RMBS Divestment Process

10 June 2015

This Operational Notice provides information on the auction process the AOFM will be using to undertake the announced RMBS divestment. The AOFM reserves the right to change the auction process, and will provide advance notification of these changes.

Panel Membership

Counterparties that have registered to participate in the auction process are referred to as the RMBS Divestment Panel and are listed at the end of this Operational Notice.

The AOFM will continue to accept applications to join the RMBS Divestment Panel from members of its Investment Facility Panel and will advise of changes as they occur.

Announcement of Auctions

Subject to market conditions, the AOFM plans to auction each month a volume of between $300 million and $500 million of RMBS in amortised face value terms.

Today the AOFM will announce the timing of both the June and July auctions, and the specific notes to be offered in each auction. On completion of the June auction, the AOFM will announce the specific notes to be offered and the timing of the August auction. This pattern of announcements will continue in the absence of any advance notice of change.

Consequently, from this point forward the AOFM intends to provide notice of its specific divestment intentions for between five and eight weeks in advance, at the time that notice is provided.

Bid Submission

Bids are to be submitted by email by Divestment Panel Members so that they are received by the AOFM no later than 11am (AEST/AEDST, whichever is currently applicable) on the auction day. Upon receipt of a bid, an acknowledgement email will be sent to the bidder. Bidders who do not receive an automated email acknowledgement of their submitted bid, should contact AOFM’s RMBS Bids Mailbox Administration Team using the contact details provided separately today.

The email address for the submission of bids will also be provided to Divestment Panel members today.

Divestment Panel members will also today be sent a spreadsheet template to be used for the submission of bids. Each Divestment Panel member is able to submit multiple bids using a copy of this template. Divestment Panel members are instructed to submit a unique spreadsheet using the template for each individual security for which they wish to submit bids. For example, if the AOFM is offering three notes for a given auction, Divestment Panel members wishing to bid for each of the notes should submit three spreadsheets to the AOFM, i.e. one for each note.

Bids are to be submitted in Clean Price terms per $100 face value, to three decimal places. The volume bid at each price is to be submitted in Original Face Value terms.

Bidders are to specify the date of the auction for which bids are being submitted, the legal entity submitting the bid, the name of the authorised representative of the legal entity and the Austraclear code of the entity for settlement purposes.

All bids will be binding. There is no facility to change, replace or withdraw a bid once the bids are submitted.

Bids are to conform to minimum transaction and increment volumes set out in the documentation associated with each security.

The AOFM reserves the right to scale bids subject to these minimum transaction and increment volumes.

Auction Mechanics

An undisclosed reserve price and fair value assessment will be set for each security offered and the bids will be ranked against these criteria. Bids will be filled in order of their ranking, from highest to lowest, with scaling of bids to occur on a pro-rata basis with respect to the volume bid. Each auction will be undertaken on a multiple price basis. That is, successful bidders will pay the price they bid.

Subject to sufficient bids exceeding the reserve price, the AOFM reserves the right to exercise discretion with regards to the total volume sold up to but not exceeding $500 million. For example, if less than $300 million of bids exceed the reserve price, then less than $300 million will be sold.

In order to determine settlement amounts, current bond factors will be applied to the Original Face Value amounts submitted by bidders to calculate Amortised Face Value amounts. These will then be multiplied by the Clean Price bid and an adjustment made for accrued interest.

Settlement will be on a T+3 basis via Austraclear.

Announcement of Results

The AOFM will publish on its website the results of each auction by 2pm (AEST/AEDST) on the day of the auction. These results will include the volume of each note sold at each Clean Price, the corresponding (estimated) trading margin at which each sale occurred, and the AOFM’s estimates of the weighted average life for each note.

So as to provide clarity to bidders of the success or otherwise of their bids within the published results, the AOFM will also publish, for each security sold, the amount allotted at the lowest accepted price as a percentage of the amount bid at that price.

Following the publication of the auction results, the AOFM will contact successful bidders to confirm the specifics of their purchases.

A sample results page can be found as an Appendix to this Operational Notice.

Communication with AOFM Officials

Questions for the AOFM on the auction process are to be submitted in writing to rmbsquestions@aofm.gov.au. The AOFM intends to publish both the question and the AOFM’s response on its website.

The AOFM will accept expressions of interest from investors who would like the AOFM to include specific securities in subsequent auctions, either directly, or via Divestment Panel members. Interest should be submitted by e-mail to rmbsquestions@aofm.gov.au.

The AOFM will continue to accept applications from Investment Panel Members to join the Divestment Panel. Applications should be submitted by e-mail to rmbsquestions@aofm.gov.au.

The email address rmbs@aofm.gov.au will no longer be monitored.

Under no circumstances are bid-submission emails to be courtesy copied, blind courtesy copied, forwarded or in any other way sent to any person in the AOFM’s front office. Failure to comply will result in the bid being rejected without further warning, with no provision for a replacement bid. Further, no bids from other representatives from the same Divestment Panel Member will be accepted for that auction.

The AOFM believes that the announcement of its divestment intentions well in advance will help mitigate the risk of congestion with the primary market. The AOFM does not seek and will not receive non-public information about impending primary issuance of RMBS.

 

Appendix 1 – AOFM RMBS Divestment Panel Members

Australia and New Zealand Banking Group Limited

Citigroup Pty Ltd

Commonwealth Bank of Australia

Deutsche Bank AG Sydney Branch

Macquarie Bank Limited

National Australia Bank Limited

Westpac Banking Corporation

 

Appendix 2 – Example of Results

A link to a spreadsheet with an example of the results can be found here: http://cdn.aofm.gov.au/uploads/sites/31/2015/06/151022_RMBS_Auction_Results.xlsx

 

Last updated: 22 October 2015