INTRA-DAY REPURCHASE AGREEMENT FACILITY

This document is intended primarily for Exchange Settlement (ES) account holders that use, or plan to use, the Reserve Bank of Australia's (RBA) intra-day repurchase agreement facility. It outlines key issues such as who may use the facility, the types of securities in which the RBA will deal and the trade process itself.

Eligibility

Access to the facility is available to all ES account holders, unless precluded by special terms and conditions relating to an individual institution's ES account.

Transaction Type

Eligible ES account holders access liquidity through the facility by entering into a repurchase agreement with the RBA. Any such transactions are governed by the terms of The Bond Market Association/International Securities Market Association (TBMA/ISMA) Global Master Repurchase Agreement as amended by the terms set out in Exhibit B of the RITS Regulations.

Hours of Access

The facility is available when RITS (the Australian RTGS system) is open for settlement. RITS is open from 07:30 until 18:30 during Australian Eastern Standard Time and from 07:30 until 20:30 during Australian Eastern Daylight-saving Time. Within this period, settlement is not possible between 08:45 and 09:15 and between 17:15 and 17:25.

All eligible ES account holders are able to enter into and unwind intra-day repurchase agreements with the RBA during these hours. Those ES account holders that are not 'evening-agreed' banks should contact the RBA Domestic Markets Desk if they intend to unwind intra-day repurchase agreements after 17:15.

Eligible Securities and Instruments

Under this facility, eligible ES account holders may sell to the RBA, under repurchase agreement, any debt security that is eligible for the RBA’s open market operations. A list of eligible securities and detail of the criteria for eligibility can be found on the Eligible Securities page on this website.

Repo Rate

The repo rate for these transactions is zero per cent. The proceeds for the first leg are determined by the current market value of the securities being sold to the RBA. The proceeds for the second leg equal the first leg proceeds plus transaction costs.

Initial Margin

The RBA requires the ES account holder to provide an initial margin on intra-day repurchase agreements.  The initial margin will vary with the type of securities given as collateral:

• For ‘General Collateral’ (i.e. securities issued or guaranteed by the Commonwealth Government, issued by State and Territory central borrowing authorities, certain supra-national organisations, foreign governments and agencies) as well as bills and CDs issued domestically by an ADI  with an ES account at the RBA, the margin is 2 per cent.
• For other short-term debt securities (CP and ABCP), as well as long-term asset-backed securities (e.g. CMBS, RMBS), the margin is 10 per cent.
• For other long-term securities, the margin varies with the maturity and credit rating as follows:
  

  ---

  Margins by Time to Maturity and Credit Rating
  Percentage of market value of security

  ---

  Time to Maturity	0-1 years	1-5 years	5-10 years	> 10 years
  AAA-Aa3	2.0	4.0	6.0	8.0
  A1-A3	2.0	5.0	7.0	9.0

  
  

Where ratings are split, the lowest will apply in determining the margin. Note that for securities rated below AAA, only securities issued by ADIs will be eligible.

• For eligible AAA-rated residential mortgage-backed securities (RMBS), which have been accepted from a related party, the 10 per cent is applied to the ‘Valued Assets’ underlying a security. Valued Assets comprise:
  • Prime domestic full-doc residential mortgages insurable by an acceptable mortgage insurer, and
  • similarly qualified low-doc residential mortgages but only up to a maximum equivalent to 10 per cent of the value of all assets underlying a security.

Mortgages in the pool underlying a RMBS that do not meet the requirements for Valued Assest will be fully discounted by the RBA. For example, assume that Valued Assets underlying a $100 RMBS amount to $95. In this case, the RBA will provide $86.36 ($95 divided by 1.1) for the $100 of RMBS.

• For eligible P-1-rated asset-backed commercial paper (ABCP), which have been accepted from a related party, the 10 per cent margin is applied to the ‘Valued Assets’ underlying a security. Valued Assets comprise:
  • Prime domestic full-doc residential mortgages (including in securitised form) insurable by an acceptable mortgage insurer, and
  • similarly qualified low-doc residential mortgages (including in securitised form) but only up to a maximum equivalent to 10 per cent of the value of all assets underlying a security.

  Mortgages in the pool underlying an ABCP that do not meet the requirements for Valued Assest will be fully discounted by the RBA. For example, assume that Valued Assets underlying a $100 ABCP amount to $85. In this case, the RBA will provide $77.27 ($85 divided by 1.1) for the $100 of ABCP.

Issuers of eligible RMBS and ABCP must provide the RBA with information on the composition of the collateral pool underlying each security or program, respectively, so that the RBA can apply the correct margin to the security. This information should be reported by emailing a completed Mortgage Collateral Pool Reporting form to eligible_securities@rba.gov.au.

