RBA Market Advice – Changes to Margin Arrangements for ABS Interest Rate Swap Providers
The RBA has amended the margin arrangements for asset-backed securities (ABS) where RBA counterparties are ‘related’ to securities provided as collateral. The amendment is to the additional discount (i.e. haircut) applied to ABS when the counterparty provides an interest rate swap to the ABS trust.
Previously, a flat 3 per cent additional discount applied where the notional principal of the interest rate swap was less than or equal to 25 per cent of the value of the collateral pool. Where the share was greater than 25 per cent, no value was attributed to the proportion of the interest rate swap greater than 25 per cent.
Effective from 27 April, the additional discount will increase linearly, from 0 to 6 per cent, up to a share of 50 per cent of the value of the collateral pool. Where the share is greater than 50 per cent, no value will be attributed to the proportion of the interest rate swap greater than 50 per cent.
|Notional swap principal as a share of the value of the collateral pool||Percentage points|
|≤25 per cent||3|
|>25 per cent||
|≤50 per cent||
|>50 per cent||
Interest Rate Swap Notional Value Share of Pool
|Additional Discount Previous Policy
|Additional Discount New Policy
Change on Implementation
For more details, please see https://www.rba.gov.au/mkt-operations/resources/tech-notes/margin-ratios.html, or contact the Eligible Securities Team: firstname.lastname@example.org.
Risk & Compliance Department
Reserve Bank of Australia
24 April 2020