criteria

Applicants seeking Reserve Bank approval to be a Batch Administrator must:

  1. Be an actual or prospective operator of an arrangement for one or more ‘upstream’ business activities, where it has been agreed by the upstream business operator (if a separate entity) and participant banks that the resultant inter-bank positions should be settled simultaneously.
  2. Provide evidence of operational capacity to manage and implement the provision of:
    • net inter-bank positions to RITS (that must sum to zero), by any of the methods approved by the Reserve Bank; and
    • advice of the above net inter-bank positions of participant banks to those banks in the manner stipulated in the operating procedures for that batch arrangement.
    Proving of operational capacity will require satisfactory testing of the batch arrangement with the Reserve Bank, participant banks and the upstream business operator.
  3. Satisfy the Reserve Bank that appropriate operational and contingency procedures will be in place to ensure the efficient operation of the batch arrangement.
  4. Satisfy the Reserve Bank that appropriate business rules and other legal arrangements will be in place to support the batch arrangement. These must:
    • evidence the approval of the upstream business operator for the applicant to manage batch settlement of net inter-bank positions arising from the upstream business, including reservation processing if it is to be used;
    • evidence the approval of participant banks for the applicant to provide their inter-bank positions to RITS for reservation (if it is to be used) and batch settlement;
    • evidence of the need for the upstream business model to use the reservation of funds batch functionality, if the applicant is intending to use Reservation Batches;
    • acknowledge that it is the responsibility of participant banks to ensure the funding of their batch payments and that the Reserve Bank does not guarantee the settlement of any batch; and
    • provide for participation in the batch of any eligible holder of an Exchange Settlement Account.
  5. The Batch Administrator must be a RITS Member – either as an Exchange Settlement Account holder or as a Non-ESA Holder Member.
  6. If the Batch Administrator is also a participant bank, or central party in a central party batch, it must hold an Exchange Settlement Account with the Reserve Bank.[4]
  7. If the Batch Administrator is not a bank or is not supervised by APRA and is a central party in a central party batch, it must separately apply to the Reserve Bank to use its Exchange Settlement Account for this purpose.

These criteria are to be met prior to commencement of batch settlement and on an ongoing basis.

Application Requirements

It is acknowledged that some of the requirements below may be met by the applicant on the basis of information supplied to the applicant by the upstream business operator. This should be noted by the applicant where applicable.

  1. Evidence of the financial capacity, standing and integrity of the applicant to perform the functions of the Batch Administrator, in an efficient manner on an ongoing basis, must be provided to the Reserve Bank.
  2. An outline of the operation of the proposed batch arrangement must be provided to the Reserve Bank and should include, at a minimum:
    1. A high level description of the underlying business purpose of the batch settlement (including the type of batch settlement to be used) and the applicant's business model to fulfil the function of Batch Administrator. The latter would include, for example, the proposed means of connecting to RITS and participant banks.
    2. Projections estimating the value and volume of transactions to be settled in the batch.
    3. An outline of operational and contingency procedures.
    4. An outline of proposed business rules and other legal arrangements underlying the operation of the batch.

Conditions of Operation

  1. The applicant must meet the general admission criteria set out in this document on an on-going basis.
  2. A contract must be entered into with the Reserve Bank. This will, amongst other things:
    1. set out the rights and obligations of the Reserve Bank and the Batch Administrator;
    2. acknowledge that it is the responsibility of participant banks to ensure the funding of their batch payments and that the Reserve Bank does not guarantee the settlement of any batch;
    3. bind the Batch Administrator to the Regulations of the Reserve Bank Information and Transfer System;
    4. provide for reporting of such information as may be required from time to time by the Reserve Bank;
    5. provide for payment of fees to the Reserve Bank, if these are generally payable by Batch Administrators; and
    6. allow the Reserve Bank to set such conditions as it deems appropriate to safeguard the efficient operation of RITS.
    If an institution is a Batch Administrator for more than one upstream business, a single contract may be used, referencing each upstream business as appropriate.
  3. The Reserve Bank and the Batch Administrator must agree a set of Operational and Contingency Procedures that set out detailed procedural, administrative and contingency arrangements related to the conduct of the Batch.
  4. The batch settlement facility has been designed for the settlement of low value transactions. Large value payment obligations should be settled on a RTGS basis.

Applications for approval as a Batch Administrator should be addressed to the Reserve Bank for the attention of:

Senior Manager (Business Policy & Services)
Payments Settlements Department
Reserve Bank of Australia
65 Martin Place
SYDNEY NSW 2000

Endnotes

Net amounts paid or received across Exchange Settlement Accounts arising from own or customer transactions. [1]

The 9am Batch, primarily for settlement of obligations arising from the previous day's exchange of ‘low value’ clearings, does not currently use this facility. [2]

Used here to denote an authority under section 9 of the Banking Act 1959 and a section 66 consent (or eligibility to obtain such a consent) from APRA to use the terms ‘bank’, ‘banker’ or ‘banking’ in relation to its business. [3]

Eligibility criteria for an Exchange Settlement Account are set out in the Reserve Bank's Exchange Settlement Account Policy. [4]