Eligible parties are able to borrow Treasury Bonds, Treasury Indexed Bonds and Treasury Notes (together Australian Government Securities (AGS)) through a securities lending facility provided by the Australian Office of Financial Management (AOFM). The Reserve Bank of Australia (RBA) operates the facility on behalf of the AOFM.
The lending facility allows market participants to borrow AGS when they are not readily available from other sources in the market.
AGS may be borrowed on a fixed term, open term (a minimum of one day and automatically rolled each business day until terminated) or intraday.
The facility is intended to enhance the efficiency of the AGS market.
- The capacity of intermediaries to make two-way prices, particularly for securities that become 'tight' in the repurchase market, is increased if AGS can be borrowed when required.
- Settlement processing of financial transactions involving AGS can in some situations be made significantly smoother for market participants if such securities can be borrowed intraday.
The facility operates through repurchase agreements between the RBA and AGS market participants. A repurchase agreement (commonly referred to as a repo) involves a holder of debt securities (for example, Treasury Bonds) selling them for cash, and simultaneously agreeing to repurchase them at a fixed price on the same date or a future date.
The following is more detailed information concerning the facility:
Securities Available to be Borrowed
The AOFM manages a stock of Treasury Bonds, Treasury Indexed Bonds and Treasury Notes created and issued under the Commonwealth Inscribed Stock Act 1911 for the purpose of securities lending by the Treasurer. Any Treasury Bond, Treasury Indexed Bond or Treasury Note line currently on public issue is available for borrowing via the facility unless otherwise stated on RBA40 (LSEG) or RBAO9 (Bloomberg).
The total face value amount of AGS available for borrowing via the facility at any one time is limited to $5 billion.
While every reasonable attempt will be made to meet all requests to borrow AGS through the facility, there is no commitment to fulfil all requests.
Collateral
Counterparties borrowing AGS through the facility must provide collateral in the form of cash or acceptable securities.
Securities accepted as collateral are government-related, Australian-dollar denominated securities accepted by the RBA as general collateral in relation to repurchase agreements with the RBA. These securities include:
- Australian Government Securities (that is, Treasury Bonds, Treasury Indexed Bonds and Treasury Notes);
- securities issued by Australian State and Territory central borrowing authorities;
- certain securities of foreign sovereigns and their agencies, as well as supranational institutions;
- securities with an Australian Government Guarantee; and
- certain securities with a foreign sovereign government guarantee.
Further details concerning eligible securities are contained on the RBA website.
Counterparties can request to substitute one or more lines of collateral securities for others over the term of an open or fixed term securities lending transaction.
Role of Reserve of Bank of Australia (RBA)
The RBA operates the facility on behalf of the AOFM. The RBA contracts as principal, vis-a-vis a counterparty, in securities lending transactions undertaken through the facility.
Requests to access the facility should be directed to the RBA's Monetary Policy Implementation – Dealing Desk at dealingroom@rba.gov.au or on +61 2 9551 8321. Market participants wishing to access the facility should notify the RBA by 5:45 pm AEST/7:45 pm AEDT on the day they wish to take delivery of securities. For Reserve Bank Information and Transfer System (RITS) members who do not operate an Exchange Settlement (ES) account, access should be notified by 3:45 pm on the day they wish to take delivery of securities. Approaches after these respective times will be dealt with on a 'best endeavours' basis.
Eligible Counterparties
Unless precluded by an additional condition in their RITS Membership Agreement any member of the RITS eligible to participate in the Reserve Bank’s domestic market operations is able to access the securities lending facility.
Transaction Type
Where collateral is in the form of acceptable securities, each securities lending transaction will be completed using a cash matched repurchase agreement and reverse repurchase agreement. The RBA will pay cash to the counterparty to purchase the collateral securities under a reverse repurchase agreement, and the loaned AGS will be sold to the counterparty, in exchange for cash, under a repurchase agreement.
Where collateral is in the form of cash, each securities lending transaction will be completed using a repurchase agreement.
Counterparties should note that by entering a repurchase agreement with the RBA into the Austraclear System, the counterparty is agreeing to be bound by the terms of SIFMA/ICMA Global Master Repurchase Agreement, as amended and supplemented by the RBA in Annex A of the RITS Regulations and the RBA website.
Settlement Period and Term
The first leg of each repurchase agreement and (where relevant) reverse repurchase agreement are for settlement on the same-day or an agreed future date, which is not a public holiday in Sydney.
In the case of intraday securities lending transactions, the second leg of each repurchase agreement and (where relevant) reverse repurchase agreement is transacted to be settled on the same day as the first leg. If the second leg of an intraday securities lending transaction is not completed by the end of the SWIFT End Session, the transaction becomes an open term securities lending transaction. For RITS members who do not operate an ES account, the second leg of an intraday securities lending transaction must be completed by the end of the RITS Daily Settlement Session, otherwise the transaction becomes an open term securities lending transaction.
An open term securities lending transaction is automatically rolled on the same terms at 11:00am (AEST/AEDT) each business day unless either the RBA or the counterparty advise otherwise prior to this time. A counterparty or the RBA may still request that an open repurchase agreement be terminated after this time. The RBA will treat these counterparty requests on a “best endeavours” basis. The maturity date can be the same day the advice is received.
Intraday securities loans must be unwound in full; they cannot be partially unwound.
For Treasury Notes being lent the AOFM authorises the RBA to require the termination of a lending arrangement 6 business days prior to their maturity date. For Treasury Bonds and Treasury Indexed Bonds being lent the AOFM authorises the RBA to require the termination of a lending arrangement on the business day prior to their final coupon record date. The RBA will not enter into any new securities lending transactions of the maturing securities after the start of the relevant periods.
Initial Margin
A margin ratio is applied to securities wholly lent versus cash by the RBA and the collateral held by the RBA. This is done in accordance with the rules applying to reciprocal purchase transactions in the RITS Regulations and the RBA website.
Margin Calls
Margin calls are conducted in accordance with the rules applying to reciprocal purchase agreements as set out in the RITS Regulations and the RBA website.
In the normal course, margin payments made by either the RBA, or the counterparty, will be met by a free of cash transfer of the required collateral securities in Austraclear. The use of cash will not be permitted for meeting margin calls.
Interest Rates
Interest is payable only in respect of open and fixed term securities lending transactions.
- The interest rate payable by a counterparty on cash lent by the RBA under a reverse repurchase agreement against the collateral securities will be the rate on Exchange Settlement balances.
- The interest rate payable to a counterparty on cash borrowed by the RBA under a repurchase agreement against the AGS will be 25 basis points below the rate on Exchange Settlement balances.
In the case of an intraday securities lending transaction, the counterparty will be subject to charges applied by the RBA to reflect fees levied by Austraclear on the RBA in relation to the transaction.
Reporting
Details regarding bonds on loan to counterparties at the end of each day are updated each business day on the RBA's electronic news service pages (Bloomberg – RBAO6 and LSEG – RBA37, RBA38 and RBA39).
Historical data on bonds lent on an open term basis via the facility can be found in the Transactional Data section of our Data Hub. This data set is updated on or before the fifth business day of each month.
