LONG-DATED LIQUIDITY OPERATIONS

The Reserve Bank's main liquidity management operations are conducted each morning at about 10.15 am. These involve repurchase agreements and outright transactions in short-dated bonds (bonds with less than around 18 months remaining to maturity). The Reserve Bank announced in March 2004 that these operations would be supplemented by longer-dated liquidity operations. These involve purchases of longer-dated Treasury and State government bonds and are subject to the following arrangements:

Eligible Securities

The following securities are eligible in the Reserve Bank's Long-dated Liquidity Operations.

• Commonwealth Government Securities (CGS)
  • Treasury Bonds with remaining maturities greater than around 18 months.
• Securities Issued by Australian State and Territory Borrowing Authorities (Semis)
  • Domestic fixed income bonds – specifically, those recognised as liquid, benchmark securities – with remaining maturities greater than around 18 months. Securities must be lodged in Austraclear at the time they are offered to the Reserve Bank.

For the present, the Reserve Bank does not purchase inflation-linked securities or securities with embedded options of any kind.

Eligible Counterparties

Any member of RITS that is able to execute and settle transactions with the Reserve Bank through the Austraclear System is eligible to participate in the operation.

Timing

Transactions normally take place around once a month.

Announcements

The Reserve Bank announces its intention to conduct a Long-dated Liquidity Operation on electronic news services (Reuters – RBA37; Bloomberg – RBA19) normally around 2.30 pm on the day of the operation. The announcement indicates:

• the types of securities the Reserve Bank will buy (i.e. CGS, Semis, or both);
• the broad range of maturities;
• the time within which approaches are to be submitted; and
• the settlement date.

The announcement also shows the maximum face value of securities the Reserve Bank expects to purchase in the operation (though it does not guarantee to purchase this maximum).

Approaches

Market participants normally have 15 minutes to make offers to the Reserve Bank. Approaches must be made to the Domestic Markets Desk by telephone (on +61 2 9551 8321 or direct line). All calls are recorded.

Offers cannot be submitted, changed or withdrawn after the cut-off time for submissions has passed.

Approaches should be made on a face value basis.

In the normal course of events, a minimum of $10 million per approach for a specific line of stock will apply, though smaller amounts may be considered by the Reserve Bank at its discretion.

There is no limit on the number of approaches that a participant can make.

Participants must state the details of the security – i.e. the issuer, coupon, and maturity – at the time the approach is made. Offers should be expressed as a yield to maturity and stated to three decimal places.

Allocation

Allocation of the operation is made on a relative value basis, subject to the Reserve Bank's portfolio considerations.

Approaches may be partially filled. Multiple successful approaches for a given security or for several securities with maturities that are similar, but not necessarily identical, are filled on a pro-rata basis.

An approach exceeding the maximum amount indicated by the Reserve Bank for the Long-dated Liquidity Operation is regarded as equal to the maximum amount for calculating pro-rata allocations.

Approaches that are partially filled are rounded up to the nearest million.

Notification

The Reserve Bank notifies all participants by phone of the success or otherwise of their approach. This will be done as soon as possible after the cut-off time for approaches, in the normal course within 15 minutes. Successful offers are to be confirmed by the counterparty at that time.

Results are published on electronic news services (Reuters – RBA41; Bloomberg – RBA20) shortly after the operation. These include the face value and the weighted average and cut-off yields for each security purchased.

Settlement

Securities purchased by the Reserve Bank through this operation are settled on a T+3 basis.

The consideration of an outright transaction is determined by the yield accepted by the Reserve Bank and the bond pricing formula for government securities set out in AFMA's Debt Securities Conventions. This may be found at http://www.afma.com.au then selecting Practices, Standards & Documentation > OTC Market Conventions > Debt Securities > 3.1.18 Pricing formulae.

Settlement of all securities must be processed through the Austraclear system. The Austraclear System Day Session is open between 9.15 am and 4.30 pm. Settlement should be completed by the close of the Day Session. Requests for session extensions should be made directly to Austraclear via the Austraclear Help Desk (1300 362 257).

If at any stage a counterparty believes that it will fail to deliver securities to the Reserve Bank, it should immediately contact the Domestic Markets Desk (+61 2 9551 8321).