The Automated Intra-day Repurchase Agreement Function (RBA Repo)

All eligible debt securities and those discount instruments issued by the Commonwealth and the central borrowing authorities of Queensland and Western Australia are lodged in the Fixed Interest System (FIS) module of the Austraclear System. This module offers functionality that enables users to undertake intra-day repurchase agreements with the RBA on a unilateral basis. For advice on using this functionality, contact the Austraclear Help Desk (1300 362 257).

The remaining discount instruments are lodged in the Discount Security System (DSS) module of the System. Repos invovling these securities are traded as outright sales and purchases. The trade details for transactions using these instruments must be agreed with the Domestic Markets Desk (+61 2 9551 8321).

Transaction Fees

Eligible ES account holders taking out intra-day repurchase agreements will incur transaction fees.

• Austraclear charges a fee of $3.00 plus GST per leg per line of stock for repurchase agreements using RBA repo.
• Austraclear charges a fee of $11.00 plus GST per leg per line of stock for repurchase agreements using securities lodged in the DSS Module.
• ES account holders taking out an intra-day repurchase agreement in DSS stock are also required to reimburse the RBA for its Austraclear fees (also $11.00 per leg per line of stock plus GST). Reimbursement to the RBA will be effected through the unwind consideration (see the section entitled ‘Trade Procedures’ below, at point 5).
• As with all movements across ES accounts, the standard RTGS fee of $0.88 will also apply to the settlement of each leg and will be charged in the normal way.

Trade Procedures

The following outlines the procedures to follow when transacting an intra-day repurchase agreement with the RBA involving government and supranational debt securities and discount instruments.

Intra-day Repurchase agreements Using RBA Repo

When using RBA Repo, the borrower transacts with the RBA at prices that are set and pre-loaded into the System by the RBA. These prices are derived from prevailing market yields/rates and are calculated using the relevant RBA or AFMA pricing formula. The prices are updated daily and more often in the event of significant intra-day market movements.

ES account holders entering into such transactions are not required to contact the Domestic Markets Desk to agree trade details.

Intra-day Repurchase Agreements not using RBA Repo

Trade procedures are as follows:

1. The RBA's Domestic Markets Desk (+61 2 9551 8321) should be contacted at least 20 minutes prior to the end of the relevant RITS session to allow time for the transaction to be completed. The counterparty advises the RBA dealer of the face value, maturity and issuer of each line of stock it proposes to sell under intra-day repurchase agreement. The counterparty and the RBA will then agree the yield and first and second leg considerations for each line of stock.
2. The yield on the security/instrument will be based on prevailing market levels. Where the RBA cannot identify a timely market yield or price for a specific security, the security will be valued at 90 per cent of par value until a market price can be identified from a recognised and independent source.
3. The first leg consideration will be calculated using the standard Treasury Note pricing formula (i.e. the pricing formula specified in Section 3.1.18 of the AFMA Negotiable/Transferable Instruments OTC Market Conventions).
   
   

   P	=
   Where: P	=	First leg consideration
   FV	=	Face value of instrument
   r	=	The market yield (expressed as a decimal)
   t	=	The fraction of a year from settlement until maturity

   For example, assume that on 1 July 2003, ABC Bank calls the RBA and contracts an intra-day repurchase agreement using a NSW Treasury Corporation promissory note (PN) with a face value of $100,000,000. The maturity date of the PN is 2 October 2003 (93 days from trade date), and it is agreed that the market yield is 4.98 per cent.

   The first leg proceeds will be calculated as follows:

   First Leg Consideration	=
   	=	$96,810,805.92

   4. The unwind consideration will be calculated as follows:
      
      

      Unwind Consideration	=	First Leg Consideration + Reimbursement of the RBA's Austraclear fees
      	=	$96,810,805.92 + $24.20
      	=	$96,810,830.12

      
      
   5. The transaction will then be entered into the Discount Securities System in the Austraclear System. RBAA25 should be used as the counterparty, unless bank bills and certificates of deposit are used as collateral. In this case, RBAA26 is the counterparty. Once the first leg of the trade settles, the RBA will enter the second leg as soon as possible. This will allow the counterparty to settle the second leg of the trade immediately when funds are available.

Using the Overnight Repurchase Agreement Facility

In the normal course, the RBA expects that intra-day repurchase agreements will be unwound by the close of RITS on the same day that they are initiated.

In the event that an ES account holder is unable to unwind the transaction by the close of RITS, it must contact the RBA's Domestic Markets Desk to request an extension of the value date of the second leg to the next business day. By making such a request, the ES account holder is in effect requesting to use the Overnight Repurchase Agreement Facility. In the case of a non-evening agreed bank, the RBA should be advised prior to the close of the RITS Settlement Close Session if the bank is unable to unwind the transaction and intends to participate in the Evening Session in order to source funding.

The procedures for using the Overnight Repurchase Agreement Facility are outlined in the Operational Note.

Any queries on this matter should be directed to the RBA's Domestic Markets Desk on +61 2 9551 8321.